The SALT Cap Just Won Again

Taxpayers hoping the courts would blow up the SALT cap just got another bad sign.

A New Jersey district court dismissed a challenge to the cap in Sims, Civil Action No. 21-1120. The taxpayers argued that the SALT limit was unconstitutional. The court did not buy it.

This follows an earlier loss in the Second Circuit in New York v. Yellen. So the pattern is getting pretty clear.

The SALT cap is not going away through the courts anytime soon.

For tax pros, that matters. Clients in high-tax states are still going to feel squeezed. And they are still going to ask why they cannot deduct the full amount of taxes they paid.

The answer is simple, but not satisfying.

Congress capped it. The courts are leaving it alone.

How We Got Here

Before the Tax Cuts and Jobs Act, itemizers had a much better deal.

They could generally deduct state and local property taxes. They could also deduct either state and local income taxes or state and local sales taxes.

There was no $10,000 ceiling.

Then the TCJA changed the math.

Starting in 2018, the SALT deduction was capped at $10,000. That meant a taxpayer in a high-tax state could pay $50,000 in state and local taxes and still only deduct $10,000 on the federal return.

That is like paying for a full steak dinner and being allowed to expense the bread basket.

The cap hit clients in places like New York, New Jersey, California, Connecticut, and other high-tax states especially hard.

And because the TCJA also raised the standard deduction, many taxpayers stopped itemizing altogether. For those clients, the SALT deduction did not just shrink.

It disappeared.

The New Law Gives Some Relief

There is one bright spot.

The One Big Beautiful Bill Act raises the SALT cap from $10,000 to $40,000 beginning in 2025.

That is a real change.

For clients who still itemize, the higher cap may restore part of the deduction they lost under the TCJA. It does not bring back the old unlimited deduction, but it gives taxpayers more room.

From 2026 through 2029, the $40,000 cap increases by 1% each year. Then it is scheduled to fall back to $10,000 in 2030.

So the window matters.

This is not permanent relief. It is a temporary opening. Tax pros should treat it that way.

The Catch for High-Income Clients

Of course, there is a catch.

The new law includes a phase-out for higher-income taxpayers.

Once modified adjusted gross income goes above $500,000, the SALT deduction limit is reduced by 30% of the excess amount. That threshold also increases by 1% each year through 2029.

So a bigger cap does not mean every client gets a bigger deduction.

Some high-income taxpayers may see the benefit shrink fast. Others may still end up feeling like the cap barely moved.

That is where planning matters.

You cannot just tell clients, “Good news, the cap is now $40,000.”

For some clients, yes.

For others, not really.

The right answer depends on income, filing status, itemized deductions, state tax burden, and whether there is another planning path available.

The Workaround Still Matters

The biggest planning opportunity is still the pass-through entity workaround.

Many states have created SALT cap workarounds for owners of pass-through businesses. These include partnerships, S corporations, and LLCs treated as pass-through entities.

The basic idea is this:

The business pays the state tax at the entity level. Then the owner may receive a deduction or credit on the personal return.

That can help reduce the federal tax bite from the SALT cap.

The details vary by state. Some elections are annual. Some have strict deadlines. Some require estimated payments. Some only work for certain entity types.

But for the right client, this can be meaningful.

A pass-through owner in a high-tax state may not be stuck with the personal SALT cap if the state has a valid workaround.

That is the side door worth checking.

What Tax Pros Should Do Now

The court case does not change the rules. It confirms the reality.

The SALT cap is still alive.

The bigger $40,000 cap may help some clients starting in 2025. But the phase-out limits the benefit for higher earners. And the cap is still scheduled to drop back to $10,000 in 2030.

So this is not a “wait and see” issue.

Tax pros should review clients in high-tax states now, especially pass-through business owners. Look at whether the client’s state offers a workaround. Check the election deadline. Confirm the entity qualifies. Model the result before year-end.

This is the kind of planning clients do not notice until it saves them money.

Then they notice.