On June 28, 2025, Senate Republicans released their updated version of the One Big Beautiful Bill Act (OBBBA), moving closer to finalizing their sweeping tax reform package ahead of a self-imposed July 4 deadline. A key feature of the Senate proposal is a significant, though temporary, increase to the state and local tax (SALT) deduction cap, paired with a phaseout for high-income taxpayers.
Under the proposal, the SALT deduction cap would rise from $10,000 to $40,000 beginning in 2025. The cap would increase to $40,400 in 2026 and would continue to rise by 1% per year through 2029. Starting in 2030, the cap would revert to $10,000.
To limit the benefit for high-income taxpayers, the bill includes a phaseout provision. For tax years before 2030, the SALT deduction cap would be reduced by 30% of the excess of modified adjusted gross income (AGI) over a threshold amount. The threshold is:
- $500,000 in 2025
- $505,000 in 2026
- Indexed at 101% per year for 2027 through 2029
This version substantially revises the SALT cap and is much more limited in its implementation of the cap than the version that it is proposed to replace. One notable aspect of this latest Senate draft is what it does not include. Despite the earlier Senate and House proposals to curb the use of pass-through entity tax (PTET) workarounds, this new version of a Senate bill does not contain any provisions disallowing or limiting the federal deduction for PTET payments. The PTET workaround, which allows pass-through entities to pay state taxes at the entity level and thus bypass the individual SALT cap, remains untouched in this draft. If this version of a Senate bill moves forward as is, this will be major point for reconciliation between the House and Senate versions with respect to the SALT deduction.
Stay tuned for ongoing updates on the SALT cap as changes may be happening as frequently as daily as efforts continue to finalize and pass the bill within the coming week.