The New SALT Cap: $40,000 for 2025
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, raised the SALT deduction cap from $10,000 to $40,000 ($20,000 for Married Filing Separately). This replaced the TCJA cap that was in effect from 2018-2024.
Authority: IRC §164(b)(6)(H) as amended by OBBBA.
| Tax Year | SALT Cap (MFJ/Single/HOH) | SALT Cap (MFS) |
|---|---|---|
| 2018-2024 (TCJA) | $10,000 | $5,000 |
| 2025 (OBBBA) | $40,000 | $20,000 |
| 2026-2029 | Increases 1% annually | Increases 1% annually |
| 2030+ | Reverts to $10,000 | Reverts to $5,000 |
The Phase-Down for High Earners
The $40,000 cap phases down for higher-income taxpayers:
- Phase-down begins at $500,000 MAGI ($250,000 MFS)
- Reduction rate: 30% of excess MAGI over the threshold
- Floor: cap cannot go below $10,000 ($5,000 MFS)
Worked Example
MFJ filer with $600,000 MAGI:
- Excess over $500,000 = $100,000
- Reduction = 30% × $100,000 = $30,000
- Effective SALT cap = $40,000 - $30,000 = $10,000 (hits the floor)
At MAGI of $600,000+, you're effectively back at the old $10,000 cap. This is where NJ BAIT and NY PTET become critical.
NJ BAIT: Bypassing the SALT Cap
New Jersey's Business Alternative Income Tax (BAIT) is an entity-level income tax that pass-through businesses can elect. Because it's an entity-level tax, it's deductible on the federal return without being subject to the individual SALT cap.
Authority: N.J.P.L. 2020, c.117
Who qualifies: S-Corporations, partnerships, and LLCs taxed as partnerships. Must make annual election.
How it works:
- Entity elects BAIT and pays NJ income tax at the entity level
- Entity gets unlimited federal deduction for BAIT paid
- Individual members/shareholders get NJ tax credit for their share
- No double taxation — credit offsets individual NJ liability
Even with the higher $40,000 SALT cap, BAIT still provides benefit for owners with income above $500,000 (phase-down zone) or whose combined SALT exceeds the cap.
NY PTET: New York's SALT Cap Workaround
New York's Pass-Through Entity Tax (PTET) works similarly to NJ BAIT. Authority: NY Tax Law Article 24-A.
| PTE Taxable Income | NY PTET Rate |
|---|---|
| $0 – $2,000,000 | 6.85% |
| $2,000,001 – $5,000,000 | 9.65% |
| $5,000,001 – $25,000,000 | 10.3% |
| Over $25,000,000 | 10.9% |
Election must be made by March 15 of the tax year. Entity pays NY PTET on entity income, individual partners/shareholders claim credit on personal return.
Frequently Asked Questions
What is the SALT deduction cap for 2025?
The SALT deduction cap for 2025 is $40,000 ($20,000 for Married Filing Separately), as set by the One Big Beautiful Bill Act (OBBBA). This replaced the $10,000 TCJA cap. The cap phases down at 30% of MAGI exceeding $500,000, with a floor of $10,000. Authority: IRC §164(b)(6)(H).
Is the SALT cap still $10,000?
No. The $10,000 SALT cap was the TCJA amount from 2018-2024. For 2025, the OBBBA raised it to $40,000. However, for high earners (MAGI above $500,000 for single/$500,000 MFJ), the cap phases down and can effectively return to the $10,000 floor.
What is NJ BAIT and how does it bypass the SALT cap?
NJ BAIT (Business Alternative Income Tax) is an entity-level income tax that S-Corps, partnerships, and LLCs can elect. Because it's paid at the entity level, it's deductible on the federal return without being subject to the individual SALT cap. Individual owners get a NJ tax credit to avoid double taxation. Authority: N.J.P.L. 2020, c.117.
Is NJ BAIT still worth it with the $40,000 SALT cap?
Yes, for many taxpayers. BAIT remains valuable for owners with MAGI above $500,000 (where the SALT cap phases down), owners whose combined SALT exceeds $40,000, and multi-state operations. For owners well under $500,000 MAGI with SALT under $40,000, the benefit may be minimal.
What is NY PTET?
NY PTET (Pass-Through Entity Tax) is New York's SALT cap workaround, similar to NJ BAIT. It's an elective entity-level tax for partnerships and S-Corps under NY Tax Law Article 24-A. Rates range from 6.85% to 10.9%. Election must be made by March 15 of the tax year.