💸 Tax Savings Alert! Squeezing the Most from the New SALT Cap

Great news for taxpayers in high-tax states! A new tax law has temporarily raised the federal deduction cap for State and Local Taxes (SALT) from $10,000 to $40,000 for tax year 2025. This change creates a significant tax-saving opportunity for many, particularly those in blue states with higher income and property taxes.

This expanded deduction is an itemized deduction, meaning it's only valuable if your total itemized deductions (including mortgage interest, charitable donations, etc.) exceed the standard deduction ($15,750 for individuals and $31,500 for married couples filing jointly in 2025).

Here is a summary of who may benefit most and some key moves you can make before the end of the year to potentially utilize this tax break.

Your Plan for Maximizing the SALT Cap, Based on Income

The strategies for claiming the most significant deduction depend heavily on your Adjusted Gross Income (AGI).

Taxpayers with AGI Under $500,000 (The Sweet Spot)

If your AGI is under this threshold, you qualify for the full $40,000 deduction.

• Action Plan:

  • Accelerate Payments: Try to pay estimated state and local taxes (like the payment often due in January 2026) before December 31, 2025. This will "pack" more deductible state tax into the 2025 tax year, helping you hit or get closer to the full $40,000 limit.

  • "Bunch" Itemized Deductions: Consider accelerating other itemized deductions, like charitable contributions, into 2025. This is especially important for future planning: starting in 2026, itemized charitable deductions won't kick in until they exceed 0.5% of your income. Max out your itemized deductions this year, then take the standard deduction next year—a strategy known as "bunching."

Taxpayers with AGI Between $500,000 and $600,000 (The Phase-out Zone)

In this range, the benefit of the deduction starts to shrink by $300 for every $1,000 your AGI increases over $500,000.  A $1,000 increase in wages could cost over $500 in combined federal, state, and Medicare taxes, plus the penalty of a shrinking SALT deduction.

• Action Plan:

  • Focus on Lowering AGI: Your best strategy is to reduce your AGI now to lessen the phase-out penalty.

  • Increase Pre-tax Contributions: Max out contributions to pre-tax accounts like a 401(k) or Health Savings Account (HSA).

  • Defer Income: If you own a business, you could defer sending invoices or collecting payments until early January 2026 to push the income into the next tax year.

  • Use Tax-Exempt Investments: Consider shifting assets from taxable accounts (like money-market funds) to tax-exempt municipal bonds.

  • Qualified Charitable Distributions (QCDs): If you are age 70 1/2 or older, and subject to the required minimum distribution (RMD), making a direct QCD from your IRA can reduce the amount that would otherwise be included in your AGI. See Blog post https://www.synergywm.net/post/qualified-charitable-distributions

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Taxpayers with AGI Over $600,000 (Back to the $10,000 Cap)

Once your AGI hits $600,000, your individual SALT deduction reverts to the original $10,000 limit.

• Action Plan:

  • Pass-Through Entity Tax (PTET) Workarounds: If you own a closely held business (like a partnership or S-corporation), your state may offer an elective Pass-Through Entity Tax (PTET). This allows the company to pay and deduct the state income tax at the entity level, which is not subject to your individual $10,000 SALT cap. The federal government allows this tax to be fully deductible as a business expense.

  • Irrevocable Trusts: For high property taxes, complex planning with a nongrantor irrevocable trust may be an option. The trust is treated as a separate taxpayer and may be eligible to take the full $40,000 SALT deduction on assets it holds (such as a vacation home), even if you personally are subject to the $10,000 cap. This requires careful planning with an estate lawyer.

⚠️ Important Note: The increased SALT cap is temporary and is scheduled to revert to $10,000 in 2030 unless Congress takes action to extend or change it. Act now to benefit while the cap is higher!

Source:

IRS.gov How to update withholding to account for tax law changes for 2025.

Wall Street Journal Article, “How to Squeeze the Most From the New SALT Cap” By Richard Rubin and Ashlea Ebeling. October 25, 2025.

Disclaimer:

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors and Synergy Wealth Management are separate entities. 

Neither Stratos nor Synergy Wealth Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation.