The Daily TLDR

Ever wondered how your state and local taxes play a role in your federal tax bill? Welcome to the fascinating, and sometimes frustrating, world of the State and Local Tax (SALT) deduction!

Once upon a time, before 2017, this deduction was a magical, unlimited shield. It allowed families to significantly lower their federal taxable income by subtracting all the money they'd already paid to state and local governments through income, sales, and property taxes. Think of it as a double-taxation avoidance superpower that helped fund essential local services like roads, bridges, and schools without federal interference.

But then came 2017, and Congress decided to play spoiler, capping this once-unlimited deduction at a mere $10,000. This wasn't just a minor tweak; it unleashed a major headache, especially for homeowners in areas with sky-high real estate values like the greater New York region. Suddenly, many families found themselves paying federal tax on income already taxed by their state and local governments!

Fast forward to today, and the SALT cap is back in the spotlight! Congress's new tax and spending bill is looking to tackle this problem head-on. According to recent reports, the deduction is set to see a significant increase to $40,000 for 2025, thanks to President Donald Trump's "big beautiful bill." This change isn't just a win for the usual suspects in "big bad blue states" like New York, California, and New Jersey; states like Florida and Texas are also realizing this policy applies to them and could benefit!

Of course, no major tax policy comes without its detractors. Critics argue against making up for "rich folks in New York who are getting raped by their local and state governments," highlighting the contentious nature of who truly benefits from these changes.

So, whether you're a homeowner, a taxpayer, or just curious about the intricate dance between federal and local taxes, the SALT deduction remains a hot topic with a rich history and an evolving future!