Trump’s tax law includes a $40,000 SALT cap. Here’s who qualifies.

The new GOP tax law quadruples how much people can deduct in state and local taxes off their federal returns, offering significant relief to high earners in many Democratic-led states by partially undoing a big change in President Donald Trump’s 2017 law.

That 2017 law, the Tax Cuts and Jobs Act, limited the deduction to $10,000 a year, imposing a cap for the first time as a way of reducing the bill’s overall cost. Residents of high-tax states — and their representatives in both parties in Congress — had sought to raise the limit since then. But the push this year set off a major fight within the GOP, as most beneficiaries of the change are in Democratic-run areas.

The higher cap — set at $40,000 for filers making under $500,000 per year — is temporary, lasting only five years. Filers earning more than $500,000 will see gradually diminishing benefits, deducting less than the full $40,000, above that threshold. At more than $600,000 in annual income, deductions will remain capped at the prior rate of $10,000. The $40,000 cap applies per tax return, offering no additional benefit to married couples filing jointly. It is also indexed to rise by 1% each year to account for increases in the cost of living.

After 2030, the cap reverts permanently to $10,000 for everyone. That provision limits the official price tag for the GOP tax law over the next 10 years, but lawmakers in both parties are certain to push for an extension of the higher cap, just as they pushed to raise it this year.

“The taxpayers of New York State will soon receive huge relief thanks to the deal the SALT Caucus brokered with Speaker Johnson and President Trump,” Rep. Michael Lawler (R-New York), a leader of the Congressional SALT Caucus, which had demanded the higher cap, said in a statement last week. “With President Trump’s support, the bipartisan SALT Caucus succeeded in quadrupling the SALT deduction, which will be a massive lift to millions of New Yorkers.”

Still, conservative and liberal budget experts alike say the revision is far more generous than ideal. The new law not only raises the cap but also weakens the alternative minimum tax, which is designed to ensure that high-income households pay a minimum level of tax even after claiming such large deductions as SALT. While the AMT previously curtailed the value of SALT and other deductions, the expanded exemptions — now extended — mean it no longer significantly limits tax breaks for most high-income households.

Compared with leaving the $10,000 cap in place, the new limit will cost the federal government roughly $130 billion over the next five years, according to Marc Goldwein, senior vice president of the nonpartisan Committee for a Responsible Federal Budget. If the $40,000 cap is extended before it expires, as appears likely, the provision’s total price tag would probably be more than $250 billion over the next decade, Goldwein said.

Experts have also noted that current law allows taxpayers to deduct state and local taxes from their business income, creating a potential loophole for filers to reclassify their earnings. The GOP tax law does not address that issue.

“Instead of building on the TCJA, this bill is undermining it,” Goldwein said, referring to the Tax Cuts and Jobs Act. “The SALT cap helped simplify the tax code and improve fairness and efficiency. But rather than closing the SALT work-around or equalizing treatment for corporations, Congress opted to expand the SALT deduction — and their expansion is far more generous than either the House or original Senate approach.”

The issue has divided Republicans since 2017, and it appeared at several points during negotiations to threaten the tax package overall. In private conversations last month, Trump had indicated to Senate Republicans that he was open to raising the cap — but not as high as $40,000. Republicans from low-tax states such as Iowa and Idaho strongly objected to providing that much relief, teeing up what appeared likely to prove a major confrontation.

Instead, rural Republicans largely agreed to drop their objections as Trump pushed for swift passage of the legislation. That decision deepened criticism of the legislation from policy experts, who had already argued that the bill was too favorable to affluent households. The $500,000 income threshold limits how much relief goes to the wealthy, but the benefits of the higher cap still overwhelmingly flow to the top 20% of earners, since only those with high incomes have large local and federal tax burdens or enough deductions to itemize, said Steve Wamhoff, a tax expert at the Institute on Taxation and Economic Policy, a left-leaning think tank.

The top 20% of earners were already paying roughly 96% of the taxes that limiting the deduction incurred, Wamhoff said. The new cap just “shifts the burden within the richest 20%,” he said.

The new law lowers taxes for high earners in other ways beyond allowing the additional $30,000 in deductions for state and local taxes, Wamhoff said. It extends the cut to the top tax rate, raises and makes permanent a higher estate tax exemption, and reduces a number of business taxes, among other changes that benefit the wealthy.

“SALT cap or no SALT cap, the mega bill overall is a bonanza for the rich in every state,” Wamhoff said.

Advocates of scrapping or limiting the SALT cap have long argued that doing so will benefit middle-class taxpayers in high-tax jurisdictions. Lawmakers in both parties have also maintained that the cap has made it harder for state and local governments to raise tax revenue needed to fund schools and other municipal services.

“Capping the SALT deduction has resulted in double taxation by forcing constituents to pay federal tax on money they have already paid to state and local governments,” U.S. Rep. Brad Schneider of Highland Park said this year.

But the GOP leaders who implemented the cap in 2017 saw it not only as a revenue raiser, but also as a way to discourage state governments from taxing the rich — while keeping the largest tax cuts concentrated in red states with lower taxes. Their willingness to retreat from the original cap reflects a partial recognition that the Republican Party’s path to controlling the House runs through districts in Democratic-run areas, even as tax experts insist the cap should have been kept in place.

“Congress had the opportunity to make the tax code simpler and fairer,” Goldwein said. “Instead, they chose to make it more generous — and more complicated — in ways that mostly benefit those already doing quite well.”