SALT Cap Raised to $40,000: What Maryland Homeowners and Business Owners Need to Know

What Is the SALT Deduction and Why Did It Matter?

The state and local tax (SALT) deduction allows individuals who itemize on their federal return to deduct taxes paid to state and local governments — including state income tax, local income tax, and property taxes. Before 2018, this deduction was unlimited. A Maryland homeowner paying $25,000 in combined state income tax and property taxes could deduct the full $25,000 on their federal return.

The 2017 Tax Cuts and Jobs Act changed that dramatically, capping the SALT deduction at $10,000 per year regardless of actual taxes paid. For Maryland taxpayers — who pay some of the highest combined state and local taxes in the country — this cap eliminated a significant portion of their federal deduction overnight. A Frederick County homeowner paying $12,000 in state income tax and $8,000 in property taxes suddenly lost $10,000 in federal deductions that had been available for decades. For a full overview of how the OBBBA affects Maryland taxpayers, see our complete OBBBA guide.

What the One Big Beautiful Bill Act Changed

The OBBBA, signed July 4, 2025, raises the SALT deduction cap from $10,000 to $40,000 for tax years 2025 through 2029. The increased cap phases out for higher-income taxpayers and is set to sunset after 2029 unless extended by future legislation.

How the Phaseout Works

The $40,000 SALT cap is not available to all taxpayers equally. For taxpayers with modified adjusted gross income (MAGI) above $500,000, the cap phases down — reducing by $200 for every $1 of income above the threshold until it reaches the original $10,000 floor.

For most Frederick County taxpayers — families, small business owners, and professionals earning under $500,000 — the full $40,000 cap is available. High-income earners above $500,000 see a reduced benefit, and those above $650,000 are effectively still at the $10,000 cap.

What This Means for Frederick County Homeowners

Frederick County residents pay a combination of Maryland state income tax, Frederick County local income tax, and Frederick County property tax. Here's how those add up for a typical homeowner:

Under the old $10,000 cap, a Frederick County family with $25,000 in combined SALT could only deduct $10,000 — losing $15,000 in federal deductions. Under the new $40,000 cap, that same family can deduct the full $25,000. At a 22% federal tax bracket, that's $3,300 in additional federal tax savings per year.

Should You Now Itemize Instead of Taking the Standard Deduction?

The SALT cap increase may change whether itemizing makes sense for your family. Many Maryland taxpayers switched to the standard deduction after 2018 because the $10,000 SALT cap made their total itemized deductions smaller than the standard deduction. With the cap now at $40,000, itemizing may be worthwhile again.

The 2025 standard deduction is $15,750 for single filers and $31,500 for married filing jointly. If your total itemized deductions — SALT, mortgage interest, charitable contributions, and other allowable deductions — exceed these amounts, you should itemize. For many Frederick County homeowners with significant SALT and mortgage interest, itemizing will now produce a larger deduction than the standard deduction.

The SALT Cap and the Maryland PTE Election — How They Interact

For Maryland S-Corp owners and partnership members, the SALT cap increase interacts with the Maryland Pass-Through Entity (PTE) tax election in important ways. The PTE election was designed specifically to work around the SALT cap — allowing Maryland business owners to deduct their Maryland income tax at the entity level as a business expense rather than as an individual SALT deduction subject to the cap.

With the SALT cap now at $40,000, some business owners wonder whether the PTE election is still necessary. The answer depends on your specific situation:

• If your total SALT is under $40,000 — your Maryland income tax may now be fully deductible at the individual level, reducing the benefit of the PTE election
• If your total SALT exceeds $40,000 — the PTE election still provides a deduction for the Maryland income tax that exceeds the individual SALT cap
• If your income is above $500,000 — the SALT phaseout means your effective cap may be well below $40,000, making the PTE election more valuable
• The cap sunsets in 2029 — planning beyond 2029 still favors having the PTE election structure in place

This is an analysis that requires running your actual numbers. See our detailed article on the Maryland PTE tax election for a full breakdown, and our Maryland Tax Guide for context on Maryland's overall tax structure.

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What Does Not Change — Important Limitations

The $40,000 Cap Is Per Return, Not Per Person

Married couples filing jointly share a single $40,000 SALT cap. There is no doubling of the cap for joint filers — a married couple pays the same $40,000 cap as a single filer. This is the same structure as the original $10,000 cap.

Married Filing Separately Is Still Penalized

Taxpayers who file separately each get a $20,000 SALT cap — half of the joint cap. In most cases, this makes married filing separately less advantageous than filing jointly for SALT purposes.

The Cap Sunsets After 2029

The $40,000 SALT cap is temporary — it applies to tax years 2025 through 2029 and reverts to $10,000 in 2030 unless Congress extends it. Planning for 2030 and beyond should account for the possibility of reversion to the lower cap.

Alternative Minimum Tax Still Applies

Taxpayers subject to the Alternative Minimum Tax (AMT) cannot deduct SALT at all under the AMT calculation. The OBBBA raised the AMT exemption and phaseout thresholds, which reduces the number of taxpayers subject to AMT — but high-income taxpayers who remain in AMT territory still cannot benefit from the SALT cap increase under the AMT system.

Planning Steps for Frederick County Taxpayers

• Recalculate whether to itemize — run the numbers for 2025 with the new $40,000 SALT cap and compare to the standard deduction
• Review S-Corp PTE election — determine whether the PTE election still produces a net benefit given your SALT position and income level
• Consider bunching charitable contributions — if you're close to the itemizing threshold, bunching two years of charitable giving into one year can push you over the standard deduction in alternating years
• Prepay property taxes strategically — since SALT is now capped at $40,000, prepaying property taxes in December for the following year only helps if you have room under the cap
• Plan for 2029 sunset — the cap returns to $10,000 in 2030 under current law. Long-term financial planning should model both scenarios

Frequently Asked Questions

Can I deduct both state income tax and property tax under the $40,000 cap?

Yes — the $40,000 cap covers all state and local taxes combined, including state income tax, local income tax, and property taxes. You add all of them together and deduct up to $40,000. If your combined SALT is $35,000, you deduct $35,000. If it's $50,000, you deduct $40,000 and the remaining $10,000 is not deductible at the individual level.

Does the SALT cap increase affect my Maryland return?

No — the SALT cap is a federal provision only. Maryland does not have a SALT cap. Maryland residents deduct their actual state and local taxes paid on their Maryland return without any cap limitation. The $40,000 cap only affects your federal itemized deductions.

I switched to the standard deduction in 2018 because of the SALT cap. Should I switch back to itemizing?

Possibly. Run the numbers for 2025 by adding up your SALT (now up to $40,000), mortgage interest, and charitable contributions. If the total exceeds $31,500 (married filing jointly) or $15,750 (single), itemizing produces a larger deduction. Many Frederick County homeowners who switched to the standard deduction in 2018 will find itemizing advantageous again starting in 2025.

What happens to the SALT cap after 2029?

Under current law, the $40,000 SALT cap expires after December 31, 2029 and reverts to $10,000 in 2030. Whether Congress extends the higher cap beyond 2029 is a political question that cannot be predicted. Long-term financial planning should model both outcomes.