For taxpayers in high-tax states, the State and Local Tax (SALT) deduction remains a critical part of federal tax planning. With the $10,000 SALT cap still in place for 2025, understanding timing strategies, bunching deductions, and Alternative Minimum Tax (AMT) interactions can make a big difference in lowering your tax bill. Here’s the playbook for navigating SALT deductions in 2025.
What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize to deduct state and local income, sales, and property taxes. Since 2018, this deduction has been capped at $10,000 for individuals and married couples filing jointly. Taxpayers in states like California, New York, New Jersey, and Illinois feel the greatest impact because of higher property taxes and income tax rates.
Why 2025 Planning Matters
The $10,000 SALT cap is scheduled to remain in effect through 2025 unless Congress acts. This means taxpayers in high-tax states should maximize strategies now before possible changes in 2026. Effective planning can help reduce both current year liability and prepare for potential shifts in federal rules.
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Strategy 1: Timing State Tax Payments
One key move is to consider the timing of estimated state income tax payments. By paying your final 2025 state income tax bill before December 31, you may capture the deduction in the same year. However, this doesn’t work for everyone, especially if the AMT applies, since AMT rules disallow SALT deductions entirely.
Strategy 2: Bunching Deductions
Bunching means accelerating multiple years of deductible expenses into one tax year so that your total itemized deductions exceed the standard deduction. Common bunching tactics include:
- Prepaying property taxes (where allowed)
- Making multiple years of charitable donations in one year
- Accelerating medical expenses if they exceed AGI thresholds
Strategy 3: AMT Interactions
Taxpayers subject to the Alternative Minimum Tax (AMT) cannot deduct SALT at all, which makes SALT timing and bunching strategies irrelevant in those cases. High earners in high-tax states need to carefully project whether they’ll trigger AMT liability before prepaying taxes.
For example, if you’re in New York City with high property taxes and income above AMT thresholds, prepaying your state income tax could offer no federal benefit.
Practical Example
A married couple in California with $20,000 in SALT obligations and $15,000 in mortgage interest faces the SALT cap. If they also have $10,000 in charitable donations, their total deductions exceed the standard deduction. However, under AMT, the entire $20,000 SALT deduction is disallowed—meaning their effective tax savings may be far less than expected. Modeling these scenarios is essential before making payment decisions.
Planning Checklist for 2025
- Project your 2025 AGI and estimate whether you might trigger AMT.
- Decide whether to prepay state income taxes in December 2025.
- Consider bunching charitable contributions or using donor-advised funds.
- Review your mortgage interest and medical expenses for deduction timing opportunities.
- Consult a tax advisor to run projections and confirm AMT exposure.
Key Takeaways
- The SALT cap of $10,000 remains in place through 2025.
- Timing and bunching can help maximize deductions for some taxpayers.
- The AMT eliminates SALT deductions, making planning essential.
- High-tax-state residents should use 2025 to explore deduction acceleration before 2026 tax law changes.
