Impact of Limiting State and Local Tax (SALT) Deductions
How the SALT Cap Reshaped Tax Burdens, State Economies, and Political Alliances
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The main beneficiaries of the State and Local Tax (SALT) deduction are higher-income taxpayers in high-tax states, particularly those who own homes and pay significant state income and property taxes.
Before the cap, the SALT deduction primarily benefited:
High-Income Households — Over 90% of the tax benefit went to households making over $100,000 per year. The top 5% of earners (those making above ~$250,000) received the lion’s share of SALT deductions before the cap. This is because wealthier individuals tend to itemize deductions rather than take the standard deduction and often pay high state and local taxes.
Residents of High-Tax States — Taxpayers in California, New York, New Jersey, Illinois, Connecticut, and Massachusetts benefited the most. These states have higher state income tax rates and expensive real estate, leading to large property tax bills that were previously deductible without limit.
Homeowners in Expensive Areas — The deduction was especially valuable to those who paid high property taxes, such as homeowners in major metropolitan areas (e.g., New York City, San Francisco, and suburban New Jersey). Renters generally saw little benefit.
Dual-Income Professionals — Married couples in high-cost-of-living areas earning between $150,000 and $500,000 were among the most impacted by the SALT cap because their combined state income taxes plus property taxes often far exceeded the $10,000 limit.
Affluent Business Owners and Investors — While some business owners found workarounds (like pass-through entity tax strategies), many high-net-worth individuals still lost substantial deductions on personal state taxes.
Who Did Not Benefit?
Lower and Middle-Income Taxpayers — Most middle-class and lower-income taxpayers saw little impact from the SALT cap because they already took the standard deduction rather than itemizing.
Residents of Low-Tax States — Those living in Texas, Florida, Tennessee, or Nevada (states with no income tax) had little to gain from SALT deductions in the first place.
Renters and Small Property Owners — Since they don’t pay property taxes directly, renters benefited less than homeowners.
Key Takeaway:
The SALT deduction has always been a tax break skewed toward high-income earners in high-tax states, making it politically contentious. While some argue its repeal disproportionately hurts middle-class homeowners in states like New York and California, data shows that the vast majority of the lost tax benefits went to the top 10–20% of earners.
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