SALT Cap Changes: What Business Owners Should Expect Next
The SALT deduction—state and local tax—has been a quiet linchpin of the U.S. tax code for decades. For business owners in high-tax states like California, New York, and New Jersey, it helped soften the blow of property and income taxes by allowing large deductions at the federal level. That all changed in 2017 when the Tax Cuts and Jobs Act capped SALT deductions at $10,000, a move that sent shockwaves through taxpayers and state budgets alike.
Now, in 2025, the landscape has shifted again. The One Big Beautiful Bill Act (OBBBA) permanently reshaped the SALT deduction structure. The headline: the cap has jumped to $40,000 for most taxpayers, but high earners still face a phase-out. For business owners, this isn’t just a footnote in tax policy. It changes cashflow, planning, and even the strategies you should be using to optimize entity structure.
Here’s what the new SALT cap really means for your bottom line—and what to expect next.
The New SALT Deduction Rules at a Glance
The OBBBA provisions brought clarity after years of temporary rules and political brinkmanship. Key changes include:
Permanent increase to $40,000: The deduction cap quadruples from the previous $10,000.
Phase-out begins at $250,000 MAGI (single) / $500,000 MAGI (joint): Once your income clears these thresholds, the deduction gradually phases down.
Phase-out rate of 30%: For every dollar above the threshold, the deduction trims back until it bottoms out again at $10,000 for the highest earners.
The takeaway: middle- and upper-middle-income business owners in high-tax states get meaningful relief. Top earners see far less benefit.
How This Hits State Budgets and Why You Should Care
At first glance, SALT deductions are a federal issue. But they ripple into state budgets and policy, which in turn ripple back to you as a business owner.
More disposable income, more spending. A higher deduction means lower federal tax bills for many households, which could juice consumer spending. That translates into stronger local sales tax revenue and potentially more stable state budgets.
Revenue planning whiplash. Many states tightened belts under the $10,000 cap, shifting tax policy or trimming programs. With more breathing room, states may expand programs or alter their tax structures again. That creates fresh uncertainty for businesses that operate across multiple states.
Pass-through entity taxes (PTET) still matter. Dozens of states created PTET workarounds to offset the old $10,000 cap. Even with the higher $40,000 cap, PTET elections remain valuable—especially for high earners who get phased back down to $10,000. Business owners will need to evaluate whether to keep electing PTET, drop it, or modify their approach.
What Business Owners Should Expect Next
This isn’t just about paying a lower tax bill this year. OBBBA’s SALT provisions reshape the playing field for long-term financial planning.
1. Tax planning gets more complex near thresholds
If your MAGI hovers around $250,000/$500,000, the phase-out math gets tricky. Business owners may want to manage timing of deductions, accelerate expenses, or adjust compensation strategies to avoid losing part of the benefit.
2. Entity structure matters more than ever
Partnerships, S corps, and LLCs already use PTET elections to shift state taxes into deductible categories. With the new SALT rules, entity choice and election timing could swing your effective tax rate significantly.
3. Expect state-level ripple effects
States may respond to the expanded federal deduction by tweaking their own codes—either aligning, decoupling, or layering in additional taxes. Business owners need to keep a pulse on state legislatures as closely as on Washington.
4. Year-end planning becomes a moving target
Because the cap phases down gradually, tax savings will depend on careful year-end projections. Owners can no longer assume a flat deduction amount; planning has to model different income scenarios.
5. More scrutiny on compliance
The IRS will almost certainly pay closer attention to high-income taxpayers claiming SALT deductions. Documentation for property tax, state income tax, and PTET elections will need to be airtight.
How Fractional Accounting Services Can Help
These aren’t changes you tackle once at tax filing time. They demand year-round planning, scenario analysis, and proactive decision-making. That’s where fractional accounting services come in.
Modeling phase-outs. A fractional CFO can run multiple MAGI scenarios to show you how much of the $40,000 cap you’ll actually keep.
Entity strategy. Outsourced finance teams can evaluate whether a PTET election still makes sense for your business mix and income level.
Cashflow forecasting. SALT savings can affect quarterly estimated payments and working capital. Fractional accounting pros ensure those savings aren’t swallowed by surprise liabilities elsewhere.
Multi-state compliance. If you operate in more than one state, a fractional accounting team can monitor shifting rules and keep you compliant without overpaying.
In short: the rules just got more complicated, not less. The right outside support translates policy changes into operational clarity.
Staying Ahead of SALT Deduction Legislation
The SALT landscape has been politically charged for nearly a decade, and while OBBBA’s provisions are permanent on paper, no tax rule is ever beyond debate. Here’s how to stay sharp:
Track state tax agency updates. They’ll be first to announce how federal changes filter into state codes.
Follow trusted tax news sources. Outlets like Checkpoint or Bloomberg Tax provide analysis faster than congressional press releases.
Monitor court rulings. Legal challenges to tariff and tax powers remain active. Outcomes could create unexpected shifts in state revenue strategies.
Final Word
The One Big Beautiful Bill Act didn’t repeal the SALT cap, but it rewrote the rules. For many business owners, it restores a valuable deduction. For states, it creates fiscal breathing room. For top earners, it’s a reminder that planning is non-negotiable.
The winners will be the operators who stop treating SALT as a static line item and start managing it like a lever in their overall tax and financial strategy. That means tight modeling, proactive entity planning, and staying ahead of state and federal shifts.
If you don’t have the in-house bench, bring in fractional accounting services. The right team will turn SALT complexity into strategy—and put you in control of how much you actually keep.
Ready to make the new SALT rules work for you? Book a strategy call with Ursa. We’ll help you model your MAGI thresholds, optimize PTET elections, and align your entity structure so you keep more of what you earn under SALT deduction 2025.