In welcome news for individual taxpayers, the One Big Beautiful Bill Act temporarily increases the “SALT cap” – the limit on the amount of the income tax deduction for state and local income, sales, and property taxes – from $10,000 to $40,000. The SALT cap increases by one percent each year until 2030, when the limit returns to $10,000.
The increased limitation phases out for those with modified adjusted gross incomes (MAGI) of $500,000 or more. Because the credit is reduced by 30 percent of the amount by which the taxpayer’s MAGI exceeds the phase-out threshold, the maximum deduction remains $10,000 for those whose MAGI exceeds $600,000. Like the SALT cap, the phase-out threshold increases by 1% each year until 2030.
Although earlier versions of the bill proposed eliminating the federal deductibility of state income taxes paid by certain pass-through entities, the One Big Beautiful Bill Act does not change how partners and shareholders account for state and local income taxes paid by partnerships and S corporations.
Despite a push in the House, the law as enacted does not address businesses’ state tax nexus concerns. Public Law 86-272, 15 U.S.C. §§381-384, creates a safe harbor from state income tax for out-of-state businesses soliciting orders across state lines. The law prohibits states from imposing income tax on out-of-state entities whose only contact with the state relates to the solicitation of orders. In an apparent response to recent caselaw, the House bill would have broadly defined order solicitation to include “any business activity that facilitates the solicitation of orders even if that activity may also serve some independently valuable business function.” The provision was not included in the Senate bill.
