On June 16, 2025, the U.S. Senate released its version of the budget reconciliation bill (“Senate bill”), making several changes to the House-passed version from May 22, 2025 (“House bill”). One major difference is the cap on the state and local tax (“SALT”) deduction.
The SALT deduction allows taxpayers to deduct certain state and local taxes from their federal tax bill. The Tax Cuts and Jobs Act (“TCJA”) first introduced a cap on the SALT deduction at $10,000 ($5,000 for married taxpayers filing separately), which was set to expire at the end of 2025 unless extended. The House bill, which we summarized in the last issue, proposed raising that cap to $40,000 ($20,000 for married taxpayers filing separately) starting in 2025, while reducing that cap to as low as $10,000 ($5,000 for married taxpayers filing separately) for taxpayers earning more than $500,000 in gross income. The House bill would also increase the $40,000 cap and the $500,000 income threshold from 2026 through 2033, after which the 2033 limits would permanently apply.
In contrast, the Senate bill lowers the House’s SALT cap and permanently extends TCJA’s $10,000 cap, with no reduction of the cap for high earning taxpayers.
A section-by-section breakdown of the Senate bill notes that the SALT cap remains the “subject of continuing negotiations” with the House. Leaders in both chambers hope to agree on a final version of the bill and send it to the President by July 4, though some observers question whether that timeline is realistic.
