No tax on car loan interest under the new law? Not exactly
August 12, 2025
Under current federal income tax rules, so-called personal interest expense generally can’t be deducted. One big exception is qualified residence interest or home mortgage interest, which can be deducted, subject to some limitations, if you itemize deductions on your tax return.
The One Big Beautiful Bill Act (OBBBA) adds another exception for eligible car loan interest. In tax law language, the new deduction is called qualified passenger vehicle loan interest. Are you eligible? Here are the rules.
“No tax” isn’t an accurate description
If you could deduct all your car loan interest, you’d be paying it with pre-tax dollars rather than with post-tax dollars — meaning after you paid your federal income tax bill. The new deduction has been called “no tax on car loan interest,” but that’s not really accurate. Here’s a more precise explanation.
The OBBBA allows eligible individuals — including those who don’t itemize — a temporary new deduction for some or all of the interest paid on some loans. The loans must be taken out to purchase a qualifying passenger vehicle.
Specifically, for 2025 through 2028, up to $10,000 of car loan interest can potentially be deducted each year. The loan must be taken out after 2024 and must be a first lien secured by the vehicle, which is used for personal purposes. Leased vehicles don’t qualify. So far, this may sound good, but not all buyers will qualify for the new deduction because of the limitations and restrictions summarized below.
Income-based phaseout rule
The deduction is phased out starting at $100,000 of modified adjusted gross income (MAGI) or $200,000 for married joint-filing couples. If your MAGI is above the applicable threshold, the amount that you can deduct (subject to the $10,000 limit) is reduced by $200 for each $1,000 of excess MAGI. So, for an unmarried individual, the deduction is completely phased out when MAGI reaches $150,000. For married joint filers, the deduction is completely phased out when MAGI reaches $250,000.
Qualifying vehicles
To qualify for the new deduction, the vehicle must be a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. It must be manufactured primarily for use on public streets, roads and highways, and it must be new (meaning the original use begins with you). The “final assembly” of the vehicle must occur in the United States. You must report the vehicle identification number (VIN) on your tax return. Vehicles assembled in America have a special number in the VIN to signify that.
Meeting the requirements
In the law, the definition of final assembly is convoluted. The law states: “Final assembly means the process by which a manufacturer produces a vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.”
Another requirement is that your car loan lender must file an information return with the IRS that shows the amount of interest paid during the year on your qualified car loan.
Refinanced loans
If an original qualified car loan is refinanced, the new loan will be a qualified loan as long as: 1) the new loan is secured by a first lien on the eligible vehicle and 2) the initial balance of the new loan doesn’t exceed the ending balance of the original loan.
Ineligible loans
Interest on the following types of loans doesn’t qualify for the new deduction:
- Loans to finance fleet sales,
- Loans to buy a vehicle not used for personal purposes,
- Loans to buy a vehicle with a salvage title or a vehicle intended to be used for scrap or parts,
- Loans from certain related parties, and
- Any lease financing.
Conclusion
According to various reports, most American car buyers rely on loans to finance their purchases. So, the ability to deduct car loan interest is something that many taxpayers would be happy about. That said, many buyers won’t qualify for the new deduction. It’s off limits for high-income purchasers, used vehicle buyers and those who buy foreign imports. Contact us with any questions.
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The 2026 Social Security wage base has been released. What’s the tax impact on employees and the self-employed? Let’s take a look. FICA tax 101 The Federal Insurance Contributions Act (FICA) imposes two payroll taxes on wages and self-employment income — one for Old-Age, Survivors, and Disability Insurance, commonly known as the Social Security tax, and the other for Hospital Insurance, commonly known as the Medicare tax. The FICA tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. If you’re an employee, FICA tax is split evenly between your employer and you. If you’re self-employed, you pay the full 15.3% — but the “employer” half is deductible. All wages and self-employment income are generally subject to Medicare tax. But the Social Security tax applies to such income only up to the Social Security wage base. The Social Security Administration has announced that the wage base will be $184,500 for 2026 (up from $176,100 for 2025). Wages and self-employment income above this threshold aren’t subject to Social Security tax. Another payroll tax that higher-income taxpayers must be aware of is the additional 0.9% Medicare tax. It applies to FICA wages and self-employment income exceeding $200,000 ($250,000 for joint filers and $125,000 for separate filers). There’s no employer portion for this tax, but employers are required to withhold it once they pay an employee wages for the year exceeding $200,000 — regardless of the employee’s filing status. (You can claim a credit on your income tax return for withholding in excess of your actual additional Medicare tax liability.) What will you owe in 2026? For 2026, if you’re an employee, you’ll owe: 6.2% Social Security tax on the first $184,500 of wages, for a maximum tax of $11,439 (6.2% × $184,500), plus 1.45% Medicare tax on wages up to the applicable additional Medicare tax threshold, plus 2.35% Medicare tax (1.45% regular Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of the applicable additional Medicare tax threshold. For 2026, if you’re self-employed, you’ll owe: 12.4% Social Security tax on the first $184,500 of self-employment income (half of which will be deductible), for a maximum tax of $22,878 (12.4% × $184,500), plus 2.9% Medicare tax on self-employment income up to the applicable additional Medicare tax threshold (half of which will be deductible), plus 3.8% Medicare tax (2.9% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of the applicable additional Medicare tax threshold. (Half of the 2.9% portion will be deductible; none of the 0.9% portion will be deductible.) The payroll tax deduction for the self-employed can be especially beneficial because it reduces adjusted gross income (AGI) and modified adjusted gross income (MAGI). AGI and MAGI can trigger certain additional taxes and the phaseouts of many tax breaks. Have questions? Payroll taxes get more complicated in some situations. For example, what if you have two jobs? Payroll taxes will be withheld by both employers. Can you ask your employers to stop withholding Social Security tax once, on a combined basis, you’ve reached the wage base threshold? No, each employer must continue to withhold Social Security tax until your wages with that employer exceed the wage base. Fortunately, when you file your income tax return, you’ll get a credit for any excess withheld. If you have more questions about payroll taxes, such as what happens if you have wages from a job and self-employment income, please contact us. We can help you ensure you’re complying with tax law while not overpaying. © 2025
Projecting your business’s income for this year and next can allow you to time income and deductible expenses to your tax advantage. It’s generally better to defer tax — unless you expect to be in a higher tax bracket next year. Timing income and expenses can be easier for cash-basis taxpayers. But accrual-basis taxpayers have some unique tax-saving opportunities when it comes to deductions. Review incurred expenses The key to saving tax as an accrual-basis taxpayer is to properly record and recognize expenses that were incurred this year but won’t be paid until 2026. This will enable you to deduct those expenses on your 2025 federal tax return. Common examples of such expenses include: Commissions, salaries and wages, Payroll taxes, Advertising, Interest, Utilities, Insurance, and Property taxes. You can also accelerate deductions into 2025 without actually paying for the expenses in 2025 by charging them on a credit card. (This works for cash-basis taxpayers, too.) Look at prepaid expenses Review all prepaid expense accounts. Then write off any items that have been used up before the end of the year. If you prepay insurance for a period of time beginning in 2025 and ending in 2026, you can expense the entire amount this year rather than spreading it between 2025 and 2026, as long as a proper method election is made. More tips to consider Be sure to review your outstanding receivables and write off any that you can establish as uncollectible. Also, pay interest on shareholder loans. For more information on these strategies and to discuss other ways your business can reduce 2025 taxes, contact us. © 2025
When creating a will, most people focus on the big-ticket items — including who gets the house, the car and specific family heirlooms. But one element that’s often overlooked is the residuary clause. This clause determines what happens to the remainder of your estate — the assets not specifically mentioned in your will. Without one, even a carefully planned estate can end up in legal limbo, causing unnecessary stress, expense and conflict for your loved ones. Defining a residuary clause A residuary clause is the part of your will that distributes the “residue” of your estate. This residue includes any assets left after specific bequests, debts, taxes and administrative costs have been paid. It might include forgotten bank accounts, newly acquired property or investments you didn’t specifically name in your will. For example, if your will leaves your car to your son and your jewelry to your daughter but doesn’t mention your savings account, the funds in that account would fall into your estate’s residue. The residuary clause ensures those funds are distributed according to your wishes — often to a named individual, group of heirs or charitable organization. Omitting a residuary clause Failing to include a residuary clause can create serious problems. When assets aren’t covered by specific instructions in a will, they’re considered “intestate property.” This means those assets will be distributed according to state intestacy laws rather than your personal wishes. In some cases, this could result in distant relatives inheriting part of your estate or assets going to individuals you never intended to benefit. Without a residuary clause, your executor or family members may also need to seek court intervention to determine how to handle the leftover property. This adds time, legal costs and emotional strain to an already difficult process. Moreover, the absence of a residuary clause can lead to family disputes. When the law, rather than your will, determines who gets what, heirs may disagree over how to interpret your intentions. A simple clause could prevent these misunderstandings and preserve family harmony. Adding flexibility to your plan A key advantage of a residuary clause is added flexibility. Life circumstances change — new assets are acquired, accounts are opened or closed, and property values fluctuate. If your will doesn’t specifically list every asset (and most don’t), a residuary clause acts as a safety net to ensure nothing is left out. It can even account for unexpected windfalls or proceeds from insurance or lawsuits that arise after your passing. Providing extra peace of mind Including a residuary clause in your will is one of the simplest ways to make sure your entire estate is handled according to your wishes. It helps avoid gaps in your estate plan, minimizes legal complications and ensures your executor can distribute your assets smoothly. Contact us for additional details. Ask your estate planning attorney to add a residuary clause to your will. © 2025
Artificial intelligence (AI) is changing the way businesses operate. Its capacity to gather and process data, as well as to mimic human interactions, offers remarkable potential to streamline operations and boost productivity. But AI presents considerable challenges and concerns, too. With so many tools available, employees may inadvertently or purposely misuse the technology in ways that are unethical or even illegal. Compounding the problem is that many companies lack a formal AI governance policy. Few in place In August 2025, software platform provider Genesys released the results of an independent survey of 4,000 consumers and 1,600 enterprise customer experience and information technology (IT) leaders in more than 10 countries. It found that over a third (35%) of tech-leader respondents said their organizations have “little to no formal [AI] governance policies in place.” This is a pointed problem, the survey notes, because many businesses are gearing up to deploy agentic AI. This is the latest iteration of the technology that can make decisions autonomously and act independently to achieve specific goals without depending on user commands or predefined inputs. The survey found that while 81% of tech leaders trust agentic AI with sensitive customer data, only 36% of consumers do. 7 steps to consider Whether or not you’re eyeing agentic AI, its growing popularity is creating a trust-building imperative for today’s businesses. That’s why you should consider writing and implementing an AI governance policy. Formally defined, an AI governance policy is a written framework that establishes how a company may use AI responsibly, transparently, ethically and legally. It outlines the decision-making processes, accountability measures, ethical standards and legal requirements that must guide the development, purchase and deployment of AI tools. Creating an AI governance policy should be a collaborative effort involving your company’s leadership team, knowledgeable employees (such as IT staff) and professional advisors (such as a technology consultant and attorney). Here are seven steps your team should consider: 1. Audit usage. Identify where and how your business is using AI. For instance, do you use automated tools in marketing or when screening job applicants, auto-generated financial reports, or customer service chatbots? Inventory everything and note who’s using it, what data it relies on and which decisions it influences. 2. Assign ownership for AI oversight. This may mean appointing a small internal team or naming (or hiring) an AI compliance manager or executive. Your oversight team or compliance leader will be responsible for maintaining the policy, reviewing new tools and handling concerns that arise. 3. Establish core principles. Ground your policy in ethical and legal principles — such as fairness, transparency, accountability, privacy and safety. The policy should reflect your company’s mission, vision and values. 4. Set standards for data and vendor use. Include guidelines on how data used by AI tools is collected, stored and shared. Pay particular attention to intellectual property issues. If you use third-party vendors, define review and approval steps to verify that their systems meet your privacy and compliance standards. 5. Require human oversight. Clearly state that employees must remain in control of AI-assisted work. Human judgment should always be part of the process, including approving AI-generated content and reviewing automated financial reports. 6. Include a mandatory review-and-update clause. Schedule regular reviews — at least annually — to assess whether your policy remains relevant. This is especially important as innovations, such as agentic AI, come online and new regulations emerge. 7. Communicate with and train staff. Incorporate AI governance into onboarding for new employees and follow up with regular training and reminder sessions thereafter. Ask staff members to sign an acknowledgment that they’ve read the policy and perhaps another to confirm they’ve completed the required training. Encourage everyone to ask questions and report potential issues. Financial impact Writing an AI governance policy is just one part of preparing your business for the future. Understanding its financial impact is another. Let us help you analyze the costs, tax implications and return on investment of AI tools so you can make informed decisions that balance innovation with sound financial management and robust compliance practices. © 2025
Health care costs continue to increase. Pairing a high-deductible health plan (HDHP) with a Health Savings Account (HSA) can help. Insurance premiums will be lower because of the high deductible. And the HSA provides a tax-advantaged way to fund the deductible and other medical expenses. 5 HSA tax benefits HSAs offer both current and future tax savings: 1. Your contributions are pretax or tax deductible. This saves you tax in the year contributions are made. 2. Contributions your employer makes aren’t included in your taxable income. Again, you save tax in the current year. 3. Earnings on the HSA funds aren’t taxed as long as they remain in the account. HSAs can bear interest or be invested and grow on a tax-deferred basis, similar to a traditional IRA. 4. Distributions to pay qualified medical expenses aren’t taxed. This means you benefit from permanent tax savings. (If funds are withdrawn from the HSA for other reasons, the distribution is taxable. Generally, a 20% penalty will also apply.) 5. Distributions after age 65 are penalty-free even if not used for medical expenses. But they’re still taxable. So, HSAs can help fund retirement, again, similar to a traditional IRA. Annual limits You can contribute to an HSA only if you have an HDHP. For 2026, an HDHP is health insurance with an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage. (These amounts increased from $1,650 and $3,300, respectively, for 2025.) Additionally, the 2026 out-of-pocket expenses you’re required to pay for covered benefits can’t exceed $8,500 for self-only coverage or $17,000 for family coverage (up from $8,300 and $16,600, respectively, for 2025). Beginning in 2026, the definition of HDHP will be expanded. It also will include Bronze and Catastrophic plans available on state and federal insurance exchanges under the Affordable Care Act. For self-only coverage, the 2026 HSA contribution limit is $4,400. For family coverage, it’s $8,750. (These amounts are up from $4,300 and $8,550, respectively, for 2025.) If you’re age 55 or older by year-end, you may make additional “catch-up” contributions of up to $1,000. The annual contribution limit is reduced if you have an HDHP for only part of the year or go on Medicare at some point during the year. But you can still take tax-free distributions from your HSA for qualified medical expenses. Determining your best option The combination of an HDHP and an HSA can be financially smart, particularly for healthy individuals who don’t currently have many medical expenses. Such individuals can reduce premium costs today and potentially build up substantial HSA funds to use in the future, such as to cover the costs of a major health issue or to supplement their retirement plans. But an HDHP-HSA pairing isn’t the best option for everyone. Contact us to discuss the tax and financial aspects of funding your health care. © 2025
Now is a good time to review your business’s expenses for deductibility. Accelerating deductible expenses into this year generally will reduce 2025 taxes and might even provide permanent tax savings. Also consider the impact of the One Big Beautiful Bill Act (OBBBA). It makes permanent or revises some Tax Cuts and Jobs Act (TCJA) provisions that reduced or eliminated certain deductions. “Ordinary and necessary” business expenses There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Section 162, which permits businesses to deduct their “ordinary and necessary” expenses. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It doesn’t have to be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant. OBBBA and TCJA changes Here are some types of business expenses whose deductibility is affected by OBBBA or TCJA provisions: Entertainment. The TCJA eliminated most deductions for entertainment expenses beginning in 2018. However, entertainment expenses for employee parties are still deductible if certain requirements are met. For example, the entire staff must be invited — not just management. The OBBBA didn’t change these rules. Meals. Both the TCJA and the OBBBA retained the pre-2018 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? They’re still 50% deductible, as long as they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts. Through 2025, the TCJA also expanded the 50% deduction rule to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. (Previously, such meals were 100% deductible.) The deduction was scheduled to be eliminated after 2025. The OBBBA generally retains this deduction’s 2026 elimination, with some limited exceptions that will qualify for a 100% deduction. But meal expenses generally can be 100% deducted if the meals are sold to employees. Transportation. Transportation expenses for business travel are still 100% deductible, provided they meet the applicable rules. But the TCJA permanently eliminated most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. However, those benefits are still tax-free to recipient employees, up to applicable limits. The OBBBA doesn’t change these rules. Before the TCJA, employees could also exclude from taxable income qualified bicycle commuting reimbursements, and this break was scheduled to return in 2026. However, the OBBBA permanently eliminates it. Employee business expenses The TCJA suspended through 2025 employee deductions for unreimbursed employee business expenses — previously treated as miscellaneous itemized deductions. The OBBBA has permanently eliminated this deduction. Businesses that don’t already have an employee reimbursement plan for these expenses may want to consider implementing one for 2026. As long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees. Planning for 2025 and 2026 Understanding exactly what’s deductible and what’s not isn’t easy. We can review your current expenses and help determine whether accelerating expenses into 2025 makes sense for your business. Contact us to discuss year-end tax planning and to start strategizing for 2026. © 2025
The IRS recently issued its 2026 cost-of-living adjustments for more than 60 tax provisions. The One Big Beautiful Bill Act (OBBBA) makes permanent or amends many provisions of the Tax Cuts and Jobs Act (TCJA). It also makes permanent most TCJA changes to various deductions and makes new changes to some deductions. OBBBA-affected changes have been noted throughout. As you implement 2025 year-end tax planning strategies, be sure to take these 2026 numbers into account. Individual income tax rates Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $475–$950, depending on filing status, but the top of the 35% bracket will increase by $8,550–$17,100, depending on filing status.
A do-it-yourself (DIY) estate plan may seem appealing to those who feel confident managing their own affairs and want to save money. With the abundance of online templates and legal software, it’s easier than ever to draft a will, establish powers of attorney or create a trust without professional help. However, there are significant drawbacks to consider. Online tools vs. professional guidance Estate planning is a legal matter, and small mistakes can result in major unintended consequences. Errors in wording, missing signatures or failure to meet state-specific requirements can render documents invalid or lead to disputes among heirs. DIY tools often provide limited customization, which can be problematic for blended families, business owners or those with special needs beneficiaries. Additionally, these online platforms can’t provide personalized advice or foresee complex tax implications the way experienced estate planning attorneys and tax professionals can. Although online tools can help you create individual documents — the good ones can even help you comply with applicable laws, such as ensuring the right number of witnesses to your will — they can’t help you create an estate plan. Putting together a plan means determining your objectives and coordinating a collection of carefully drafted documents designed to achieve those objectives. And in most cases, that requires professional guidance. For example, let’s suppose Anna’s estate consists of a home valued at $1 million and an investment account with a $1 million balance. She uses a DIY tool to create a will that leaves the home to her son and the investment account to her daughter. On the surface, this seems like a fair arrangement. But suppose that by the time Anna dies, she’s sold the home and invested the proceeds in her investment account. Unless she amended her will, she’ll have inadvertently disinherited her son. An experienced estate planning advisor would have anticipated such contingencies and ensured that Anna’s plan treated both children fairly, regardless of the specific assets in her estate. DIY tools also fall short when a decision demands a professional’s experience rather than mere technical expertise. Online tools make it easy to name a guardian for your minor children, for example, but they can’t help you evaluate the many characteristics and factors that go into selecting the best candidate. Don’t try this at home Ultimately, while a DIY estate plan may be better than having no plan at all, it carries considerable risks. Professional guidance ensures your wishes are properly documented and legally sound, reducing the likelihood of costly mistakes or family conflicts. For most people, consulting a qualified estate planning advisor, including an attorney and a CPA who understands estate tax law, is a worthwhile investment in protecting one’s legacy and loved ones’ peace of mind. © 2025
In a business context, a wellness program is an employer-sponsored initiative designed to promote employees’ physical, mental and emotional well-being. These programs can take many forms, but their underlying goal is generally the same: to foster a healthier, more productive workplace. A well-structured wellness program can also help companies manage health care benefits costs, reduce absenteeism, improve employee retention and enhance company culture. Whether your business has a program in place or is considering rolling one out, here are some fundamental building blocks to help ensure your approach is effective, practical and sustainable. Straightforward design Imagine a company introducing its new employee wellness program with an email that reads, “Welcome aboard! Attached is a 200-page guide, featuring a complex point system that will determine whether you qualify for incentives and a lengthy glossary of medical terminology.” See the problem? The quickest way to derail participation is by overcomplicating the rollout. Granted, any type of wellness program will inevitably have a learning curve. But the simpler the design, the easier it will be to explain and implement. Remember that you can update and increase a program’s complexity as it becomes more ingrained in your business’s culture. Clear communication Strong program communication is also paramount. Write, format and organize materials clearly and concisely. Be creative with the design and language to capture employees’ interest. Just keep in mind that the content must be sensitive to the fact that the program addresses inherently personal issues of health and well-being. If you don’t have anyone in-house who can handle these criteria, consider engaging a consultant. In addition, ask your attorney to review all program materials for compliance purposes. Well-vetted vendors For most companies, outside vendors provide the bulk of wellness program services and activities. These may include: Seminars on healthy life and work habits, Smoking cessation workshops, Fitness coaching, Healthful food options in the break room and cafeteria, and Runs, walks or other friendly competitive or charitable events. It’s critical to thoroughly vet providers and engage only those that are skilled and qualified. Neglecting to do so could mean that, even if you create and communicate a solid program, it will likely fail once employees show up to participate and are disappointed by the experience. Quality partnerships build credibility — and lasting engagement. A strategic investment Developing a wellness program may be a wise decision for both your employees and business. If you’re just getting started, build it on the fundamentals mentioned. And if you already have a program up and running, closely monitor participation and outcomes so you can make informed adjustments that enhance its long-term value. We’d be happy to help you establish a realistic budget, identify potential tax advantages and measure the financial return on your investment. © 2025
If you pay more than $10,000 in state and local taxes (SALT), a provision of the One Big Beautiful Bill Act (OBBBA) could significantly reduce your 2025 federal income tax liability. However, you need to be aware of income-based limits, and you may need to take steps before year end to maximize your deduction. Higher deduction limit Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. Historically, eligible SALT expenses were generally 100% deductible on federal income tax returns if an individual itemized deductions. This provided substantial tax savings to many taxpayers in locations with higher income or property tax rates (or higher home values), as well as those who owned both a primary residence and one or more vacation homes. Beginning in 2018, the Tax Cuts and Jobs Act (TCJA) limited the deduction to $10,000 ($5,000 for married couples filing separately). This SALT cap was scheduled to expire after 2025. Rather than letting the $10,000 cap expire or immediately making it permanent, the OBBBA temporarily quadruples the limit. Beginning in 2025, taxpayers can deduct up to $40,000 ($20,000 for married couples filing separately), with 1% increases each subsequent year. Then in 2030, the OBBBA reinstates the $10,000 cap. The increased SALT cap could lead to major tax savings compared with the $10,000 cap. For example, a single taxpayer in the 35% tax bracket with $40,000 in SALT expenses could save an additional $10,500 in taxes [35% × ($40,000 − $10,000)]. Income-based reduction While the higher limit is in place, it’s reduced for taxpayers with incomes above a certain level. The allowable deduction drops by 30% of the amount by which modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000; when MAGI reaches $600,000, the previous $10,000 cap applies. (These amounts are halved for separate filers.) The MAGI threshold will also increase 1% each year through 2029. Here’s how the earlier example would be different if the taxpayer’s MAGI exceeded the threshold: Let’s say MAGI is $550,000, which is $50,000 over the 2025 threshold. The cap would be reduced by $15,000 (30% × $50,000), leaving a maximum SALT deduction of $25,000 ($40,000 − $15,000). Even reduced, that’s more than twice what would be permitted under the $10,000 cap. The reduced deduction would still save an additional $5,250 in taxes [35% × ($25,000 − $10,000) compared to when the $10,000 cap applied. Itemizing vs. the standard deduction The SALT deduction is available only to taxpayers who itemize their deductions. The TCJA nearly doubled the standard deduction. As a result of that change and the $10,000 SALT cap, the number of taxpayers who itemize dropped substantially. And, under the OBBBA, the standard deduction is even higher — for 2025, it’s $15,750 for single and separate filers, $23,625 for head of household filers, and $31,500 for married couples filing jointly. But the higher SALT cap might make it worthwhile for some taxpayers who’ve been claiming the standard deduction post-TCJA to start itemizing again. Consider, for example, a taxpayer who pays high state income tax. If that amount combined with other itemized deductions (generally, certain medical and dental expenses, home mortgage interest, qualified casualty losses, and charitable contributions) exceeds the applicable standard deduction, the taxpayer will save more tax by itemizing. Year-end strategies Here are two strategies that might help you maximize your 2025 SALT deduction: 1. Reduce your MAGI. If it’s nearing the threshold that would reduce your deduction or already over it, you can take steps to stay out of the danger zone. For example, you can make or increase pretax retirement plan and Health Savings Account contributions. Likewise, you can avoid moves that increase your MAGI, like Roth IRA conversions, nonrequired traditional retirement plan distributions and asset sales that result in large capital gains. 2. Accelerate property tax deductions. If your SALT expenses are less than $40,000 and your MAGI is below the reduction threshold for 2025, for example, you might prepay your 2026 property tax bill this year. (This assumes the amount has been assessed — you can’t deduct a prepayment based only on your estimate.) Plan carefully In your SALT planning, also be aware that SALT expenses aren’t deductible for purposes of the alternative minimum tax (AMT). A large SALT deduction could have the unintended effect of triggering the AMT, particularly after 2025. Under the right circumstances, the increase to the SALT deduction cap can be a valuable tax saver. But careful planning is essential. Contact us for assistance with maximizing your SALT deduction and other year-end tax planning strategies. © 2025