With 870 pages of provisions, the One Big Beautiful Bill Act (OBBBA) signed by President Donald Trump earlier this month is a lot to digest.
Of particular importance to high-tax states, such as New Jersey, is what happened to the State and Local Tax (SALT) deduction, which has been capped at $10,000 since the Tax Cut and Jobs Act (TCJA) was enacted in 2017 during the first Trump administration.
There is both good news and bad news on that front.
The good news is the law raises the $10,000 SALT cap to $40,000. The bad news is that this is a temporary change only for the tax years 2025-2029. The SALT cap reverts to $10,000 again in 2030, setting the table for another Congressional battle on tax policy in five years.
Under OBBBA, taxpayers with up to $500,000 in income who itemize on the federal income tax returns may deduct up to $40,000 in state taxes and local taxes beginning in the 2025 tax year. The deduction phases out for those with incomes above $500,000.
In 2026, the deduction increases to $40,400 in 2026 and then by 1% a year in 2027, 2028 and 2029. The qualifying income threshold for the deduction also increases in 2026 to $505,000 and increases by 1% each year in 2027, 2028, and 2029.
The SALT deduction expires for all taxpayers in 2030 regardless of income level unless Congress renews it.
Permanent vs. Temporary Tax Policy Changes
The Tax Foundation, a nonprofit research think tank based in Washington, D.C, says its modeling shows the OBBBA will increase long-run GDP by 1.2%. The law contains permanent provisions that are key for long-term economic growth and simplicity for taxpayers, including the lower TCJA tax brackets.
OBBBA also makes permanent the pass-through business deduction, the research and development (R&D) expensing and bonus depreciation which are also key for economic growth, says Alex Muresianu, a Tax Foundation senior policy analyst in a July 21 blog.
However, Muresianu writes that OBBBA also includes plenty of temporary tax policies, that underscore the likelihood that more tax reform will be needed in the near future.
“One of the principles of sound tax policy is stability,” Muresianu wrote. “While temporary tax policy causes uncertainty, permanent policy provides taxpayers and businesses with the stability they need to make long-term decisions. If a provision improves the tax system, it should be made a lasting part of it—not left to expire arbitrarily.”
Muresianu said one important pro-growth provision that is only temporary in OBBBA is the expensing of long-lived assets involved in manufacturing and other production activity.
“Expensing for buildings and other long-lived assets is one of the most pro-growth policies available, and permanence for this provision would both provide businesses more certainty and substantially improve the bill’s pro-growth effects,” Muresianu said.
