Can You Reduce the Impact of the $10,000 SALT Deduction Cap in 2025?

Since the introduction of the $10,000 cap on state and local tax (SALT) deductions under the 2018 Tax Cuts and Jobs Act, many taxpayers—especially those in high-tax states—have found themselves with a larger federal tax bill. As of 2025, while the cap remains in effect, several tax planning mechanisms may offer some relief. This guide outlines key structures that some individuals and business owners explore, including payment timing, pass-through entity taxes, and charitable trust strategies.

1. The 2025 SALT Cap Landscape: What Hasn't Changed

For 2025, individuals and married couples filing jointly can still only deduct up to $10,000 in combined state income, sales, and property taxes on their federal return. Although legislation to repeal or increase the cap has been proposed multiple times, no changes have been finalized as of July 2025.

However, certain states and financial structures have adjusted in ways that could help some taxpayers manage the limitation more effectively. Among them:

  • State tax prepayment rules may still allow limited deduction timing flexibility.

  • Pass-Through Entity (PTE) Tax Elections remain available in more states than before.

  • Charitable Remainder Trusts (CRTs) continue to offer multi-purpose planning options for high-income individuals.

Each of these options requires careful evaluation, often in consultation with a tax professional.

2. Payment Timing: Could Prepaying Taxes Be Beneficial?

Some taxpayers choose to prepay property taxes or estimated income taxes in December rather than waiting until the following year. The intention behind this is often to shift deductible expenses into the current year.

It’s worth noting, however, that:

  • States vary in their acceptance of prepayments. Not all allow early payment for future-year property taxes.

  • Budget constraints can arise if large sums are shifted forward.

  • Exceeding eligible amounts may result in nonrefundable overpayments.

While prepayment may not increase the $10,000 deduction limit, it can sometimes align deductions with higher-income years, which could offer timing benefits in specific situations.

3. Pass-Through Entity (PTE) Taxes: An Emerging Option in Several States

In recent years, more states have allowed S corporations and partnerships to pay state income tax at the entity level. This approach may effectively bypass the SALT cap by treating the tax as a business expense—fully deductible at the federal level—rather than as a personal SALT itemized deduction.

Some commonly participating states include New Jersey, Connecticut, California, and Louisiana. Key considerations include:

  • Amending agreements may be necessary to elect this treatment.

  • Filing deadlines (often mid-March) can vary by state and must be carefully tracked.

  • Credit reconciliation must be clear to prevent overpayment or misapplication.

These elections can be beneficial for some business owners, but may not be suitable for every tax situation.

4. Charitable Remainder Trusts: More Than Just Philanthropy

Charitable Remainder Trusts (CRTs) allow donors to transfer appreciated assets—such as real estate or stock—into a trust. The trust can sell these assets without immediate capital gains tax, and the donor receives:

  • An upfront charitable deduction, based on the calculated future value left to charity

  • Annual income payments, either fixed or variable

  • Estate planning benefits, as assets are excluded from the donor’s estate

Although CRTs do not directly expand the SALT deduction limit, the charitable deduction they provide can potentially offset other income, which may be helpful for those already maxed out on SALT deductions. However, CRTs are complex and typically require legal, financial, and administrative coordination.

5. A Composite Example: How One Taxpayer Used Multiple Tools

A New Jersey business owner facing significant state and property taxes evaluated several options for 2025. Working with an advisor, she:

  • Paid estimated 2025 property taxes in December 2024, within her state’s rules

  • Elected the PTE tax on her multi-member LLC

  • Contributed appreciated assets into a CRT for long-term philanthropic and estate planning goals

As a result, she was able to align her 2025 deductions with a peak income year. While the SALT cap itself remained in place, the combination of timing and alternative deduction mechanisms contributed to a more efficient tax profile overall.

Disclaimer

This article is intended for informational purposes only and does not constitute legal, tax, or financial advice. Readers should consult with a qualified tax advisor, CPA, or attorney regarding their individual circumstances and any potential strategies mentioned.

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