If you’re a tax professional or high-net-worth individual, the newly expanded state and local tax deduction (SALT) presents a unique planning window — and leveraging advanced tools like our AI tax research and AI tax planning tool can maximize the payoff. Learn how AI tax tools and agentic AI in tax can help you navigate phase-outs, itemize smartly, and execute a winning expanded SALT deduction strategy. Click through to explore actionable steps.
1. What Changed: The SALT Deduction Landscape
Historically, the federal deduction for state and local taxes (SALT) has been capped — thanks to the Tax Cuts and Jobs Act (TCJA) it had been limited to $10,000 for most filers.
As of recent legislation, the cap will be temporarily elevated: beginning in 2025 the cap increases to around $40,000 for most filers, with modest annual increases through 2029, before reverting (absent new legislation) back to $10,000.
Importantly: the expansion comes with income-phaseouts (e.g., for MAGI above ~$500,000) and remains a window, not permanent.
The Congressional Research Service notes the SALT cap profoundly reduced the number of tax returns claiming itemized SALT deductions (from ~31% in 2017 to ~9% in 2022).
2. Why It Matters: Planning Implications & Opportunity
With this higher cap, many taxpayers in high-tax states (property taxes, state income taxes) now have a renewed incentive to itemize rather than default to the standard deduction.
High-net-worth individuals, trusts, and owners of pass-through entities (PTEs) especially should consider how the expanded SALT deduction fits into broader tax planning.
For example: the “SALT cap workaround” via entity-level taxes (for some PTEs) remains alive and is a powerful supplemental strategy.
In short: the window is open, but there’s nuance. You need to evaluate income thresholds, timing of taxes paid, state-specific law, and whether itemizing or standard deduction still makes sense.
3. Strategy Framework: How to Build an Expanded SALT Deduction Plan
Here’s a step-by-step guide to building a strategy around the expanded SALT deduction.
a) Assess Eligibility & Income Phase-Outs
- Determine MODIFIED ADJUSTED GROSS INCOME (MAGI) for 2025 and forward: If over ~$500k, the deduction begins to phase out.
- Evaluate whether the taxpayer (or trust) itemizes currently and whether the SALT deduction can push total itemized deductions beyond the standard deduction threshold.
- For trusts or non-grantor entities, check how AGI will be affected and how the phase-out rules apply.
b) Itemization vs Standard Deduction
- Run projections: If itemized deductions including SALT (and mortgage interest, charitable giving, etc.) exceed the standard deduction, itemizing may make sense again under the new cap.
- Because the standard deduction is still large, many taxpayers will still default to it — the expanded cap just makes itemizing more viable.
c) Timing & Structural Moves
- Consider accelerating deductible state/local tax payments (property tax, state income tax) into years when it makes most benefit.
- For business owners: explore electing a PTE tax or entity-level tax (where permitted) to bypass the SALT cap entirely.
- For trusts: evaluate distributing income to beneficiaries or splitting trusts to keep AGI below thresholds and maximize deduction.
d) Use AI Tax Research & AI Tax Planning Tools
This is where tools like the Hive Tax AI research and planning platform become game-changers:
- AI Tax Research: Use the tool to scan authoritative sources (e.g., IRS guidance, state law, legislative updates) about SALT cap changes and compatibility with entity-level taxes.
- AI Tax Planning Tool: Run scenarios: What happens if itemizing vs standard deduction? How much SALT deduction applies under the new cap? How does distribution strategy affect trusts?
- Agentic AI in Tax: Deploy agentic workflows in the platform to alert you when state statutes change, or when a client’s AGI approaches a phase-out threshold, or when a new SALT-workaround state law is enacted.
By integrating an AI tax tool into your advisory workflow, you can elevate your service offering and help clients navigate this complex and time-sensitive opportunity.
e) Monitor Sunset & Legislative Risk
Because the expanded cap is temporary (2025-2029 unless extended), you must plan with an exit strategy. After 2029 the cap may shrink again — clients need to understand this is a window of opportunity.
Stay on top of legislative developments — AI research tools again help you stay alert to changes in real time.
4. Tool-Recommendations & Resources
- Use internal platform: Hive Tax AI Research Module — build a knowledge base of state SALT laws, PTE tax regimes, IRS notices.
- Leverage internal tool: Hive Tax Planning Module — create interactive dashboards to compare scenarios (itemize vs standard, with/without SALT cap workaround, trusts vs direct ownership).
- Useful external resources:
- Congressional Research Service report on SALT cap mechanics.
- State and Local Tax Deduction (SALT) Resource Center by Government Finance Officers Association (GFOA).
- Fidelity’s overview of new SALT deduction changes.
- Congressional Research Service report on SALT cap mechanics.
- Consider teaming with a tax-tech provider or practice management system where the AI tax tool can integrate client data (income projections, state tax exposure, property tax payments) to automate scenario analysis.
5. Example Scenario
Let’s consider a hypothetical high-income taxpayer in a high-tax state who pays $45,000 in state income taxes + $20,000 in property taxes = total eligible SALT $65,000. Under the old $10,000 cap, only $10,000 was deductible. Under the expanded cap of $40,000 beginning 2025:
- If MAGI is under ~$500k and the taxpayer itemizes: they could deduct up to $40,000.
- If MAGI is $550k, the phase-out might reduce that cap (e.g., subtract 30% of the excess).
- Use the AI tax planning tool to model how shifting some tax payments, or making donations, or using a PTE election might improve the outcome.
- Use the AI tax research tool to confirm whether the state in question allows a PTET (pass-through entity tax) workaround and track any new state law changes.
6. Summary & Call-to-Action
The expanded SALT deduction strategy opens a meaningful planning window — especially for taxpayers in high-state-tax jurisdictions, trusts, and business owners. However, maximizing this opportunity requires careful analysis of income phase-outs, itemization vs standard deduction, timing of payments, state-specific legislation, and entity-level strategies.
By leveraging advanced AI tax tools and research capabilities — including AI tax research, AI tax planning tools, and agentic AI workflows in tax — tax professionals can offer high-value advisory services, stay ahead of legislative shifts, and deliver optimized outcomes for clients.
Ready to dive deeper? Explore how our Hive Tax AI platform can help you research the expanded SALT deduction, run scenario models, and position your practice for the 2025-2029 window. Contact us today to schedule a demo and get started with your strategic SALT plan.