Major Tax Change Could Impact Your Home Buying Decision

If you're considering buying a home or currently own property in a high-tax area, recent federal legislation could significantly impact your tax situation. Trump's "big beautiful bill" includes a temporary SALT limit of $40,000 starting in 2025, representing a substantial increase from the current $10,000 cap.

What is the SALT Deduction and Why Does it Matter for Homeowners?

The State and Local Tax (SALT) deduction allows you to deduct certain taxes you pay to state and local governments from your federal tax return. The state and local tax deduction, known as SALT, provides a federal deduction for state and local income taxes and property taxes. For homeowners, this is particularly important because property taxes often represent a significant portion of your annual tax burden.

The Big Change: From $10,000 to $40,000

Under President Donald Trump's 2017 tax cuts, there's currently a $10,000 limit on the SALT deduction through 2025. The new legislation changes this dramatically by temporarily raising the SALT deduction limit to $40,000 starting in 2025.

Here are the key details:

• New limit: $40,000 (up from $10,000)

• Phase-out: That benefit starts to phase out, or decrease, for consumers who earn more than $500,000 of income

• Annual increases: Both figures will increase by 1% yearly through 2029

• Sunset provision: The higher limit will revert to $10,000 in 2030

Who Benefits Most from This Change?

This change primarily helps homeowners in high-tax states where property taxes and state income taxes combined often exceed the current $10,000 limit. In 2022, the average SALT deduction was close to $10,000 in states such as Connecticut, New York, New Jersey, California and Massachusetts, indicating that many taxpayers in these areas were hitting the cap.

Important to remember: The vast majority of filers — roughly 90%, according to the latest IRS data — use the standard deduction and don't benefit from itemized tax breaks. You'll only benefit from the higher SALT deduction if your total itemized deductions exceed the standard deduction.

What This Means for Your Home Buying Decision

If You're Looking to Buy

This change could make homeownership more attractive in higher-tax areas. Properties that were previously less appealing due to high property taxes may now offer better after-tax value, especially if you're in a higher income bracket.

If You Currently Own

You may see immediate tax savings if your combined state, local, and property taxes exceed $10,000 but fall under the new $40,000 limit. This could free up additional cash flow for home improvements, investments, or other financial goals.

Market Impact Considerations

Areas with high property taxes may see increased buyer interest, potentially affecting home values and market dynamics. As your real estate professional, I can help you understand how these changes might impact specific neighborhoods and price ranges you're considering.

Planning Ahead: The Temporary Nature of This Change

Since the higher limit will revert to $10,000 in 2030, it's important to factor this temporary benefit into your long-term financial planning. If you're considering a home purchase that relies heavily on the tax benefits, discuss with your financial advisor how the eventual return to the lower limit might affect your situation.

Action Steps for Homeowners and Buyers

1. Consult your tax professional to understand how this change affects your specific situation

2. Review your current property tax burden and state tax liability

3. Consider the timing of any major home purchases or improvements

4. Evaluate markets that may become more attractive with the higher deduction limit

How I Can Help

As your real estate professional, I stay current on factors that affect the housing market and your investment decisions. Tax policy changes like this can significantly impact the true cost of homeownership in different areas. Whether you're buying, selling, or evaluating your current property situation, I can help you understand how these changes affect your real estate decisions.

The information in this post is for general guidance only. Tax laws are complex and individual situations vary. Always consult with a qualified tax professional for advice specific to your circumstances.

Ready to explore how recent tax changes might affect your home buying or selling plans? Contact me today for a personalized consultation about the current market and how these developments could impact your real estate goals.