Updated Tax Planning Landscape Under the Proposed Budget Bill - SALT Deduction Strategies
- Bob Montes
- Jun 6
- 3 min read
SALT Deduction Changes: What You Need to Earn to Get the Full Benefit
The SALT (State and Local Tax) deduction lets taxpayers deduct state income and property taxes from their federal return. Since 2018, it's been capped at $10,000—but big changes are coming in 2025.
What's Changing Under the New Budget Bill (Effective 2025)
The House's new budget bill modifies the SALT deduction cap dramatically:
New Cap:
$40,000 for joint filers
$20,000 for MFS (Married Filing Separately)
Reduction Rule:
If your MAGI (Modified Adjusted Gross Income) is over $500,000 (or $250,000 MFS), your deduction is reduced by 30% of the excess.
Minimum Deduction Floor: Never falls below $10,000 (or $5,000 for MFS)
SALT Cap Workarounds Limited: New restrictions for pass-through entities (S corps, partnerships, LLCs)
Key Insight: If your MAGI exceeds $500,000, you’ll likely never benefit from the higher SALT cap—but strategic income deferral or entity restructuring could help.
Don’t Get Caught Off Guard
If you're a business owner or homeowner in a high-tax state, this change might sound helpful—but may not benefit you directly. That’s why working with a tax strategist now can make all the difference.
Optimization Ideas
Bundle deductions in high SALT years (2025–2032) while cap is highest.
Defer income to future years when SALT cap declines, if you're near thresholds.
Model interest deduction limits when using heavy depreciation.
Use R&D credits if amortization limits MAGI reductions.
Elect real property trade/business status (if eligible) to opt out of 163(j), but weigh long-term consequences.
Let’s go one by one with updated provisions and analyze how they help lower MAGI.
What changed: 100% bonus depreciation reinstated for qualified property placed in service between Jan 20, 2025 – Dec 31, 2029.
MAGI Impact: Massive up-front deduction → significant MAGI reduction
Strategy Boost: Time asset purchases for post-Jan 19, 2025. Deferring asset placement by just 3 weeks (from Jan 1 to Jan 20) can double deduction impact.
2. Section 179 Expensing – LIMIT INCREASED to $2.5M (phasing out at $4M)
What changed: Deduction limit increased to $2.5M (from ~$1.22M), with phaseout starting at $4M.
MAGI Impact: Expanded expensing ability helps larger businesses fully deduct equipment, dropping MAGI significantly.
Strategy Boost: Use in tandem with bonus depreciation; prioritize Sec. 179 if you want more control (since it’s elective by item).
3. R&D Expense Deduction – FULL Immediate Expensing (2025–2029)
What changed: No more 5-year amortization—full domestic R&E expenses are deductible in the year incurred.
MAGI Impact: Sharp reduction in taxable income.
Strategy Boost: Front-load domestic R&D spend between 2025–2029 to optimize SALT deduction benefits.
4. Business Interest Deduction – 163(j) Loosened
What changed: Interest expense limit now calculated without subtracting depreciation/amortization, boosting ATI (Adjusted Taxable Income) → higher deductible interest.
MAGI Impact: More interest becomes deductible → MAGI decreases
Bonus: Floor plan interest extended to trailers/campers → great for RV/vehicle industries.
Updated Strategic Scenario
Taxpayer: Individual
Filing Status: Married Filing Jointly
Original MAGI: $550,000
Target MAGI: ≤ $500,000
Goal: Qualify for full $40,000 SALT deduction in 2025
Tools Used in Strategy:
Tool | Taxpayer Action | MAGI Impact |
|---|---|---|
Capital investment of $60,000 | -$60,000 | |
Section 179 Expensing | Equipment expensed: $40,000 | -$40,000 |
R&D Expense (Full Deduction) | Domestic R&D spend: $25,000 | -$25,000 |
Business Interest Deduction | $20,000 now fully deductible | -$20,000 |
Total Adjustments to MAGI: -$145,000
Resulting MAGI: $550,000 - $145,000 = $405,000
Outcome: Below $500K MAGI threshold → Full $40,000 SALT deduction preserved
Summary of Interplay Benefits
Provision | Pre-Bill Rule | Post-Bill Advantage | SALT Deduction Benefit |
|---|---|---|---|
40% in 2025 | 100% for 2025–2029 | Larger MAGI reduction | |
Section 179 Limit | ~$1.22M | $2.5M, phaseout at $4M | More room for strategic expensing |
R&D Expensing | 5-year amortization | Immediate expensing (2025–2029) | Faster MAGI impact |
Business Interest Limitation | Depreciation reduced ATI | Depreciation excluded from ATI | More interest deduction (lower MAGI) |
Final Thoughts
These changes create a rare window (2025–2029) where individual taxpayers with business income can combine:
Full R&D expensing
Enhanced interest deductibility
…to engineer the perfect MAGI level for maximizing their SALT deduction before the cap begins phasing down in 2027.
What Should You Do?
If you're a high-income taxpayer or own a pass-through entity, now is the time to review your tax position and adjust for these upcoming changes. Timing, income deferral, and entity restructuring may all play a role in optimizing your deductions.
Ready to Plan Ahead?
At Data Wise, we specialize in proactive tax strategy. Our experts can help you navigate these changes and reduce your tax exposure before the new rules hit in 2025.
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