Maximizing the 2025 SALT Deduction Expansion in Trump's Big Beautiful Bill: Strategic Tax Planning for High-Net-Worth Homeowners

The 2025 tax landscape has been reshaped by the One Big Beautiful Bill (OBBB), which dramatically expanded the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 for tax year 2025. This increase, set to rise by 1% annually through 2029 before reverting to the original cap in 2030, offers a critical opportunity for high-net-worth homeowners-particularly those in high-tax states like California, New York, and New Jersey-to reduce federal tax liabilities. However, the expanded deduction is not without limitations: it phases out for taxpayers with modified adjusted gross incomes (MAGI) exceeding $500,000, reducing the cap by 30 cents for every dollar over the threshold until it reverts to $10,000 at $600,000 in MAGI according to SmartAsset. For those who itemize deductions, strategic planning is essential to leverage this temporary windfall.

Tax-Efficient Strategies for High-Net-Worth Homeowners

1. Leveraging Non-Grantor Trusts to Multiply SALT Deductions

One of the most innovative strategies involves the use of non-grantor trusts. By transferring income-producing assets into multiple trusts, each trust can claim its own $40,000 SALT deduction, provided its adjusted gross income (AGI) remains below $500,000. This approach allows taxpayers in high-tax states to effectively multiply their deductions while achieving estate planning benefits by removing assets from their taxable estates as Kiplinger reports. For example, a New York-based taxpayer with $80,000 in annual SALT expenses could split their assets into two trusts, each deducting $40,000, thereby maximizing the benefit of the expanded cap.

2. Roth IRA Conversions and Tax-Advantaged Asset Allocation

High-net-worth individuals should also consider Roth IRA conversions, particularly in years of lower taxable income. Converting traditional IRAs or 401(k) accounts to Roth IRAs allows for tax-free growth and withdrawals in retirement, though it requires paying income tax upfront. This strategy becomes more attractive when paired with the SALT deduction expansion, as the increased deduction can offset the tax hit from conversions according to CNBC. Additionally, allocating assets into tax-advantaged vehicles like Health Savings Accounts (HSAs) and Donor-Advised Funds (DAFs) enhances long-term tax efficiency while supporting charitable and estate planning goals as Fidelity notes.

3. Pass-Through Entity Workarounds

For business owners in high-tax states, the OBBB introduces a workaround for pass-through entities (PTEs). By paying state and local taxes at the entity level, PTEs can reduce individual owners' taxable income without being subject to the SALT deduction cap. This strategy is particularly valuable for those in states like California, where property and income taxes are substantial according to JPMorgan.

4. Optimizing MAGI to Avoid Phaseouts

Taxpayers with MAGI near or above $500,000 must prioritize reducing taxable income to avoid the SALT deduction phaseout. Strategies include increasing pre-tax retirement contributions, deferring income to future years, and accelerating property tax payments to maximize 2025 deductions as MJCPA explains. For instance, a taxpayer earning $520,000 in MAGI could reduce this by $20,000 through additional 401(k) contributions, preserving the full $40,000 SALT deduction.

Real-World Applications and Expert Insights

The expanded SALT cap has immediate financial implications. A taxpayer in the 35% tax bracket with $40,000 in SALT expenses could save an additional $10,500 in taxes compared to the previous $10,000 cap according to MJCPA analysis. Experts recommend that high-tax state residents act swiftly to structure their affairs before the cap reverts in 2030. As stated by a report from Fidelity, "The 2025 SALT cap increase is a temporary but powerful tool for tax savings-strategic planning is essential to maximize its benefits" as Fidelity notes.

Conclusion

The 2025 SALT deduction expansion under the OBBB represents a significant, albeit temporary, opportunity for high-net-worth homeowners. By employing non-grantor trusts, Roth conversions, pass-through entity strategies, and MAGI optimization, taxpayers can minimize federal tax exposure while preserving wealth. However, the phaseout rules and sunset provisions necessitate proactive planning. As the window closes in 2030, those who act now will reap the greatest rewards.