The SALT Deduction Expansion: A Tax Break Catalyst for Real Estate and Wealth Management Strategies

The federal tax landscape has shifted dramatically with the One Big Beautiful Bill Act (OBBBA), enacted in July 2025. At the heart of its reforms is a temporary revival of the State and Local Tax (SALT) deduction, which could reshape investment strategies for real estate, trusts, and high-net-worth wealth management. For investors, this is a golden opportunity—but one that requires careful navigation of its phase-downs, sunsets, and state-specific quirks.

The New SALT Landscape: A Temporary Lifeline for High-Tax States

The SALT deduction's cap has been temporarily raised to $40,000 for single filers and $40,000 for joint filers in 2025, marking a significant reprieve for residents of high-tax states like California, New York, and New Jersey. This boost, which will grow modestly (1% annually) until 2029 before reverting to $10,000 in 2030, directly benefits homeowners in these regions by reducing their taxable income.

However, the windfall comes with strings. High-income taxpayers—those with modified adjusted gross income (MAGI) exceeding $500,000 (single) or $505,000 (joint) in 2025—face a phase-down of their SALT deduction by 30% of the excess amount. This creates a “sweet spot” for investors: maximize deductions before hitting these thresholds, or structure income strategically to stay under them.

Pass-Through Entity Taxes (PTET): The Backdoor to Bigger Deductions

The OBBBA's most overlooked provision? Its explicit endorsement of Pass-Through Entity Taxes (PTET). States like California and Illinois already allow pass-through businesses (LLCs, partnerships, S corps) to pay state taxes at the entity level, bypassing the SALT cap entirely. Under the new law, these programs are here to stay—meaning owners can deduct PTET payments at the entity level, even as individual SALT caps shrink.

For wealth managers, this opens a clear path: advise clients in PTET states to structure investments through pass-through entities. For example, a real estate investment trust (REIT) in a PTET state could reduce taxable income without triggering the SALT cap. The strategy is particularly potent in states like Oregon and Utah, which have extended their PTET programs through at least 2026.

Real estate investments in high-tax states could see demand lift as SALT deductions rise, but volatility remains tied to broader market trends.

The 2026 Tax Tsunami: Bracing for the New Itemized Deduction Cap

Starting in 2026, the OBBBA introduces a sweeping itemized deduction cap for top earners. High-income taxpayers will lose 2/37 of their itemized deductions (including SALT) if their income exceeds the 37% tax bracket threshold. This could slash deductions by thousands for households earning over $643,000 (single) or $776,000 (joint) in 2026.

The silver lining? Qualified business income (QBI) deductions from pass-through entities are exempt. This reinforces the case for PTET structures, as they allow businesses to shield income from the new cap while maximizing deductions.

Investment Playbook: Capitalizing on Temporary Tax Wins

1. Real Estate in High-Tax States:
   Investors should prioritize markets in states with PTET programs and high property taxes. States like California (with its robust PTET and tech-driven wealth) or New Jersey (where SALT deductions were historically stifled) could see renewed demand for luxury homes and commercial properties.

2. Trusts and Estate Planning:
   Grantor trusts allow SALT deductions to be taken at the grantor level, avoiding the phase-downs. Wealthy families should consider these structures to lock in deductions before 2030's reversion.

3. Timing the Tax Clock:
   Accelerate deductions and income shifts before 2026's new cap takes effect. For example, prepaying state taxes in 2025 could secure a larger deduction under the current $40,000 limit.

4. Monitor State Conformity:
   States like Virginia have extended PTETs, but others may lag. Investors in nonconforming states (e.g., Texas or Florida) face fewer tax breaks but could benefit from lower state burdens in the long run.

Risks and Reality Checks

The SALT revival is a temporary deal. By 2030, the $10,000 cap returns, and the 2026 deduction cap looms large. Investors must avoid complacency:
- Legislative Uncertainty: Congress could tweak the 2030 reversion or expand PTET rules.
- State Nonconformity: Not all states will adopt PTET programs, creating uneven opportunities.
- Market Overreach: Overloading portfolios with high-tax state real estate risks overvaluation ahead of 2030's reset.

Conclusion: A Tax-Smart Window for the Strategic Investor

The SALT expansion is a fleeting but powerful tool for portfolio optimization. For real estate investors, it's a buy signal in states where PTET and high property taxes align. For wealth managers, it's a reminder to use trusts and entity structures to sidestep phase-downs.

But remember: this is a race against the clock. The tax breaks are set to vanish in 2030, and the 2026 cap will punish the unprepared. Investors who act now—while the window is open—could secure decades of tax advantages.

Past tax reforms have often boosted real estate investments. The question is: will this cycle follow suit?

The verdict? Act swiftly, structure wisely, and keep an eye on the sunset.