After days of contentious debate that threatened to derail President Trump's "One Big, Beautiful Bill Act" again, the House agreed on May 22 to a significant increase in the cap on deductions homeowners can claim on state and local taxes.

A group of Republicans representing blue states like California, New York and New Jersey had threatened to block the bill unless there was a hefty increase in the SALT cap. They argued that the current cap — $5,000 for married couples filing separately and $10,000 for everyone else — disproportionately affects the constituents of their high tax, high property-value states. That cap is set to expire in December.

The bill advanced mostly along party lines in the House. It needs a majority to pass in the Senate, but none of the lawmakers in the high-income blue states are Republican and a handful of GOP senators have argued that the budget cuts in the overall bill are not deep enough.

Prior to the passage of the Tax Cuts and Jobs Act of 2017, which enacted the SALT cap, there were no limits on deductions. The new deal calls for a four-fold increase with an income cap starting at $500,000 a year and a 1% annual inflation adjustment over 10 years.

Under SALT, the state and local taxes eligible for deduction include income, general sales (taken instead of income taxes), and real and personal property taxes.

*Incomes above $500,000 phase out, but the deduction doesn't go lower than $10,000. Cap and income limit would increase 1% every year from 2026 to 2033.

But not everyone would benefit from the new limits, and lawmakers who wanted to see the cap eliminated altogether railed against the bill's passage.

It's been a protracted battle. In July 2018, several states and local governments sued to stop the SALT cap and lost.

But some high-earners in high-tax, high-property-value states would benefit the most from the increase, saving thousands on their taxes.

"As with other tax deductions, the SALT deduction benefits high-income taxpayers more than low-income taxpayers," economist Grant A. Driessen noted in an analysis for the Congressional Research Service. "Three factors explain this pattern: (1) higher incomes lead to more state and local income taxes, and are correlated with higher sales and property tax payments stemming from higher spending; (2) filers with higher incomes tend to benefit more from other itemized deductions, making itemization (and SALT deduction eligibility) more likely; and (3) taxpayers with higher incomes are subject to higher marginal tax rates, so each dollar deducted from tax liability results in greater tax savings."

The new cap could free up more buying power, giving the luxury home market a boost and taking some of the sting out of trading up.

“In terms of hard dollars, the more affluent consumer is going to benefit ... but it is really going to benefit consumers across the board,” said Jonathan Miller, CEO of Manhattan-based Miller Samuel real estate appraisers and consultants. “You’re reducing the cost of homeownership. That’s more of an infusion into an economy. It’s helpful to a housing market that has been battered by higher housing costs.”

As it's written, the deduction gets more generous as time passes. The SALT cap allows for a gradual 1% increase each year from 2026 through 2033. Someone who has a SALT deduction of $40,000 in 2026 would later get a deduction of $40,400 in 2027 and so forth, said Bryan Cutsinger, an economics professor at Florida Atlantic University.

The percentage of tax filers using SALT deductions has decreased over time. A Congress overview and analysis reported that 9% of taxpayers used SALT in 2022, down from 31% in 2017.

How will this end? Will the bill pass with the higher cap? Will senators remove the new limits and allow SALT to expire in December? Will they suggest a new cap?

Limiting the SALT deduction feeds federal coffers, Driessen noted in his analysis. Raising the cap means shifting more of the burden from taxpayers to the federal government, increasing the deficit.

“The idea is if the thresholds are raised, you bring some relief to a larger part of the market,” Miller said. “The idea is if you raise it too much, you’re going to cause greater deficits in the future.”

When asked whether the proposed SALT cap increase would add to the nation's roughly $1.05 trillion deficit, Cutsinger said, "It's a question mark."

With higher caps, "the federal government is collecting less taxes as a result," he added. "People will be able to get a larger deduction."

It's uncertain how this will impact the deficit, he said, because politicians may increase or add taxes to compensate for the loss in revenue with the higher limits.

The nonprofit Tax Foundation said the math just doesn't add up.

"Take the recent proposed deal to raise the cap to $40,000 for all filers," Garrett Watson, the nonpartisan organization's director of policy analysis, said in a May 20 blog post. "With a $500,000 income phaseout threshold and a gradual increase in the cap over 10 years, this proposal would cost about $320 billion on its own compared to an extension of the existing cap, and $150 billion compared to the $30,000 cap currently in the tax package, raising about $660 billion over 10 years on a conventional basis.

"The bill is already suffering from a math problem, as the tax cuts add up to over $4 trillion, and spending cuts have been pared back. This is a recipe for worsening deficits at a time when Congress needs to be more concerned about the country’s fiscal outlook."

The Congressional Budget Office said in a May 20 memo that for the 2026-2034 period, there would be "an increase in the federal deficit of $3.8 trillion attributable to tax changes, including extending provisions of the 2017 tax act, which includes revenues and outlays for refundable credits."

Regarding the overall budget proposal, the CBO warned that that "resources would decrease for households in the lowest decile (tenth) of the income distribution, whereas resources would increase for households in the highest decile."

SALT had a chilling effect when it was implemented during the first Trump administration.

Residential price growth slowed after the passing of SALT, according to the 2021 report "The Impact of the State and Local Tax (SALT) Deduction Cap on U.S. Home Prices" by the Comptroller of the Currency, a regulatory body within the U.S. Department of Treasury. The report found that the cap reduced the growth rate in high-SALT counties by one-fourth per year.

States and districts with high property taxes were the hardest hit, including California, New York, New Jersey, Massachusetts, Minnesota, Maryland, Virginia, and Washington, D.C.

They remain, however, some of the priciest housing markets.

At the time of its passing, some buyers re-examined their wish-list for their home search, including Ben Jacobs, a real estate agent with the Chestler Jacobs Team, an affiliate of Douglas Elliman. Jacobs spoke to Homes when raising the SALT cap was first discussed in early spring.

He said he bought his two-bedroom, two-bathroom condo in the Williamsburg section of New York City in 2020. He chose a building with a tax abatement — property tax relief given to developments seen as a potential economic boost to a neighborhood.

“Looking at the monthlies and what I could deduct,” Jacobs said, “SALT played a role in that [decision].”