There were many tax code changes in the One Big Beautiful Bill Act (OBBBA) when it was signed into law in 2025. Many of these changes affected taxpayers at different income levels, and with so many changes, it can be a challenge to know which items can best benefit physicians and their families. One of the provisions in OBBBA was an update to the SALT deduction, a change that can have a significant impact for physicians.
What is SALT
SALT stands for state and local tax, and this is a federal tax deduction that allows filers to deduct certain taxes paid to state and local governments from their federal taxes if they itemize those deductions, up to a certain amount. Itemization would be used instead of using the standard deduction on taxes. Prior to the passing of OBBBA, the SALT cap had been $10,000 for married couples filing jointly, and $5,000 for single filers.
OBBBA and SALT
OBBBA has made temporary changes to the SALT deduction cap amount, increasing it up to $40,000 for those who qualify. As mentioned, this is not a permanent change; this SALT deduction cap increase will be in effect for tax years 2025 to 2029. During that time, the increases are:
- Single, head of household, surviving spouse, and married filing jointly: $40,000.
- Married filing separately: $20,000.
For tax year 2030, the cap reverts back to its permanent amounts of $10,000 for married filing jointly or $5,000 for married filing separately. This is the amount that was put into place in 2017 under the Tax Cuts and Jobs Act, when the standard deduction was doubled. At that time, it was beneficial for many taxpayers to claim the standard deduction because of that change.
Under OBBBA, for taxpayers in high-tax states, it may be more advantageous to itemize deductions to take advantage of the SALT deduction cap increase. For physicians with many deductions to itemize on top of high property and state taxes, this can be a large benefit to reducing federal taxable income.
Who qualifies for the SALT deduction increase
There are some caveats to who can claim the increased SALT deduction, which may impact high earners. For filers with gross incomes above $500,000 (or $250,000 for married individuals choosing to file separately), the full deduction will phase out. For those with incomes above $600,000, the deduction reverts back to the $10,000 previously allowed. The phase-out levels and deduction are on schedule to increase by 1 percent a year to allow for inflation. However, to get the full benefits of these temporary changes, the “magic number” to maintain for income is below $500,000.
What counts as a SALT deduction
There are several types of taxes that can count toward the SALT deduction at the state and local level. However, not every tax paid is eligible, so it’s important to understand the types that may be counted. Eligible taxes to count toward SALT include:
- Property taxes: This includes taxes paid by home or landowners.
- State and local income taxes: This includes what is paid to the state based on unearned and earned income.
- Sales tax: A taxpayer can choose to deduct either sales tax or income tax, but not both.
Examples of taxes that cannot be deducted include federal tax amounts, taxes on home renovations, estate and inheritance taxes, and utility taxes.
What the new SALT deduction looks like
Consider an example: a physician filing their 2025 taxes. This physician lives in a high-tax state and has a 24 percent income tax rate. Annually, they paid $20,000 in property taxes on their house and $25,000 in state income taxes, meaning a total of $45,000 in eligible taxes. Under OBBBA, they are able to itemize their taxes and take the maximum SALT deduction of $40,000. This would ultimately reduce their 2025 income tax liability by $9,600 (the full $40,000 deduction amount times their 24 percent tax rate). Had they opted to use the standardized deduction, they would only have been able to lower their taxable income by either $15,750 (single or married filing separately) or $31,500 (married filing jointly).
| Item | Itemized (with SALT) | Standard deduction (single or MFS) | Standard deduction (MFJ) |
|---|---|---|---|
| Property taxes paid | $20,000 | — | — |
| State income taxes paid | $25,000 | — | — |
| Total eligible SALT | $45,000 | — | — |
| SALT cap under OBBBA | $40,000 | — | — |
| Deduction amount | $40,000 | $15,750 | $31,500 |
| Marginal tax rate | 24 percent | 24 percent | 24 percent |
| Tax liability reduction | $9,600 | $3,780 | $7,560 |
Key takeaway: Itemizing with the OBBBA SALT deduction saves this physician $9,600, compared to $3,780 (single or married filing separately) or $7,560 (married filing jointly) under the standard deduction, a benefit of $5,820 or $2,040 respectively over taking the standard deduction.
Is itemizing the best option
The key reminder here is the total annual income amount. Keeping annual adjusted income below the $500,000 threshold will allow a taxpayer to take full advantage of the increased SALT cap. Ways to reduce taxable income include contributions to tax-advantaged accounts, which include accounts such as IRAs and employer retirement plans. Health savings accounts (HSAs) allow for pre-tax deferrals. For high-earning physicians, if an employer offers deferred compensation or elective deferral programs, these allow eligible participants to defer a larger portion of compensation.
The best scenario for reducing taxable income through deductions will vary depending on the taxpayer’s unique situation. Both options should be explored to see if itemizing will allow the taxpayer to take a larger deduction. Of course, if the itemized deductions, including the applicable SALT deduction, don’t total more than the standard deduction, it’s better to take the standard deduction. However, itemizing increases the options for additional deductions that were perhaps not considered previously, including mortgage interest deduction for homeowners and deductions for charitable contributions. For high earners living in high-income states, this new increased SALT cap is likely to be a benefit. Typically, they face higher income tax bills and owned property taxes to deduct.
It’s important for physicians to explore their options and to work with tax professionals to find the best option for their own unique scenario. Taking income, deductions, opportunities, and needs into consideration while planning will set you up for maximized benefits from updates in tax codes to position you for optimal filing strategies.
Securities and investment advisory services offered through Osaic Wealth, Inc., a member of FINRA/SIPC. Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth. Wall Street Alliance Group and Osaic Wealth are separate companies.
Syed Nishat is a partner at Wall Street Alliance Group. He specializes in ERISA 401(k)s and defined benefit plans and focuses on asset protection, retirement planning, and common financial mistakes made by physicians.
He holds FINRA Series 7, Series 63, and Series 66 licenses, along with life, disability, and long-term care insurance licenses. Syed earned a bachelor’s degree from the University of Nevada, Reno, and has been awarded the Behavioral Financial Advisor (BFA) designation.
Syed’s articles, interviews, publications, and quotes have appeared in Medscape, Medical Economics, MedPage Today, Forbes, U.S. News, PLANSPONSOR, 401(k) Specialist, and BenefitsPRO. He is the author of “8 Mistakes to Avoid When Administering a 401(k) Plan” and “SECURE Act 2.0 Could Be a Game Changer for Retirement Planning.” He shares updates on LinkedIn and X. For disclosures, visit Wall Street Alliance Group.
