Preparing for the Potential Elimination of the SALT Deduction Limit: A Strategic Approach for the Accounting Industry

As accounting professionals, we know that tax planning can often feel like a game of chess—anticipating moves, staying informed about potential legislative changes, and leveraging strategies to optimize outcomes for your clients or your business. One critical development on the horizon is the potential elimination of the SALT (State and Local Tax) deduction limit after 2025. Here’s how you can prepare now to make the most of this opportunity.

The SALT Deduction Limit: What’s Changing?

The current SALT deduction cap limits taxpayers to deduct only $10,000 in state and local taxes on their federal returns. For many individuals and businesses, this cap has significantly reduced the benefit of paying high state and local taxes. However, this limitation is set to expire after 2025 unless Congress extends it.

Given the uncertain political landscape, it’s prudent to anticipate the possibility of the limit being lifted. This could mean a substantial “catch-up” deduction for many taxpayers in 2026—but only if they’ve planned strategically.

A Two-Year Strategy for Maximizing Deductions

For those of you paying more than $10,000 annually in sales and property taxes, consider implementing a timing strategy over the next two years to maximize your potential deductions. Here’s how:

  1. Limit Payments to $10,000 in 2024 and 2025: To stay within the existing deduction cap, restrict your SALT payments to $10,000 per year for the next two years. For example, if your property taxes exceed this amount, you can make a partial payment in December of each year and defer the balance to January of the following year.
  2. Defer Excess Payments to January 2026: Once the SALT deduction limit expires, the balance of your property taxes paid in January 2026 may become fully deductible. This strategy positions you to benefit from an increased deduction without overpaying in advance of the potential rule change.
  3. Coordinate with State and Local Deadlines: Ensure your payment schedule aligns with your state’s rules and deadlines to avoid penalties. Most jurisdictions allow this type of payment deferral as long as the full amount is paid by the due date.

Why This Strategy Makes Sense

Even if Congress does not remove the SALT deduction limit, you’re no worse off for having implemented this strategy. You’ve limited your payments to what’s currently deductible while creating the possibility for a significant “catch-up” deduction if the cap is removed.

How to Execute This Plan

For most taxpayers, executing this plan involves a straightforward calculation of your annual state and local tax liability and determining the optimal split between December and January payments. However, if you’re unsure about how to proceed or need assistance, don’t hesitate to reach out. As accounting professionals, we’re here to help you navigate the complexities of tax planning and ensure you’re making the most informed decisions.

How Woodlands Tax Advisors Can Help

The potential elimination of the SALT deduction limit is a unique opportunity for taxpayers to optimize their tax strategy. By planning ahead and leveraging a timing strategy, you can position yourself or your clients for a potentially significant tax benefit in 2026.

Tax planning is all about being proactive, and this is one area where a little foresight can go a long way. If you need help with calculations or want to ensure your approach aligns with current tax laws and deadlines, give us a call, 281.214.2255. We’re always glad to “check your math” and provide guidance tailored to your situation.