New Federal Tax Law Raises SALT Deduction Cap to $40,000, Benefiting Illinois Homeowners

Illinois taxpayers will see significant changes to their federal tax returns following the passage of the One, Big, Beautiful Bill Act, which raised the state and local tax deduction cap from $10,000 to $40,000 for most filers.

The sweeping tax legislation, signed in July 2025, created over $1 trillion in tax breaks while cutting funding to social safety net programs like Medicaid and the Supplemental Nutrition Assistance Program, according to the source material. The higher SALT deduction cap represents a major shift from the previous limit imposed in 2017 under the Tax Cuts and Jobs Act.

“It never should have been put in place to begin with,” Gov. JB Pritzker said at a news conference last July, according to the source. “I think raising it is a good thing for the state of Illinois.”

The changes will particularly benefit Illinois residents, who face some of the nation’s highest property taxes. Under the previous $10,000 cap, 14.7% of Illinois homeowners had property tax bills that exceeded the limit, according to Realtor.com data. In the Chicago metro area, that figure jumped to 21.8%.

Rising reassessments have pushed property tax bills even higher, particularly on the South and West sides, according to the source material. The higher cap means many homeowners who previously claimed the standard deduction may now find it worthwhile to itemize their taxes.

The new law sets the SALT deduction cap at $40,000 for most filers with household incomes up to $500,000. The cap will increase annually by 1% through 2029, then revert to $10,000 for the 2030 tax year. When a filer’s modified adjusted gross income reaches $500,000, the cap begins to phase out, reducing their deduction by 30% of their excess income, though it cannot fall below $10,000.

The SALT deduction helps prevent double taxation by ensuring filers don’t pay federal tax on income already taxed by state and local governments, which supports services like schools, roads and public safety. The deduction includes property taxes plus either local and state income taxes or state and local sales taxes, but filers must choose between income taxes or sales taxes.

During Trump’s first administration, the original SALT cap raised revenue to offset large tax cuts, placing greater costs on taxpayers in high-tax Democratic-leaning states such as California, New York and New Jersey.

“The tax cuts that Trump and the congressional Republicans wanted to put in place came with a price tag,” said Justin Marlowe, municipal finance professor at the University of Chicago, according to the source. “It was a way to essentially raise taxes on certain high net worth individuals by taking away or limiting a previous ability that they had to pay less in taxes.”

The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, leading about 30 million more people across the country to take the standard deduction rather than itemize, according to the Bipartisan Policy Center. Between 2017 and 2018, the standard deduction rose from $6,500 to $12,000 for single filers, from $13,000 to $24,000 for married filing jointly and from $9,550 to $18,000 for head of household.

The One, Big, Beautiful Bill Act made many tax changes from the 2017 legislation permanent while introducing new tax breaks including “no tax on tips” and a senior deduction of up to $6,000 for those 65 and older.

The SALT deduction changes will most likely help wealthier taxpayers in high-tax states like Illinois, especially those with many expenses to itemize. Because of Illinois’ high property taxes, some residents who previously claimed the standard deduction may now benefit from itemizing their returns under the higher cap.