The One Big Beautiful Bill Act (OBBBA) has temporarily raised the limit on the federal deduction of State and Local Taxes (SALT) from $10,000 to $40,000 for 2025. A Redfin Report released last week found that residents in certain states could see a larger tax break than Illinoisans.
In order to be subject to the limitation, you must itemize on Schedule A, rather than claim the standard deduction. This happens less than one might think.
In 2022, only 10% of taxpayers itemized.
The following is a list of the taxpayers who could see the biggest benefit from the $40,000 SALT deduction cap…
1 – New York: $7,092
2 – California: $3,995
3 – New Jersey: $3,897
4 – Massachusetts: $3,835
5 – Connecticut: $3,133
To estimate the savings, Redfin calculated how much the typical impacted homeowner could deduct under the new SALT legislation. Then, they applied an average 24% marginal income tax rate to the amount over the previous $10,000 SALT cap.
Let me leave you with this…
When I read this report, I found it hard to believe that Illinois wasn’t in the top five because the property taxes we pay in Chicagoland are enough to gag a maggot.
I have clients in Lake County paying $2,500 monthly in property taxes. But we forget that Chicago and its surrounding areas are just a small portion of an otherwise relatively common midwestern state of manufacturers and farming villages.
It’s difficult to believe that with the tax burdens we face that Illinois isn’t somewhere in the top five. But there are states that have property taxes much higher than ours.
When considering this we must also factor in the State Income Tax Rates that are also part of the SALT Limitation. A partial list of states with the highest income taxes include…
1 – California: 13.3%
2 – Hawaii: 11%
3 – New York: 10.9%
4 – New Jersey: 10.75%
5 – Minnesota: 9.85%
Given the national taxation license that I maintain, about 30% of my practice is outside of Illinois. Whenever I complete a California or New York State Return, I’m actually glad to only pay 4.95% in Illinois.
Of course, it would be better to live in Puerto Rico where there is no Federal Income Tax on Puerto Rico earnings and only a 4% local tax, but I digress.
I get a lot of questions during tax time about how much a person could save by moving to another state. But most of the time, its better to stay where we are given the lower income and property taxes we pay in many instances.
Sometimes the grass is actually much greener…
We’re all going to get through this. Let’s get through it together.
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Sincerely yours,
Chris Amundson
President
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