One Big Beautiful Bill Act (Part 1 of 3) – The SALT Deduction Limit Increase
Personal note from Stan: I’ve struggled on how to react to the One Big Beautiful Bill Act (OBBBA) passed on July 4, 2025. On one hand, it is the single largest de facto rollback of healthcare coverage to low-income patients in my lifetime, a devasting blow to rural communities, and will make medical school far less possible for students from lower-income families. On the other hand, many physician families will benefit from the changes, and there are huge opportunities to improve physician financial wellness with solid financial planning as early as the 2025 tax year.
I will address the first side separately in my work as a physician as well as my role as an advocacy leader with Maryland’s American College of Cardiology chapter. Connect with me on LinkedIn if you’d like to discuss this issue independently of financial planning. This blog post will be focused on the financial planning side of the OBBBA.
Relevant Audience: Physician households who pay more than $10k in state and local income taxes yearly.
Key Points:
- From the 2018 to 2024 tax years, itemized deductions for state and local taxes (SALT) were limited to only $10k per year – this meant many physicians were better of taking the standard deduction, and those in high-income tax states lost a huge deduction.
- The One Big Beautiful Bill Act (OBBBA) increases the limit to SALT deduction to $40k for the 2025 through 2029 tax years, which phases out between an adjusted gross income of $500k to $600k.
- For the 2025 through 2029 tax years, consider re-evaluating whether it makes more sense to take the standard deduction vs. itemizing deductions if you pay > $10k in state and local income taxes and your AGI is < $500k.
Background:
When you file your taxes, you choose between taking a standard deduction and itemized deductions to calculate your taxable income. Prior to the 2017 Tax Cut and Jobs Act, many physicians in states with high income taxes would choose to itemize their deductions because they could deduct the high State and Local Income Taxes (SALT) they paid. However, the 2017 Tax Cut and Jobs Act limited that deduction to only $10k per year while also significantly increasing the standard deduction. This meant it made far less sense for many physicians to itemize their deductions, and there was no longer a silver lining for those who live in high-income-tax states between 2018 and 2024.
What the One Big Beautiful Bill Act Changed:
OBBBA changed this immediately for the 2025 tax year (to be filed in April 2026): the SALT limit for itemized deductions has increased from $10k to $40k per year for the 2025 through 2029. However, there is an important caveat – that increased SALT limit goes down as if your Modified Adjusted Gross Income (MAGI) increases past $500k ($250k if married filed separately); once your MAGI reaches $600k, the SALT limit is back to $10k again. Both the SALT limit and MAGI phase-out threshold go up by 1% each year – see the table below.
What the heck is MAGI? Defined in OBBBA as “adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.” That basically adds back any deductions you had for foreign income earned, or income earned in U.S. territories/possessions like Guam. If that doesn’t apply to you, MAGI is the same as your Adjusted Gross Income, a line you can find on your 1040.
| Tax Year | SALT Deduction Limit | SALT deduction limit decreases once MAGI exceeds*: | SALT deduction limit decreases to $10k once MAGI exceeds*: |
| 2024 | $10,000 | N/A | N/A |
| 2025 | $40,000 | $500,000 | $600,000 |
| 2026 | $40,400 | $505,000 | $605,000 |
| 2027 | $40,804 | $510,050 | $610,050 |
| 2028 | $41,212 | $515,151 | $615,151 |
| 2029 | $41,624 | $520,302 | $620,302 |
| 2030 | $10,000 | N/A | N/A |
*For married taxpayers filing separately, the MAGI limits are decreased by 50%.
Compare that to the post-OBBBA Standard Deduction of $15,750 (single/married filing separately)/$31,500 effective for the 2025 Tax Year; many physician families pay more in SALT than the entire standard deduction, and itemizing may make sense in these cases.
Questions You Should Ask for Tax Years 2025 through 2029:
- Do I pay more than $10k in SALT each year?
- Is my MAGI less than the MAGI phaseout threshold (e.g. $500k in 2025)?
If the answer to both questions is yes, it’s probably worth comparing what taxes you would owe if you chose the standard deduction vs. the itemized deduction. This can be done with online tax software; if you’re not sure how much you owe in state and local income taxes, you can look at your previous year’s state tax return to get a sense of how much you might owe this year. For a physician family, the difference may be thousands of dollars.
If you pay more than $10k in SALT, but your MAGI is above the phaseout threshold, the situation gets very complicated as you weigh your options: take the standard deduction, itemize and take the reduced SALT tax deduction, or take measures to lower your MAGI below the threshold to take full advantage of the SALT tax deduction. Working with a financial or tax professional to help you proactively model out each scenario to find the best option may be well worth the investment.
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Stanley Liu, MD, FACC is the Founder and Principal Financial Planner of DocEmpowered, LLC. He is also an independent practicing cardiologist, an award-winning medical educator, and the 2024-26 Advocacy Chair of Maryland’s American College of Cardiology Chapter.
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