Homeowners in New York, California, New Jersey, Massachusetts and Connecticut are poised to benefit the most from increased state and local tax (SALT) deductions, according to Redfin’s latest analysis.
The Big Beautiful Bill quadrupled the SALT deduction cap, raising it from $10,000 to $40,000 for households making less than $500,000. The marriage penalty is still in place, a previous Inman article explained, meaning that whether filing as single or married, taxpayers would be able to deduct a maximum of $40,000 in state and local taxes.
The income cap and deduction would each grow by 1 percent every year over a 10-year span.
Redfin estimated the typical household savings in New York ($7,092), California ($3,995), New Jersey ($3,897), Massachusetts ($3,835) and Connecticut ($3,133) based on the new deduction cap, assuming there’s a 24 percent marginal tax rate on the amount above the old cap of $10,000.
Asad Khan | Redfin Senior Economist
Redfin Senior Economist Asad Khan said the SALT deduction cap won’t impact home prices in most states; however, in markets where a high share of homeowner households are impacted by the policy change and the expected savings are high, there is more potential for price changes.
“Homebuyers in states like Illinois, where the potential tax savings are high relative to home prices, may look at the new SALT cap as an opportunity to increase their homebuying budget,” he said in the report. “Theoretically, that could lead to an increase in demand, and higher prices.”
Meanwhile, Redfin said homeowners in Alaska ($1,052), Nevada ($1,090), Tennessee ($1,097) and New Hampshire ($1,101) are poised to see the lowest savings, since those states don’t have a state income tax.
“For households in these states, the only real way to benefit is if their home is valuable enough for property taxes to exceed $10,000,” Khan said. “Even then, the savings are relatively small, since many of these owners are just barely over the old limit.”
When it comes to the share of homeowners who will see potential savings, Massachusetts leads the pack (85.5 percent) followed by New Jersey (84.2 percent), Oregon (79.8 percent), New York (75.8 percent) and California (74.3 percent).
Meanwhile, only 1 percent of homeowners in Tennessee are expected to experience savings due to no state income tax and low median property taxes.
“Benefits vary so widely because the mix of home values, property taxes and income taxes looks very different depending on where you live,” Khan said. “In states with both high home values and high taxes, most homeowners are now able to deduct more than they could under the old $10,000 cap.”
“In lower-tax states — or states with no income tax — the impact is smaller, even for people with expensive homes,” he added.
