What Are SALT Deduction Limitations

Many Ohio residents may be missing out on substantial savings on their federal taxes through SALT Deductions. The savings are particularly substantial for Ohio residents who own a small business, but anyone with significant property taxes stands to benefit from knowing more about SALT Deductions. This article will break down everything Ohio residents need to know about Ohio state SALT Deductions, their limitations, and recent tax law changes that have made shifts in how to handle filing taxes in Ohio.

What is SALT?

SALT stands for State And Local Taxes. As opposed to federal taxes owed to the US government, these taxes are collected by a taxpayer's town, city, and state. For example, a resident may owe tax payments every year to the city of Cincinnati, the state of Ohio, and the US government, all at the same time.

In Ohio, some common state and local taxes include:

• state income tax
• school district income tax
• property taxes

SALT is all non-federal taxes, and, when we discuss them, we're generally discussing what impact paying them can have on federal taxes through SALT Deductions.

What are SALT Deductions?

SALT Deductions allow US taxpayers to deduct their state and local taxes (SALT) from their federal taxes. So, for example, if an Ohio resident owed 20,000 in state and local taxes, and 20,000 from their federal tax bill and paid only 10,000 in federal taxes. This prevents double taxation and equalizes taxes owed between high-tax states and low-tax states.

It's important to keep in mind that these are deductions, not refunds. You don't get a refund check from SALT Deductions, but you do owe less in federal taxes by deducting them. SALT Deductions have existed since federal taxes became a permanent part of the tax landscape in 1913, but have changed significantly over time, particularly in the last 10 years.

How Do SALT Deductions Compare to the Standard Deduction?

Many US taxpayers still benefit from writing their SALT bill off of their federal tax bill, but in most cases they would actually benefit more instead from taking the standard deduction. The standard deduction is a one-size-fits-all deduction that anyone can take, and over time it has grown considerably. It was first introduced in 1944 to simplify US residents' tax bills, and has become available to more residents over time as its amount has increased. It is currently tied to inflation and is set for the 2025 tax year (to be paid in 2026) at 30,000 for residents who are married and filing jointly, $22,500 for those filing as the head of their household, and 15,000 for those filing as single.

What this means for SALT Deductions is that if you were looking to deduct your state and local taxes from your federal tax bill, but that deduction and your other deductions would be less than the standard deduction, you're usually better off taking the standard deduction and lowering your tax bill by even more.

In the end, SALT Deductions are a more important tool for savings for those residents who pay high enough state and local taxes that the standard deduction no longer covers them. Because non-federal taxes can vary greatly depending on where you live, it's important to understand how deducting your particular area's taxes would compare to taking the standard deduction.

What Limitations Are There Currently on SALT Deductions?

For those for whom the standard deduction doesn't deduct as much as SALT Deductions, it's important to understand how much you can deduct. Let's discuss SALT Deduction limitations.

The SALT Cap

The first Trump administration's Tax Cuts and Jobs Act put a cap on SALT Deductions for the first time in US history. This meant that for the 2018 tax year, you could only deduct 10,000 in state and local taxes from your federal tax bill. If you paid 20,000 less in federal taxes, but now you could only save 10,000 on your tax bill.

2025's One Big Beautiful Bill Act raised that cap to 20,000 for those filing as single and $40,000 to those filing jointly, and increased that to account for inflation. (Though this is set to change back to 10,000 when this change expires for the 2030 tax year.) This cap means that when you're itemizing your deductions from your federal tax bill, once you pass the cap, you cannot deduct any more from your non-federal tax bill.

Income-Based Phaseouts

A new cap on SALT Deductions was added in the One Big Beautiful Bill Act. Starting in the 2025 tax year, SALT Deductions also phase out based on your income, starting at a Modified Adjusted Gross Income (MAGI) of 500,000 for those filing jointly and 600,000 and 300,000, respectively. This means that if you were married and together made at least 500,000 in MAGI in 2025, the amount you can save on your federal taxes from SALT Deductions is lessened, and you can't use this deduction at all once you pass 600,000.

Ohio's SALT Limitation Workaround

These limitations on SALT Deductions meant that small businesses that use pass-through entities to pay their taxes as business owners were hit particularly hard by the lack of deductions. Ohio, among other states, passed a law to allow a workaround to the SALT Cap for small business owners, so that they could continue deducting their non-federal taxes from their federal tax bills without a cap.

This exception, often called a SALT limitation workaround or PTET workaround (Pass-Through Entity Tax), allows small businesses set up as LLCs, partnerships, or S-corporations to pay their state and local tax payments as a business, thus avoiding the deduction cap newly placed on individuals. They "pass through" their business income to their owner, but the idea is that these pass-through entities should still be treated as businesses for purposes of tax deductions, not individuals with a cap on their deductions. Thanks to this workaround, if an Ohio resident owns a small business, they can deduct their full SALT payment from their federal taxes without any cap.

Should You Use SALT Deductions In Ohio?

Ohio residents can use SALT Deductions any time it would save more than the Standard Deduction. Some indications that they may be a good fit is if a resident has one of the following:

• high property taxes and an income (using MAGI) that is less than 300,000 (or 600,000 if filing jointly)
• a business that passes through its income to the owner

The Bottom Line

SALT Deductions can be a benefit instead of a burden with proper documentation and competent tax advice. To learn more about the rules of SALT Deductions in Ohio, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.