Despite not being among the states that supported President Trump in the 2020 election, residents of New York, New Jersey, and California are set to see significant benefits from his administration’s recent tax changes. With a key tax reform in place, these states stand to receive larger tax refunds in 2026, thanks to a substantial increase in the State and Local Tax (SALT) deduction cap.
The Trump administration’s tax reform introduced numerous changes, one of the most impactful being the rise in the SALT deduction cap from $10,000 to $40,000. This provision specifically benefits taxpayers in states with high state and local taxes, like New York, New Jersey, and California. These states often carry high property taxes, income taxes, and other local taxes, making the SALT cap increase a critical development for their residents. As tax season rolls in, taxpayers in these areas are positioned to receive higher refunds, which are set to reduce their overall tax liabilities significantly.
Impact on Taxpayers in High-Tax States
For high-income residents in states like New York, New Jersey, and California, the expanded SALT deduction is a game-changer. According to Kevin Thompson, CEO of 9i Capital Group, raising the SALT cap allows residents in these states to deduct a far greater portion of what they already pay in local taxes. “Higher state and property taxes mean a bigger benefit when the deduction expands,” Thompson told Newsweek. With the cap now set at $40,000, individuals in these states can itemize a much larger portion of their local taxes, which lowers their taxable income.
As a result, many taxpayers are expected to see tax liabilities reduced by up to $3,000, with some benefiting from up to $9,600 in savings. This is particularly advantageous for higher-income earners, who typically face the highest tax burdens in these areas. For couples earning up to $500,000, the full $40,000 SALT deduction is available, which will allow them to substantially lower their federal tax bills. However, those making more than $600,000 will be limited to just a $10,000 deduction under the new cap, signaling the phased approach to the SALT benefit for the highest earners.
Broader Economic and Political Implications
The expanded SALT deduction is not without controversy, however. The move, part of the broader “One Big Beautiful Bill Act” passed under the Trump administration, may have substantial long-term implications. According to Drew Powers, founder of Powers Financial Group, the SALT increase is a boon for both higher-income earners and lower-income earners, especially as rising property values and taxes have heavily impacted those living in these high-tax states. The increase in the SALT cap will particularly benefit residents who have seen their property tax bills climb in recent years due to rapidly rising real estate values.
However, there are concerns about the broader fiscal consequences of this policy. Financial experts, including Michael Ryan of MichaelRyanMoney.com, point out that raising the SALT cap reduces federal revenue, which could have consequences if the economy weakens or if national deficits continue to grow. The Bipartisan Policy Center noted that while the SALT cap increase will provide $32.2 billion in tax savings overall, the long-term fiscal stability of the U.S. government may be at risk if the measure remains in place too long.
Though the SALT cap boost is temporary, it has sparked debate about the future of tax policy. “Fiscal and political risk is real,” said Ryan, emphasizing the uncertainty surrounding the cap’s longevity and the potential for future changes.
