September 03, 2025

In July 2025, Congress enacted the One Big Beautiful Bill Act ("OBBBA"), a sweeping piece of legislation that reshapes two areas of federal tax law that have long frustrated taxpayers in higher-tax jurisdictions: the state and local tax ("SALT") deduction cap and the alternative minimum tax (AMT). While the OBBBA offers temporary relief for many, it also introduces new restrictions and permanent AMT reforms that will increase liability for some upper-income taxpayers.

Temporary Relief: SALT Deduction Cap Raised, with Phaseout

For tax years 2025 through 2029, the OBBBA raises the SALT deduction cap to $40,000 ($20,000 for married filing separately), up from the $10,000 limit imposed under the 2017 Tax Cuts and Jobs Act ("TCJA"). This increase will be welcome news to many taxpayers, but the relief is not universal.

The higher cap is phased out for upper-income filers:

• Reduced by 30% of MAGI above $500,000 for single filers
• Reduced by 30% of MAGI above $250,000 for married individuals filing separately

Importantly, the deduction cannot be reduced below $10,000. Beginning in 2026, both the cap and the income thresholds will increase annually by 1% for inflation.

PTET Elections Remain Unchanged

A key question during the legislative process was whether the OBBBA would limit or eliminate the use of pass-through entity tax ("PTET") workarounds. The final version of the OBBBA leaves these intact.

This means that partnerships and S corporations in states with PTET regimes may continue to elect to pay state-level taxes at the entity level—effectively bypassing the individual SALT deduction cap. For many business owners, this remains a valuable planning tool.

AMT Reforms: Broader Reach, Faster Phaseouts

The OBBBA also delivers permanent reforms to the AMT. The good news is that the Act preserves the higher exemption amounts introduced under the TCJA—for 2025, $137,000 for joint filers and $88,100 for single filers—indexed annually for inflation.

The tradeoff is twofold:

1. Lower phaseout thresholds: $500,000 for single filers and $1,000,000 for joint filers.
2. Accelerated phaseout rate: Beginning in 2026, exemptions phase out at 50% of income above the threshold (up from 25%).

The effect is that taxpayers whose incomes exceed the thresholds will lose their exemptions much more rapidly, pulling more upper-income households into AMT liability.

Practical Implications for Taxpayers

Because the SALT deduction is disallowed for AMT purposes, some taxpayers who fall into AMT territory may see diminished benefit from the higher SALT cap. In practice, however, the phaseout of the SALT cap itself will likely limit the deduction for higher-income taxpayers even before the AMT applies.

The net result is a more complex landscape:

• Middle- to upper-middle-income taxpayers in high-tax states will benefit most from the increased SALT cap.
• High-income taxpayers near or above the phaseout thresholds may face higher marginal tax burdens, both from the reduced SALT deduction and the quicker erosion of their AMT exemptions.

Final Thoughts

The OBBBA reflects Congress's attempt to balance relief for taxpayers with long-term revenue needs. For many clients, particularly business owners in PTET-participating states, opportunities remain to mitigate the impact of these changes. For others, especially those with income near the new AMT phaseout thresholds, careful planning will be necessary to manage exposure.

At Gilpin Givhan, we are monitoring these developments closely and advising clients on strategies to navigate this evolving tax environment. If you have questions about how the OBBBA affects your situation, please contact us.