SALT Cap Raised to $40K Under 'Big Beautiful Bill': How Indian-Americans Stand to Gain

US President Donald Trump's flagship policy document "The One Big Beautiful Bill Act" is all set to become law as he puts his stamp on it today during the Fourth of July Independence Day celebration. The over 900-page-long spending and tax cut document was passed by the Republican-controlled Congress after tough negotiations, threats, and even alleged gifts to lawmakers.

The bill is set to provide massive tax cuts and deductions to US businesses and individual taxpayers, even as economists expect that the bill will add $3 trillion to the federal budget deficits by 2034. Among the slew of tax breaks provided in the bill, the focus is on deductions extended for state and local taxes (SALT). The SALT deduction, which is an alternative to the standard deduction provided to US taxpayers, has been extended from $10,000 to $40,000, though with certain limits.

The deduction is set to benefit several individuals and businesses, especially those paying higher taxes and residing in states that apply higher rates, according to analysts. With a diaspora of around 5.1 million, the Indian-American community is set to be a key beneficiary of these tax breaks.

According to a BCG report from 2024, the Indian diaspora in the US makes up only 1.5% of the population but contributes 5–6% (or about $300 billion) in tax revenues annually to the federal coffers. That’s on top of the $370 billion to $460 billion in annual spending.

Additionally, according to a Confederation of Indian Industry (CII) survey report, there are at least 163 Indian companies operating in the US across 40 US states with an investment of over $40 billion and employing more than 425,000 people. They too are set to benefit from these tax breaks.

What Is SALT Deduction

The state and local tax (SALT) deduction in the US allows individuals and businesses who choose to itemize their federal tax returns to reduce their taxable income by deducting certain taxes already paid to state and local authorities. This includes property, income, and sales taxes. Before 2017, there was no ceiling on how much could be deducted. The first Trump Administration formalised these cuts and brought a cap of $10,000 for SALT deductions under his Tax Cuts and Jobs Act in December 2017.

This cap was set to expire in 2025, but his OBBBA is set to extend this tax break. However, it is conditional. But before we discuss that, let’s try to understand how it works. For that, we take a look at an example provided by Thomson Reuters.

Consider a scenario where someone preparing their taxes opts for itemized deductions rather than the standard deduction. Suppose they paid $10,000 in property taxes and $6,000 in state income taxes during the year. While the total of $16,000 in state and local taxes would typically be deductible, the SALT cap restricts the deductible amount to $10,000. If this taxpayer falls in the 24% income tax bracket, the deduction would lower their federal tax bill by $2,400—calculated as 24% of the $10,000 maximum deduction.

Studies over the years have shown that taxpayers in states with high tax rates or those with higher incomes often benefit the most from this deduction, as it helps to mitigate the burden of being taxed at both the state and federal levels.

How 'Big Beautiful Bill' Changes SALT

The bill has gone through several changes as it has passed through the House of Representatives and Senate. The latest version temporarily increases the cap on the itemized deduction for SALT to $40,000 for 2025 and increases the cap by 1% from that level through 2029. But it is subject to a phaseout for taxpayers with incomes above $500,000. At that point, the SALT deduction cap is reduced to a flat $10,000.

Further, the bill makes limitations to itemized deductions permanent, including the limitation on personal casualty losses, termination of the miscellaneous itemized deduction (except for educator expenses), the Pease limitation on itemized deductions, and certain moving expenses (except for active-duty members of the armed forces and members of the intelligence community).

"SALT cap relief is expensive and regressive, worsens tax complexity, and has little justification from a tax policy standpoint," says the non-partisan Committee for a Responsible Federal Budget (CRFB), adding that "It is disappointing that the bill instead worsens the SALT expansion proposed by the House."

But this is not all. After Donald Trump limited the SALT deduction in 2017, more than 30 US states came up with an alternative known as the SALT cap workaround. This workaround can be a beneficial tax-reduction tool for some pass-through entity (PTE) business owners, enabling them to avoid the $10,000 SALT deduction cap on deducting state and local taxes on federal individual tax returns.

According to CRFB, the Senate version passed by the House yesterday "fully protects SALT cap workarounds that allow many wealthy taxpayers to avoid the SALT cap altogether."

"The OBBBA makes the increase in the alternative minimum tax (AMT) exemption permanent; reverts AMT exemption phaseout thresholds to 2018 levels of $500,000 for single filers and $1 million for joint returns, indexed for inflation thereafter; and increases the phaseout rate," it added.

According to the Tax Foundation, the bill would prevent tax increases on 62% of taxpayers that would occur if the TCJA expired as scheduled and significantly improve incentives to invest in the American economy.

"Though long-run GDP would be 1.2% higher under the OBBBA, dynamic debt-to-GDP would increase from 162.3% to 175.5% in about 35 years, indicating the bill would bring higher economic growth as well as higher deficits and debt," the Washington-based nonpartisan group said.

They further add that the bill is already suffering from a "math problem", as the tax cuts add up to over $4 trillion, and spending cuts have been pared back.

"This is a recipe for worsening deficits at a time when Congress needs to be more concerned about the country’s fiscal outlook," the Tax Foundation said. But for now, taxpayers and businesses in America could expect a tax break—along with complex paperwork to claim them.

"While the immediate effects—such as corporate tax cuts and increased consumer spending—are likely to boost GDP, the deeper implications need to be monitored. Markets may initially respond positively to higher corporate profits, investors should prepare for a reckoning when bond markets could higher yields in response to America’s worsening fiscal outlook," said Viram Shah, Founder & CEO, Vested Finance.