The New SALT Cap Is Much Higher. Who It Will—and Won’t—Help.

The amount of state and local taxes, or SALT, that a homeowner can deduct on federal taxes will rise to $40,000 from $10,000. (Elijah Nouvelage/Bloomberg)

Property taxes have climbed over the past several years. The amount a homeowner can deduct on their federal taxes is rising, too—but not everyone who shouldered a property tax increase will see the same benefit.

The Trump administration’s tax and spending legislation, which was passed earlier this month, will increase the amount of state and local taxes, or SALT, including property taxes, a household is allowed to claim as an itemized deduction, quadrupling the previous cap to $40,000 from $10,000. The original limit was set as part of the Tax Cuts and Jobs Act in 2017.

Homeowners in states like New Jersey, New York, and California are likely breathing a sigh of relief. A recent Realtor.com analysis of tax assessment data found that these three states have the largest shares of homeowners paying more than $10,000 but less than $40,000 in property taxes. (News Corp, which owns Barron’s, also owns Realtor.com operator Move.)

In New Jersey, nearly four in 10 homeowners were on the hook for property taxes in that range as of their most recent assessment, according to the analysis.

The top beneficiaries aren’t a surprise: An increase in the cap on SALT deductions was widely known as one change that would largely benefit blue states with high taxes.

Among the less-expected beneficiaries may be Texas taxpayers. Property taxes measured by the Census Bureau rose nearly 50% between 2017 and 2023 in the Lone Star State, with the median real estate tax paid clocking in at $4,111. More than one in 10 Texas properties came with taxes above $10,000 as of their most recent assessment, according to the Realtor.com analysis—the eighth-largest share in the nation.

Everything may be bigger in Texas—but climbing property taxes are far from a Lone Star State problem. Since the original SALT limit was made law more than seven years ago, property taxes nationally rose 30% between 2017 and 2023, the most recent year for which census data is available.

Higher property taxes, along with rising insurance costs, have become a difficult-to-predict aspect of home affordability. Rising taxes that can come with a new home purchase “are daunting numbers for people to factor in,” notes Charles Sachs, chief investment officer of the Florida-based Imperio Wealth Advisors.

The significant rise in potential property tax liability “is a concern for homeowners and for property owners who are questioning whether or not they will be able to afford to live in their homes,” says Manish Bhatt, a senior policy analyst at the Tax Foundation.

Some homeowners shouldering bigger hikes in property taxes are less likely to see the larger SALT cap make a difference in their taxable income, since their median real estate tax payments are well below the original $10,000 limit.

Take Idaho, the poster child for the Covid-19 housing boom. Property taxes there have risen 52% since 2017—but fewer than 2% of homes are taxed high enough to exceed the prior SALT limit in property taxes alone, the Realtor data show. Property taxes in Idaho were relatively low before the pandemic, so even after their quick climb, the median real estate tax, at just over $2,000, was still lower than the national norm of about $4,200.

Places in the Mountain West saw significant increases in potential tax liability as movers poured in from other states, says the Tax Foundation’s Bhatt. “People were choosing to live and work in areas that they hadn’t had the opportunity to live and work before,” he says.

The rapid national rise in property taxes came as mortgage rates fell to historic lows. During 2020 and 2021, nearly 12 million existing homes changed hands, the most for any two-year period since 2005 and 2006, as homes sold quickly and property values climbed. Different localities have different rules about when home values are reassessed for tax purposes, but one common trigger is a home sale or large remodeling project, notes Bhatt.

Whether or not a household can take the SALT deduction depends on more than property taxes. State income tax is also considered a SALT deduction subject to the $40,000 cap. And other deductions, such as those for mortgage interest or medical expenses, as well as limitations, such as the alternative minimum tax or income-based phase-outs, will further influence a household’s final tax burden. Plus, a filer can only claim the deduction if they itemize, a choice that became rarer after the Tax Cuts and Jobs Act doubled the standard deduction.

The increased SALT cap is meant as a fiscal stimulative measure rather than property tax relief, says Realtor.com senior economist Jake Krimmel. “It puts more money back in certain people’s pockets, or doesn’t take as much away, rather, and maybe that leads to more consumption, more investment, that sort of thing,” he says. “It’s really a fiscal policy more than a housing one.”

Localities are investigating ways to reduce the impact on homeowners, from issuing levy limits for local governments to eliminating property taxes entirely, notes Bhatt—but adds that there’s reason to proceed with caution. Property taxes generally pay off in community services like good schools, fire departments, and roads, he says. “To replace a property tax with other less efficient taxes could be economically disastrous in the long run,” he says.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com