Among the many areas affected by the passage of the One Big Beautiful Bill Act (OBBBA) in July, the State and Local Tax (SALT) deduction is one that’s been at the top of many lists.
OBBBA increases the SALT deduction cap
Previously, the federal SALT deduction cap was set to $10,000 for married couples filing jointly ($5,000 filing separately). The OBBBA temporarily raises that cap to $40,000 for married couples ($20,000 for individuals) for five years, starting with the 2025 tax year.
What does this mean for Coloradans? If you itemize your deductions, you’ll be able to deduct a much larger portion of your state income, property, and sales taxes on your federal returns.
There’s a phase-out for high earners
The full $40,000 deduction is available to joint tax filers with household incomes below $500,000 (under $250,000 for individuals) in 2025. The deduction phases down for households over that threshold, but will not fall below $10,000.
It’s temporary
The new SALT cap is only available from the 2025 tax year through 2030. After that time, it will revert to the previous caps of $10,000 for married couples and $5,000 for individuals.
Colorado passed the SALT Parity Act in 2021, which allows pass-through entities in Colorado to elect to pay state income tax at the entity level, impacting how partnerships and S corporations are taxed.
Is the Colorado SALT Parity Act still in effect?
Yes. The 2021 Colorado SALT Parity Act is a state-level workaround allowing partnerships and S corporations to choose to pay Colorado income tax at the entity level. This essentially allows them to claim a federal deduction for state income taxes above the $10,000 deduction that was in place at the time the SALT Parity Act was passed.
With the increased federal cap of the OBBBA, Colorado businesses could potentially receive more tax relief.
Have questions about how the OBBBA may affect your business tax situation? We can help.
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