Permanent Individual Tax Rates & New $40,000 SALT Deduction (H.R.1 – 2025)

Permanent Individual Tax Rates & the New $40,000 SALT Deduction (H.R.1 – “One Big Beautiful Bill Act”)

The H.R.1 tax package, informally referred to as the “One Big Beautiful Bill Act,” introduces major updates to U.S. federal tax policy starting in 2025. Two of the most important changes for households—especially in high-tax states like California—are:

• Permanent extension of reduced individual income tax rates

• A substantial increase of the SALT (State and Local Tax) deduction cap to $40,000

This post breaks down what these changes mean, why they matter, and how they could affect taxpayers across different income levels.

1. Individual Tax Rates Become Permanent

Under previous law, the lower income tax rates introduced in the 2017 Tax Cuts and Jobs Act (TCJA) were scheduled to expire in 2026. Without intervention, tax brackets would have reverted to higher pre-2017 levels.

What H.R.1 does:

• Eliminates the 2026 sunset clause

• Makes the TCJA individual tax brackets permanent

• Applies to all filing statuses (single, married filing jointly, head of household)

Why it matters:

Taxpayers will avoid an automatic tax hike, keeping lower bracket thresholds in place for the long term. For millions of middle-income households, this maintains lower marginal tax rates and predictable annual planning.

2. SALT Deduction Cap Raised to $40,000

The original TCJA capped the SALT deduction at $10,000, which significantly impacted taxpayers in high-tax states like California, New York, New Jersey, and Massachusetts.

New H.R.1 SALT Rules:

This is a 300% increase, providing meaningful relief to upper-middle-income and high-income households who itemize deductions.

3. Phase-Out for High Earners

The bill includes a provision to ensure the increased SALT deduction does not disproportionately benefit ultra-high-income taxpayers.

Phase-out threshold:

• Begins at $500,000 MAGI

• Fully phased out at approximately $750,000 MAGI

Impact:

• Most middle-income families benefit fully

• Very high earners in states like California may see limited or no SALT benefit

4. What This Means for California Taxpayers

California has some of the highest state income tax brackets in the country, so residents are among the most impacted by SALT policy changes.

Key implications:

• Many California homeowners with high property taxes regain significant deductions

• Married filing jointly households stand to benefit most

• Could reduce overall effective tax rates for upper-middle-income earners

• Increases incentives to own property rather than rent

For many Californians, the difference between a $10,000 and $40,000 SALT cap could mean thousands of dollars in tax savings.

5. Who Benefits Most?

Most benefited:

• Homeowners in high-tax states

• Dual-income households earning $150k–$450k

• Taxpayers who itemize deductions

• Professionals with high property and state income tax burdens

Least benefited:

• Renters

• Low-income households who don’t itemize

• Ultra-high earners (due to phase-out)

6. Bottom Line

The H.R.1 tax bill delivers two major wins for many American taxpayers:

1. Permanently lower individual income tax rates

2. A dramatically higher SALT deduction limit

For Californians—especially homeowners—the increase to a $40,000 SALT deduction cap is one of the most significant tax changes in years.

If the Senate approves the legislation and it becomes law, these provisions are expected to shape personal tax planning well into the next decade.