Trump’s ‘big beautiful bill’ may hit high earners with ‘SALT torpedo’

President Donald Trump’s ‘big beautiful bill’ added a temporary $40,000 limit on the federal deduction for state and local taxes, known as SALT.

But the phaseout, or income-based benefit reduction, creates what some experts are calling a “SALT torpedo,” or artificially high tax rate, when modified adjusted gross income falls between $500,000 and $600,000.

“Anyone reporting income in that range” should talk with their tax and investment advisors, said certified financial planner Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant.

Trump’s legislation boosts the SALT deduction cap to $40,000 starting in 2025. That limit increases yearly by 1% through 2029 and reverts to $10,000 in 2030.

The $40,000 limit decreases once MAGI exceeds $500,000, and phases out completely to $10,000 when income reaches $600,000. But the “SALT torpedo” creates a 45.5% federal tax rate on earnings between those thresholds.

That 45.5% rate could impact higher earners for 2025, but you can still reduce MAGI to avoid the tax penalty before year-end, experts say.

Here are some strategies to consider. 

If you’re approaching the thresholds, you should manage any unexpected income, experts say.

One solution could be opting for exchange-traded funds, or ETFs, versus mutual funds in your taxable brokerage accounts.

“This could help limit the sneaky year-end tax hit,” said CFP William Shafransky, a senior wealth advisor with Moneco Advisors in New York. 

While some mutual funds distribute year-end capital gains to shareholders, ETFs typically don’t have a yearly payout.

However, you would need to check the possible capital gain — and other tax consequences — from trading profitable mutual funds for ETFs in a brokerage account, Shafransky said.

With a tax penalty between $500,000 and $600,000, you could use tax breaks to keep earnings below those thresholds, experts say. 

For example, you could switch from Roth to pretax 401(k) contributions to help bring earnings below $500,000, said Andy Whitehair, a CPA and a director with Baker Tilly’s Washington tax council practice.

The tax break “becomes a lot more valuable in that phaseout range,” he said.

Pretax 401(k) contributions lower your adjusted gross income, but you have to pay taxes when you withdraw the funds in retirement.

If you’re approaching the $500,000 level for 2025, you may avoid activities like selling investments or a home with large profits, depending on your goals, experts say. 

“You wouldn’t want to take a big gain that’s going to push you into this threshold,” said Whitehair.

The same guidance may apply to Roth individual retirement account conversions, experts say. Roth conversions transfer pretax IRA funds to a Roth IRA, which starts future tax-free growth. The strategy typically incurs upfront income.

However, “you never want to do anything in a silo,” and tax moves should always happen in tandem with your financial plan, Guarino said. 

Trump’s legislation includes several key changes, which may require multiyear tax projections to gauge the full impact, he said.