Three states are positioned to see some of the biggest gains in this year’s tax refunds following a new change to federal tax policy.
Taxpayers in New York, New Jersey, and California—states with comparatively high income and property taxes—could see noticeably larger refunds or lower tax bills because the federal cap on the state and local tax (SALT) deduction has been raised.
Why it matters
The One Big Beautiful Bill Act introduced several tax changes, including increasing the SALT deduction cap from $10,000 to $40,000. For households that pay large amounts in state income taxes and local property taxes, the higher cap can reduce taxable income and, in turn, lower federal tax owed.
“These are high-tax states,” said Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast. “When you raise the SALT cap, you give residents in those states more room to itemize, which lowers taxable income and reduces federal tax. It’s math. Higher state and property taxes mean a bigger benefit when the deduction expands.”
What to know
Because residents in New York, New Jersey, and California often face higher state and local tax bills, they are among the most likely to benefit during this filing season.
Tax liabilities could fall by roughly $1,000 to $3,000 for many households as a result of the change, according to Bloomberg. Higher earners may see larger benefits—up to a point. A Bipartisan Policy Center analysis found that couples who maximize the deduction could reduce their taxes by as much as $9,600 this year.
Eligibility depends on income. Taxpayers earning up to $500,000 can claim the full $40,000 SALT deduction. The benefit begins to phase out for those earning between $500,000 and $600,000. Taxpayers earning $600,000 or more are limited to a $10,000 deduction.
Overall, the higher SALT cap is expected to provide $32.2 billion in tax savings under the new rules, according to the Tax Foundation.
“Residents in these states can now write off far more of what they already pay locally, and those states come closer to the deduction limit far more than low-tax states,” said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin. He added that, over time, the change could reduce the incentive for some residents to move to lower-tax states, though he noted the higher cap is temporary.
What people are saying
Thompson said the provision became a key bargaining point in order to pass the bill, arguing that tax policy is often shaped by political strategy rather than consistency.
Drew Powers, founder of Illinois-based Powers Financial Group, said New York, New Jersey, and California stand out because of high income and property taxes, but other high-tax areas could also benefit. He added that the change may help not only upper-income households that still qualify for the full deduction, but also some lower-income homeowners whose property tax bills have risen sharply in recent years.
Michael Ryan, founder of MichaelRyanMoney.com, said families paying large SALT amounts could see significantly larger deductions, which may translate into a higher refund or a smaller balance due.
What happens next
Ryan said the longer-term outlook remains uncertain. Higher SALT deductions reduce federal revenue, and if deficits grow or the economy weakens, political pressure could rise to end the higher cap earlier than expected—or prevent it from becoming permanent.
“That uncertainty is the big long-term story,” he said.
