The ‘SALT Torpedo’ That Could Sink Deductions for High-Earning Homeowners

The new SALT deduction was supposed to give homeowners in high-tax states a break. By quadrupling the amount of state and local taxes they could deduct from their federal return, these homeowners could claim some relief from high tax burdens.

And for many, it will deliver. 

In New Jersey, for instance, more than 40% of homeowners paid more in property taxes than the previous $10,000 cap allowed. Under the new $40,000 limit, only 1.6% are expected to exceed the threshold.

But for a segment of high-earning homeowners, those savings may be short-lived. The enhanced deduction starts to phase out once modified adjusted gross income (MAGI) exceeds $500,000 and reverts to the previous cap once MAGI hits $600,000. That creates a small window for a big tax vulnerability.

And the financial moves that push homeowners into the danger zone don’t have to be dramatic. An ill-timed Roth conversion (e.g., where money is transferred from a pre-tax retirement account into a Roth IRA) or a large capital gain (e.g., like from selling a home or investment property) can easily push MAGI into SALT torpedo territory, sinking the deduction these households hoped to claim.

What is the SALT torpedo—and why is it so dangerous?

To understand the danger, it’s important to first understand the mechanics of the SALT deduction. The $40,000 cap begins to decrease once households hit a MAGI of more than $500,000. Once MAGI hits $600,000, it reverts to $10,000.

That steep phaseout creates what tax experts are calling the “SALT torpedo”: a sudden spike in marginal tax rates for high earners who cross the threshold.

“The SALT torpedo creates an invisible marginal tax rate spike ... causing federal effective marginal tax rates to exceed 49%. In high-tax states, the combined rate can surpass 58%,” explains Chad D. Cummings, a CPA and attorney at Cummings & Cummings Law.

Advisers say this is already catching high-income taxpayers off guard, especially those making Roth conversions or realizing large investment gains without anticipating the knock-on tax effects.

How Roth conversions could backfire

Roth IRA conversions have long been viewed as a powerful tax strategy. But under the new SALT deductions, they’ll have to be taken with a grain of salt.

Because Roth conversions generate taxable income in the year they’re made, they can unexpectedly push your modified adjusted gross income over the new limits imposed by the One Big Beautiful Bill Act. In addition to phasing out the SALT deduction, that extra income can increase your exposure to the 3.8% Net Investment Income Tax and eliminate eligibility for the section 199A qualified business income deduction—all at once.

“This can cause more than $55,000 in total tax liability on a $100,000 conversion,” warns Cummings, describing a recent case involving a client right at the $500,000 MAGI threshold.

That’s why timing may be more important than ever.

“Taxpayers who ask their accountants these kinds of questions before they act are those who ultimately save even more on their tax bill,” according to Spencer Carroll, CPA and account executive at Gelt.

Capital gains can trigger it, too

It’s not only Roth conversions that can push high earners into SALT torpedo territory. Realizing long-term capital gains can drive up MAGI and knock out valuable tax benefits.

Cummings points to one scenario where a $150,000 capital gain triggers the top 20% capital gains rate while wiping out eligibility for the expanded SALT deduction, adding exposure to the 3.8% Net Investment Income Tax, and causing an effective tax rate that exceeded 33% on the gain. 

Poorly timed gains like this, he says, “can result in the loss of multiple tax benefits ... and full SALT deduction suppression.”

It’s an important consideration as homeowners are increasingly at risk of triggering a capital gains tax bill when selling their home. A poorly timed home sale that nets more than the current exclusion limits, paired with a major Roth conversion or a high income, could trigger a SALT torpedo. 

Mixed-income households need to be especially careful

For high earners with multiple income streams—think W-2 wages, 1099 contract work, business income, and investment returns—the risk of tripping over the SALT deduction phaseout is perhaps the greatest.

These households “have the most to lose,” says Carroll, particularly when they plan each income source in isolation. Without a coordinated tax strategy, it’s easy to accidentally stack income in a way that wipes out deductions or accelerates tax liabilities.

Instead, Carroll urges clients to think in terms of income cycles and timing. When every income type is taxed differently, the key isn’t just making smart moves, but making them in the right year.

Want to escape the SALT trap entirely? Move.

There’s only one surefire way to escape the SALT torpedo, according to Cummings: Leave.

“Changing residency to Florida or Texas is the only durable protection,” he says. “It breaks the SALT torpedo entirely.”

With no state income tax in those jurisdictions, taxpayers can sidestep one of the biggest variables in the SALT equation and potentially save tens of thousands each year.

But making a move isn’t as simple as booking a flight or signing a lease. Carroll cautions that relocation must be airtight from a tax perspective.

“Failure to properly plan for tax audits and residency documentation could lead to out-of-the-blue tax bills,” he says.

Instead, Carroll recommends enlisting the help of a tax professional as soon as possible.  

“Choose a tax professional early,” he advises, “especially with year-end projections and optimizing your estimated taxes.”

If you’re serious about changing your tax home, work closely with a CPA who can help you meet the documentation standards and residency tests that states use to determine whether you’ve really moved—or whether they still have a claim on your income.

But even the best tools and tax pros can do only so much without communication.

“While CPAs are proactive,” Carroll says, “we can only be so proactive toward the things we know about.”

The earlier and more often you keep your tax adviser in the loop, the more opportunities they’ll have to help you minimize your bill—before the tax torpedoes hit.