OBBB Act Interest in Alts Part 5 ~ Stealth on SALT

We con­tin­ue our series on the OBBB and inter­est in Alts and dive into the SALT impli­ca­tions.  There may be a “Stealth” effect on the SALT deduc­tion at a cer­tain AGI lev­el.

August 12, 2025

By Al DiNi­co­la, AIF®
1031 Tax Deferred Exchange Spe­cial­ists & DST Advi­sor
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

The State and Local Tax (SALT) deduc­tion was raised from $10,000 to $40,000. This espe­cial­ly made some tax­pay­ers in cer­tain high tax states hap­py.  This becomes effec­tive in 2025 and will be in effect through 2029.  There have been stud­ies that ana­lyze the per­cent­age of tax­pay­ers in all states uti­liz­ing SALT deduc­tions and the results are very inter­est­ing. We are not pro­vid­ing tax advice and always rec­om­mend to con­sult your tax con­sul­tant.

For those tax­pay­ers who may item­ize deduc­tions real­ly need to know about the rela­tion­ship between the item­ized deduc­tions and the income lev­el when it comes to uti­liz­ing the $40,000 SALT allo­ca­tion. If you have an Adjust­ed Gross Income (AGI) of $500,000 or under the SALT deduc­tion is $40,000. If your income is $600,000, your SALT deduc­tion decreas­es down to $10,000. There is a phase out sched­ule as you increase income to $600,000. If you have an AGI of $530,000 you may receive a $31,000 SALT. If you have an AGI of $570,000 you may have a SALT of $19,000.

Let’s look at this anoth­er way. If your income (AGI) increas­es from $5000,000 to $600,000 the tax­able income goes up by $130,000. You are pay­ing tax­es on an addi­tion­al $100,000 of income and you lose $30,000 in SALT deduc­tion. If you’re wor­ried about this stealth tax, you may seek a solu­tion on how to bring your income back down from $600,000 to $500,000.  There is a phas­ing in on the amount of SALT you use once you go over the $500,000 income lev­el. There are a few solu­tions we can pro­vide that can move income down but still have oth­er invest­ment oppor­tu­ni­ties.  

SALT Exam­ple 1:

So, let’s go through an exam­ple of Tom & Sta­cy. The AGI is $500,000. Hypo­thet­i­cal­ly they are item­iz­ing deduc­tion in the amount of $75,000 that includes $40,000 of SALT. The tax cal­cu­la­tion on their tax­able income is pret­ty straight­for­ward. $500,000- $75,000 = $425,000 in tax­able income under the bill.  The mar­gin­al rate at tax­able income of $425,000 is 32%.  No SALT lim­i­ta­tion since the AGI is $500,000 (or under).

Client Sit­u­a­tion	Tax Cal­cu­la­tion	Tax Rate Impact
AGI =$500,000	$500,000-$75,000	Mar­gin­al Rate for tax­able income $425,000 is 32%
Item­ized Deduc­tion $75,000 includ­ing $40,000 SALT	$425,000	No SALT lim­i­ta­tion since AGI is exact­ly $500,000

SALT Exam­ple 2:

Mark and Bet­sy togeth­er have an AGI of $600,000. The have item­ized deduc­tion of $75,000 includ­ing a ten­ta­tive SALT Deduc­tion of $40,000. Here is the SALT lim­i­ta­tion (which cre­ates a Stealth effect). The phase-in reduces their SALT deduc­tion by $30,000 to $10,000. $600,000- $500,000 =$100,000 and $100,000 x 30% = $30,000.  Their tax­able income will be $555,000. $600,000- $45,000 = $555,000. So that $100,000 extra income caused their tax­able income to go up by $130,000

Client Sit­u­a­tion	SALT Lim­i­ta­tion	TAX cal­cu­la­tion
AGI is $600,000	The Phase in reduces their SALT deduc­tion by $30,000	The Tax­able income with be $555,000 ($600,000-$45,000)
Item­ized deduc­tion of $75,000 includ­ing a ten­ta­tive SALT deduc­tion of $40,000	$600,000-$500,000=$100,000 $100,000 x 305= $30,000	Th mar­gin­al rate at tax­able income of $555,000 is 35%

Here comes the STEALTH impact. In essence the dif­fer­ence between $500,000 and $600,000 is $100,000 mul­ti­plied by 30% and you lose $30,000 of the $40,000. Your SALT deduc­tion is now $10,000.

$100,000 increased AGI caus­es income to go up by $130,000. The effec­tive fed­er­al rate in that win­dow is 45.5%. And if you had some state or state rate in there, if you’re in New York, you’d be clos­er to 55%, if you’re in New York City, high­er than that amount. This is a mas­sive plan­ning oppor­tu­ni­ty. Between $500,000 and $700,000, there does not need to be that much shift­ing poten­tial­ly into oth­er years. This may be the per­fect oppor­tu­ni­ty to use oil and gas.  Investors may need to seek finan­cial advi­sors who under­stand indi­vid­ual tax­pay­er needs. The CPA firms, who han­dle clients mak­ing $2,000,000 a year, may be more open to assist­ing those clients than the clients mak­ing $500,000 to $700,000 per year. The tax return has become a com­mod­i­ty and CPA firms have a short­age of work­ers, so they’re going to give up their least prof­itable work. The goal may be to shift. What we want to iden­ti­fy is if income can shift to low­er years? Can we defer income recog­ni­tion? Can we accel­er­ate deduc­tions or cre­ate addi­tion­al deduc­tions? Is there an oppor­tu­ni­ty to uti­lize the 100% bonus dep­re­ca­tion in some fash­ion. Can there be a trust set up to move income around? We will fol­low up on the trust aspect in future posts.

Effec­tive Rate Analy­sis	Strate­gic Con­sid­er­a­tion
Exam­ple 1 vs. 2	These high effec­tive rates may cre­ate plan­ning oppor­tu­ni­ties.
An addi­tion­al $100,000 of AGI increased tax­able income by $130,000 due to SALT deduc­tion lim­i­ta­tion	Income shift­ing to low­er tax­es. Defer­ring income recog­ni­tion.
For a MFJ tax­pay­er los­ing a SALT deduc­tion in the phase out range, the mar­gin­al income tax will effec­tive­ly be 45.5%. Which is 130% * 35%.	Accel­er­at­ing deduc­tions.
The mar­gin­al rate can fur­ther increase if Sec­tion 199 A or oth­er phase out sup­ply.	Alter­na­tive invest­ments, includ­ing oil and gas.

The beau­ty is to find a way to drop the AGI income from $600,000.  Can you find a way through char­i­ta­ble deduc­tions, and oth­er solu­tions to drop AGI. There is also a poten­tial solu­tion with the prop­er Oil & Gas invest­ment. The goal may be to get the rate back into a low­er effec­tive rate. If you accom­plish this, you’re get­ting a larg­er deduc­tion than just the $100,000 you may get from oil & gas, you also get the $30,000 back from SALT.  

Alter­na­tive invest­ments, includ­ing Oil & Gas, are not for all investors.  If you have ques­tions and inter­est, please let us know and we can arrange a con­fi­den­tial con­fer­ence call.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

Alter­na­tive invest­ments and DSTs are not for all investors.  The acqui­si­tion of a cer­tain alter­na­tive invest­ments includ­ing DSTs is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your §1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC §1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 5 Cen­ter­pointe Dri­ve, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.