Why This Matters Right Now
For the first time in nearly a decade, the federal government just handed homeowners a meaningful tax break. The state and local tax deduction cap quadrupled.
If you own a home in Hawaii, are thinking about buying, or hold investment property here, this change touches your bottom line in ways worth understanding before you file. The Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000. That limit hit homeowners in high-property-tax states especially hard, and Hawaii is not cheap when it comes to property taxes on high-value real estate.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, changed that. Beginning with the 2025 tax year, you can deduct up to $40,000 in state and local taxes from your federal return. That is four times what was allowed from 2018 through 2024. Here is what you need to know.
What Changed
The new SALT deduction rules, year by year
$10,000 to $40,000. Overnight.
The biggest shift in SALT deductibility since the deduction was first introduced
The new law temporarily quadruples the SALT deduction cap. For the 2025 tax year, you can deduct up to $40,000 in state and local taxes, including property taxes, on your federal income tax return. The cap increases slightly each year through 2029, then reverts to $10,000 unless Congress acts to extend it. The law also preserves the mortgage interest deduction at its current level, a provision homeowners had reason to worry about heading into the tax reform debate.
The deduction limit and the income threshold both increase by 1% annually from 2026 through 2029.
$40,000 Cap
Income threshold: $500,000 MAGI
The new cap takes effect for returns filed in 2026 covering the 2025 tax year. If your modified adjusted gross income is at or below $500,000, you can deduct the full $40,000. Above that threshold, the cap begins to phase down.
Annual 1% Step-Up
Both the cap and the income threshold rise each year
In 2026, the cap rises to $40,400 with an income threshold of $505,000. In 2027, $40,804 with a threshold of $510,050. Each year through 2029, both figures increase by 1%. It is a modest escalator, but it moves in the right direction.
Sunset Provision
The cap reverts to $10,000 unless Congress acts
In the 2030 tax year, absent Congressional action, the SALT cap drops back to $10,000. The National Association of REALTORS will continue advocating to extend or make permanent the higher limit. But plan your finances knowing the sunset is on the calendar.
Same Cap, Regardless of Filing Status
A notable limitation in the new law
The $40,000 cap applies equally whether you are a single filer or a married couple filing jointly. That is the same structure that applied to the old $10,000 cap. Married couples do not get a higher combined limit, which is something to factor into your planning if you are filing jointly.
Limiting or eliminating the SALT deduction effectively subjects homeowners to a form of unfair double taxation, paying federal tax on income that has already been spent on taxes at the state or local level. NAR Director of Federal Tax Policy Evan Liddiard
If Your Income Exceeds $500,000
How the phasedown works, and what it means for Hawaii buyers at the top of the market
The Higher You Earn, the Lower the Cap Gets
But it never drops below $10,000
For taxpayers with a modified adjusted gross income above $500,000, the $40,000 cap decreases by 30 cents for every dollar of income above that threshold. The floor is $10,000. No matter how high your income, you can still deduct at least $10,000 in state and local taxes. But between $500,000 and roughly $600,000 in MAGI, the amount you can deduct falls quickly.
Run the numbers with your tax advisor before assuming which bracket applies to you.
$500,000
MAGI
$40,000
Full deduction available. At or below the income threshold.
$550,000
MAGI
$25,000
30% of $50,000 excess ($15,000) reduces the $40,000 cap to $25,000.
$700,000+
MAGI
$10,000
Phasedown floor. The deduction never falls below $10,000 regardless of income.
Who Benefits in Hawaii
Buyers, sellers, owners, and investors, a clear-eyed look at who gains the most
More of What You Pay Stays With You
If you already own a home in Hawaii and you have been taking the standard deduction because itemizing did not clear the bar, that math may have changed. With a $40,000 SALT cap instead of $10,000, add your mortgage interest and other deductible expenses, and there is a real possibility that itemizing now reduces your federal tax liability meaningfully. Worth running the numbers.
The After-Tax Cost of Buying Just Got Lower
For buyers on the edge of a purchase decision, the expanded SALT deduction changes the affordability calculation. Property taxes in Hawaii are relatively low by national standards, but on a $2 million or $3 million property, they add up. Being able to deduct more of them, combined with the preserved mortgage interest deduction, makes the real cost of ownership lower than it was twelve months ago.
More Property Taxes Back in Your Pocket
Investors holding residential or mixed-use property in Hawaii now have more room to deduct the property taxes they pay across their portfolio. The new SALT cap benefits anyone paying state and local taxes on assets they hold, and for investors with multiple properties and income below the phasedown threshold, the expanded deduction is real money.
A More Level Playing Field
Sellers relocating from high-tax mainland states like California, New York, or New Jersey to Hawaii have historically faced a painful SALT limitation on the way out. The expanded cap means those sellers, still paying state income taxes and property taxes during the year they move, can deduct more of those costs. That eases the financial transition and may make listing that mainland property easier.
How to Claim It
The practical side of taking the new SALT deduction
Itemizing Is Now Worth a Second Look
Most taxpayers defaulted to the standard deduction after 2017. That calculation may have shifted.
The standard deduction for 2025 is $15,750 for single filers, $31,500 for married couples filing jointly, and $23,625 for heads of household. To benefit from the expanded SALT deduction, your total itemized deductions need to exceed your standard deduction. For many Hawaii homeowners, the combination of SALT up to $40,000, mortgage interest, and other deductible expenses may now clear that bar. In 2017, 31% of individual returns were itemized. By 2020, that dropped to 9%. The new cap is designed to bring more homeowners back into itemizing territory.
The new law also restores deductibility of private mortgage insurance premiums for borrowers with less than 20% equity.
The Full Picture
State and local income taxes and property taxes, up to $40,000 combined in 2025.
Mortgage interest on your primary and secondary residence, at limits set by the 2017 TCJA.
Charitable contributions to qualified organizations.
Medical and dental expenses above a set percentage of your adjusted gross income.
Private mortgage insurance premiums, now deductible again under the new law.
Document Everything
Annual property tax statements from the City and County of Honolulu or applicable county.
State income tax returns and payment confirmations for Hawaii state tax.
Year-end mortgage interest statements (Form 1098) from your lender.
PMI premium statements if applicable.
Charitable contribution receipts for any donations you plan to deduct.
The Bigger Context
Why this matters for Hawaii real estate specifically
You Should Not Pay Federal Tax on Money You Already Paid in State Tax
That was the argument NAR made for seven years. Congress agreed.
The core problem with the old $10,000 cap was fairness. If you earned $200,000 in Hawaii, paid Hawaii state income tax, and also paid property taxes on your home, a large portion of that money was effectively taxed twice: once by the state and county, then again federally because you could not deduct it. The new $40,000 cap does not eliminate that problem entirely, but it meaningfully reduces it for the vast majority of middle-class and upper-middle-class homeowners.
61% of registered voters supported increasing the SALT deduction or removing the cap entirely, in a 2025 NAR-commissioned survey.
Lower Rates, Higher Values
Hawaii has relatively low property tax rates compared to states like New York or California. But when you apply even a modest rate to a $1.5 million or $2 million Oahu home, the annual property tax bill grows quickly. Add Hawaii state income tax, and the total SALT picture for many homeowners here was well above the old $10,000 ceiling. The new cap gives more of that money back.
A Signal That Favors Buyers and Owners
Tax policy is one of the quieter forces that shapes real estate markets. When the after-tax cost of owning declines, demand tends to hold or grow. The expanded SALT deduction is a federal signal that homeownership remains a policy priority. For Hawaii, where supply is constrained and demand is durable, that signal reinforces a market that was already competitive.
What to Do Right Now
Practical steps whether you own, are buying, or are thinking about selling
Talk to a Tax Professional
Every taxpayer's situation is different. Whether or not itemizing beats the standard deduction depends on your specific income, property taxes, mortgage balance, and other deductible expenses. A CPA or enrolled agent familiar with Hawaii tax law can run the numbers for you and tell you exactly where you stand for the 2025 filing year.
Gather Your SALT Documents Now
Do not wait until tax season. Locate your 2025 property tax statements, your Hawaii state tax payment records, and your mortgage interest statement (Form 1098). Having these organized early means your tax advisor can give you an accurate projection rather than an estimate.
If You Are Buying, Recalculate Affordability
If a purchase felt close but not quite right twelve months ago, revisit the numbers. The combination of the expanded SALT deduction and the preserved mortgage interest deduction changes the after-tax cost of ownership. A home that seemed financially tight may pencil out differently today. Work with both a buyer's agent and a tax advisor together.
Mark 2030 on Your Calendar
The expanded cap has a sunset. Without Congressional action, it reverts to $10,000 in the 2030 tax year. If you are planning major financial decisions around the expanded deductibility, build that timeline into your thinking. Four years is meaningful, but it is not forever. NAR is actively advocating to make the increase permanent, and that effort will continue through 2029.
This content is for informational purposes only and should not be construed as tax advice. Every taxpayer's situation is unique. Please consult a qualified tax professional regarding your individual circumstances before making financial or real estate decisions based on changes to federal tax law.
The SALT change is real, and it affects how you should be thinking about buying, owning, selling, or investing in Hawaii real estate right now. The strategy looks different at every income level and every price point.
If you want to talk through what this means for your specific situation, your property, or a purchase you have been considering, reach out.
Privately inquire. No pitch. No pressure. Just strategy.
Hawaii Real Estate · Tax Strategy · 2025 and 2026
Check out this article next
