SALT Cap and EV Tax Credits: What Changes Could Mean for Your Taxes

SALT Cap and EV Tax Credits: What Changes Could Mean for Your Taxes

Taxes can be complicated, but two important topics are getting a lot of attention: the SALT cap and EV tax credits. These tax rules could affect how much money you owe or save when filing your taxes. Lawmakers are discussing possible changes, and understanding them can help you plan ahead.

What Is the SALT Cap?

SALT stands for State and Local Taxes. This includes state income taxes, property taxes, and local sales taxes. Before 2017, taxpayers could deduct the full amount of these taxes on their federal tax return. However, a law passed in 2017 put a limit on these deductions.

Currently, taxpayers can only deduct up to $10,000 per year in SALT payments. This cap affects people in states with high taxes, such as New York, California, New Jersey, and Illinois. Many homeowners in these states pay much more than $10,000 in property taxes alone, but they cannot deduct anything above the cap.

Why Are Lawmakers Discussing the SALT Cap?

Some lawmakers want to increase or remove the SALT cap, arguing that it would help families in high-tax states by reducing their overall tax burden. Others argue that lifting the cap would mostly benefit higher-income households rather than middle-class families.

Supporters believe raising the cap would:

Provide tax relief for homeowners
Help business owners who pay high state taxes
Make the tax system fairer for those in expensive states

Opponents believe lifting the cap would:

Mostly help wealthy taxpayers
Reduce federal tax revenue, making it harder to fund public programs
Favor states with high taxes over states with lower taxes

Congress has not made a final decision yet, but discussions are ongoing.

What Are EV Tax Credits?

An EV tax credit is a financial incentive for people who buy electric vehicles (EVs). The government offers these tax credits to encourage more people to switch from gas-powered cars to electric ones, helping reduce pollution.

Right now, buyers can get up to $7,500 in federal tax credits for purchasing a new electric vehicle. This tax credit directly lowers the amount of tax owed. For example, if someone qualifies for the full $7,500 credit and owes $8,000 in taxes, the credit would reduce their tax bill to just $500.

Recent Changes to the EV Tax Credit

New rules are making it more difficult to qualify for the full EV tax credit. To be eligible, the vehicle must:

Be manufactured in North America
Have a battery made from materials sourced in the U.S. or from U.S. trade partners
Meet income limits for the buyer to qualify

These rules are designed to support American manufacturing and ensure tax credits go to those who need them most. However, they also mean that fewer vehicles qualify for the full credit than before.

Why Are EV Tax Credits Being Debated?

Some lawmakers and industry experts believe EV tax credits should be expanded to make electric cars more affordable for more people. Others argue that the credits mostly benefit wealthier buyers who can already afford EVs without government help.

Supporters of EV tax credits say they:

Make electric vehicles more affordable
Reduce dependence on fossil fuels
Help combat climate change

Opponents argue that:

The credits mostly help high-income buyers who don’t need them
EVs are still too expensive for many middle-class families, even with credits
The government should focus on other energy solutions instead of pushing EV adoption

What Changes Could Be Coming?

Congress is currently debating both the SALT cap and EV tax credits. Some possible changes include:

Raising or eliminating the SALT deduction cap
Expanding or limiting EV tax credits
Adjusting income limits for tax credit eligibility

If lawmakers decide to make changes, they could impact taxpayers as soon as 2025.

What Can You Do to Prepare?

Stay informed – Keep up with tax law changes so you know how they may affect you.
Consult a tax professional – A tax expert can help you understand the potential impact on your tax return.
Plan your purchases – If you're thinking about buying an electric vehicle, check to see if it still qualifies for tax credits.

Tax laws can change quickly, so keeping up with the latest updates can help you make smarter financial decisions.