As a tax-savvy Airbnb host, you know that every tax deduction you can claim counts toward boosting your bottom line. One of the most valuable deductions for property owners and business operators alike is the State and Local Tax (SALT) deduction. However, recent changes to the tax landscape, including new strategies like state pass-through entity taxes and Opportunity Zone investments, present new opportunities to save. In this updated post, we’ll walk you through the key strategies for maximizing your SALT deductions in 2025, especially if you’re an Airbnb host navigating high-tax states.
What is the SALT Deduction?
The State and Local Tax (SALT) deduction allows individuals and businesses who itemize to deduct the amount they pay in state and local taxes from their federal taxable income. These taxes typically include:
- State Income Taxes: Taxes you pay to your state on income.
- Property Taxes: Taxes assessed by your local government on real estate or personal property.
- Sales Taxes: Taxes imposed on the sale of goods or services.
The SALT deduction helps to reduce the federal tax burden for taxpayers who live in states with high income and property taxes. However, after the Tax Cuts and Jobs Act (TCJA) of 2017, the SALT deduction was capped at $10,000 per year, which has caused a challenge for taxpayers in high-tax states like California, New Jersey, and New York.
Key Changes to the SALT Deduction for 2025
For the past few years, the SALT deduction cap has been limited to $10,000 per year for individuals and married couples filing jointly. This cap was a significant limitation for homeowners and business owners in states with high state and local taxes.
However, 2025 is a crucial year, as the SALT cap is set to expire at the end of that year, reverting to the previous system where there were no limits on SALT deductions.
Unless Congress enacts new legislation to renew the cap, starting in 2026, you’ll once again be able to deduct unlimited SALT taxes, which is great news for property owners and business owners in high-tax areas.
For Airbnb hosts, this change could result in substantial savings once the cap expires, allowing you to fully deduct state and local taxes without restriction.
As of the time of writing, negotiations regarding the SALT cap are still underway in D.C. However, the latest news indicates a tentative deal is in place to raise the cap to $40,000, marking a four-times increase. We’ll update this page if there are any updates, but—for now—the SALT deduction cap is on course to expire at the end of the year.
State Workarounds: Pass-Through Entity Taxes
To bypass the SALT deduction cap, some states have implemented pass-through entity (PTE) taxes as a workaround. This strategy allows business owners to pay state taxes at the entity level rather than the individual level, allowing the taxes to be deducted as business expenses on the federal return—thus bypassing the $10,000 SALT cap.
This strategy is especially relevant for Airbnb hosts who operate through LLCs, S-corporations, or other pass-through entities. By electing to pay state taxes at the entity level, you can potentially save thousands of dollars on your federal tax bill.
For example, if you’re an Airbnb host in California and you operate your rental property through an LLC, you might be able to pay state taxes on the business’s earnings and deduct those payments directly from your federal income. This avoids the SALT cap for personal taxes, allowing for a more efficient tax strategy.
How Does the SALT Cap Affect Airbnb Hosts in High-Tax States?
The SALT cap is especially challenging for Airbnb hosts in high-tax states where property values and local taxes are high. For example, consider a host in New Jersey who owns a rental property with high property taxes. If their property tax bill is $12,000 per year, the SALT cap means they can only deduct $10,000 of that on their federal return, losing out on the $2,000 excess. This is where the state PTE taxes can help bridge the gap by allowing the entity to pay the state taxes directly and deduct them as business expenses.
Practical Example: Airbnb Host in California
Let’s break down an example to illustrate the potential savings for an Airbnb host in California, which has some of the highest property and income taxes in the country.
- Property Taxes: An Airbnb host in California may pay around $12,000 annually in property taxes on their rental property.
- SALT Cap: With the SALT deduction cap of $10,000, they can only deduct $10,000 of this amount on their federal tax return.
- Entity-Level Taxation (PTE): If the host operates through an LLC and elects to pay the state income tax at the entity level (using a PTE workaround), they can deduct more than $10,000 in state taxes as a business expense, bypassing the cap entirely.
This means the host could potentially save thousands of dollars by utilizing the PTE tax strategy, which could be especially helpful for high-value properties or those in areas with higher-than-average state and local taxes.
Additional SALT Deduction Strategies for Airbnb Hosts
In addition to leveraging the PTE workaround, here are other key strategies that Airbnb hosts in 2025 can use to optimize their SALT deductions:
Allocate Expenses Between Personal and Business Use
For mixed-use properties, like vacation homes or homes that are partially rented on Airbnb, ensure you accurately allocate expenses between personal and business use. For example, if you rent out 60% of your property and use 40% for personal use, you can deduct 60% of the property taxes under the SALT deduction. This allocation helps maximize your deductions and minimize your taxable income.
Itemize Your Deductions
The SALT deduction is only available to those who itemize their deductions on Schedule A. As a host, you may have other deductible expenses—such as mortgage interest, home office expenses, repairs, and maintenance—that make it beneficial to itemize. Compare the standard deduction to your itemized deductions to ensure you are taking the most advantageous approach.
Consider State-Specific Tax Incentives
Some states, like New York and Connecticut, have introduced their own SALT workarounds. For example, in New York, there is an option to make contributions to a state-level charitable fund, which can be deducted from federal taxes and potentially offset SALT limitations.
Monitor Expiring Rules
Keep an eye on 2025 SALT rule changes and consult with a tax professional to ensure you are prepared for the full expiration of the SALT cap. Whether through a PTE tax election or changes in local state laws, being proactive can help you make the most of these opportunities.
Final Thoughts
The expiration of the SALT cap in 2025 presents significant opportunities for Airbnb hosts, especially those in high-tax states. Until then, it’s essential to explore state PTE taxes, properly allocate your business and personal expenses, and consider state-specific tax incentives. By doing so, you can potentially save thousands of dollars in taxes while maximizing your deductions.
At Shared Economy Tax, we specialize in helping Airbnb hosts navigate the complexities of SALT deductions and other tax strategies. Get started now with a one-on-one strategy session to learn how we can help you maximize your savings as an Airbnb host and optimize your tax situation for 2025 and beyond.
