Financial advisors face a rare opportunity heading into 2026.
Not a regulatory threat. Not a tax “torpedo.”
A moment to provide exceptional clarity and value to clients who care deeply about avoiding unpleasant tax surprises.
For many high-earning households—particularly those in the $500,000–$600,000 income range—the coming shift in the State and Local Tax (SALT) deduction rules could have a meaningful impact on their federal tax bill. And because the rules are temporary, the window to help clients prepare is both limited and incredibly valuable.
This isn’t tax advice. It’s tax-aware wealth planning. And advisors who start these conversations now can position themselves as trusted experts well before the 2026 tax year begins.
A quick SALT tax deduction refresher
SALT stands for State And Local Taxes. This deduction allows taxpayers to deduct the money they pay to their state and local governments (such as property taxes and state income taxes) from their federal taxable income. Before 2017, taxpayers — especially those in high-tax states like California, New York, and New Jersey — could deduct their state and local taxes (SALT) without limitation. The Tax Cuts and Jobs Act (TCJA) changed that, introducing a $10,000 cap and sharply reducing the deduction’s value for many high-earners.
With the passage of the One Big Beautiful Bill Act (OBBBA) in 2025, the rules shift again. The SALT deduction cap rises dramatically to $40,000 for 2025, providing meaningful relief to many taxpayers. For 2026 through 2029 the cap will increase modestly each year (roughly 1% annually), before reverting to $10,000 in 2030.
That said, the benefit isn’t universal. Under OBBBA, the expanded SALT deduction begins to phase out for households with modified adjusted gross income (MAGI) above $500,000 (or $250,000 for married filing separately). For many married-filing-joint households, that means a tight “phase-out band” between roughly $500,000 and $600,000 MAGI, where the capped deduction is gradually reduced, sometimes referred to as the “SALT torpedo.”
But it’s helpful to view this as a net improvement over the prior $10,000 cap. For many clients, particularly those in high-tax states and with incomes below the phase-out threshold, the enhanced deduction under OBBBA can restore a significant portion (or even most) of the pre-TCJA SALT benefit. And for owners of pass-through entities (PTEs), the so-called “SALT workaround” remains viable — meaning state and local taxes paid at the entity level may still offer additional federal tax advantages beyond the capped individual deduction.
The new SALT rules under the Big Beautiful Bill represent a significant improvement over current law — not a threat — but they also carve out a narrow income band in which smart tax planning (e.g., timing income or leveraging entity-level deductions) can meaningfully reduce a client’s effective tax rate.
Who is most affected
This entire discussion is about income, not wealth. Your wealthiest clients may be well above the range where the deduction matters. But your high earners, often dual-income professionals, may sit squarely in the $500,000–$600,000 MAGI band.
These clients often:
- Earn large or variable bonuses
- Receive partnership or K-1 income
- Experience lumpy capital gains
- Have business income that fluctuates year to year
Many advisors underestimate how many of their clients fall into this zone or could fall into it because of a single transaction. Recognizing this issue now, as we enter into 2026, is key to having the time to address any issues that may arise for your clients.
Why advisors should start this work now
The tax bill clients will face in April 2027 is being shaped by the income and investment decisions they will make throughout 2026. Without planning, it’s easy for a bonus, partnership distribution, sale of appreciated assets, or unexpected fund distribution to push a client into the SALT phaseout range. For clients who strongly dislike tax surprises—a nearly universal sentiment—this can be especially frustrating. Advisors who help clients anticipate these inflection points, project their 2026 income, and build a strategy to manage capital gains and deductions demonstrate meaningful value long before the tax year begins. Proactive guidance today helps clients avoid surprises later, and positions advisors as trusted partners in managing not just wealth, but tax outcomes.
Conversations to have with your clients
Understand their 2026 income picture
Start by asking:
- What income is expected?
- Are bonuses likely?
- Will there be partnership income, deferred comp, or passive income?
- Are distributions or liquidity events on the horizon?
A clear understanding allows you to project whether the client may approach the SALT phaseout range.
Introduce the concept of a “tax budget”
A capital gains budget helps establish clarity around a client’s annual tax-aware income capacity. It defines how much income or realized gains can be absorbed without triggering unintended tax consequences, identifies where the client falls relative to the critical $500,000–$600,000 SALT phase-out band, and highlights whether adjustments may be required within the investment strategy to stay within that range. For many clients, this represents their first exposure to a disciplined, structured framework for managing tax-sensitive income planning.
Prepare for income-timing decisions
Some clients have the flexibility to shift income across tax years, while others do not, making individualized planning essential. Key areas for discussion include whether bonuses can be deferred, whether gains from asset sales are better realized in 2025 or 2026, whether upcoming retirement or employment changes will materially alter income, and whether any income should be intentionally accelerated or delayed to optimize the client’s position within the SALT phase-out range. There are no universal recommendations in this area—only tailored, client-specific timing decisions based on each household’s projected income profile and planning objectives.
Tools to strengthen your approach
Tax-overlay services
A tax overlay service gives portfolio managers a defined capital gains budget—helping them manage capital gains realization throughout the year and avoid pushing the client unexpectedly into the SALT phaseout.
Solutions like the Envestnet’s tax overlay service can give advisors and clients more control over the portfolio’s tax impact.
Portfolio reviews
This is an ideal moment to review portfolios through the lens of the new SALT framework. Reassessing fixed-income holdings for tax efficiency, evaluating whether existing mutual funds are likely to distribute capital gains, and considering transitions to more tax-efficient vehicles all take on heightened importance when a client’s taxable income could push them into—or help keep them out of—the SALT phase-out band. Thoughtful adjustments can help manage realized income and preserve the expanded deduction where possible. Small changes made now can prevent large, unexpected tax outcomes later.
Advisors do not need to navigate this alone. Services like Envestnets Private Wealth offering provide white-glove support, pairing you with a dedicated client portfolio manager who guides the review and implementation process. Their team works alongside you to design personalized portfolios that reflect each client’s goals, life stage, and evolving needs, helping them remain invested with confidence over the long term.
SALT as a broader planning catalyst
Even clients outside high-tax states benefit from a deliberate tax-management process. SALT becomes the entry point to conversations about:
- Multi-year tax planning
- Gain/loss harvesting discipline
- Portfolio diversification with tax awareness
- Charitable giving strategies, including Qualified Charitable Distributions for eligible clients
SALT isn’t the story—it’s the spark for building a repeatable, valuable planning process.
The upcoming SALT changes are an improvement over today’s rules and a powerful opportunity for advisors. By starting conversations early, setting clear tax budgets, and aligning portfolios with income expectations, advisors can deliver a level of clarity clients rarely receive.
When 2026 arrives, clients who planned will feel confident.
And they’ll remember that their advisor helped them get there.
Feel supported as you serve your high-net-worth clients with Envestnet Private Wealth.
