I attended two weddings this weekend, and among all the dancing and celebrations, a common question was posed to many of the recently engaged or married couples: “So, are you thinking about buying a house soon?”
A simple question that increasingly haunts the younger generation.
With mortgage rates hovering around 7% and New Jersey home prices showing no signs of softening, affordability is top of mind for many young and first-time buyers. Add in the nation’s highest property taxes and a steep state income tax, and the math behind buying a home in the Garden State often seems discouraging.
But a proposed change to the federal tax code could shift the equation: increasing the SALT (State and Local Tax) deduction cap from $10,000 to $40,000 for couples making under $500,000.
This change would restore a significant federal tax benefit to buyers in high-cost states, such as New Jersey. When combined with the mortgage interest deduction, a higher SALT cap would make itemizing far more beneficial—unlocking thousands in annual tax savings compared to taking the standard deduction.
The Tax Difference: Buying vs. Renting
Let’s break down a real-world example facing many HENRY (High Earners Not Rich Yet) couples. Suppose a young couple is deciding whether to rent or buy a home in New Jersey.
If they purchase a home with a $750,000¹ mortgage at a 7% interest rate, they’ll pay approximately $52,500 in mortgage interest in the first year. They’ll also owe around $23,300² in property taxes and $27,680³ in New Jersey state income taxes, totaling $50,980 in SALT-related taxes.
Under the current tax code, they can only deduct $10,000 of those state and local taxes due to the SALT cap. But if the cap is increased to $40,000, they could deduct nearly the full amount. Their total itemized deductions would be:
$40,000 (SALT cap) + $52,500 (mortgage interest) = $92,500
Now compare that to the renting scenario. They would still owe $27,680 in state income tax but wouldn’t have any mortgage interest or property tax deductions. Without enough to itemize, they’d likely take the 2025 standard deduction of $30,000 for married couples.
The difference?
$92,500 – $30,000 = $62,500 more in deductions for the homebuyer.
At a 32%⁴ federal marginal tax rate, that translates to approximately $20,000 in tax savings unlocked through homeownership.
That’s $20,000 back in your pocket—enough to meaningfully offset steep property taxes or take the edge off the higher mortgage rates today’s buyers are up against.
Why This Matters
This legislation could be one of the most impactful changes in tipping the scale from renting to buying for younger, high-earning households in high-tax states.
A few things to keep in mind:
- The proposed One Big Beautiful Bill has passed the House of Representatives and is now under debate in the Senate. Lawmakers aim to pass it by July 4, though changes—such as adjustments to the SALT deduction—may still be made before final approval.
- If you’re in the process of buying a home or recently purchased one, it’s safer to use conservative estimates for any potential tax savings. Consider any benefits that do come through as a bonus, not a guarantee. That said, if you’ve been on the fence or have paused your home search, this proposed change may bring new hope and financial flexibility to your budget.
We’re committed to delivering timely, actionable insights into investment and tax law changes that matter to your financial future. If you have questions about how this legislation could impact a major decision—like buying your first home—let’s connect to evaluate your options.
Assumptions include:
- $750,000 mortgage, current maximum for mortgage interest deduction on a primary residence.
- $1,000,000 assessed home value using the NJ median effective property tax rate of 2.33%.
- Approximate New Jersey state income taxes for a married couple filing jointly with an AGI of $500,000, using an effective rate of 5.54%.
- Current federal marginal tax rate for a married couple filing jointly with an AGI of $500,000.
