The SALT deduction lets you deduct state and local taxes on your federal return. For 2026, the cap is $40,400 per return ($20,200 if married filing separately) — a major, temporary increase from the $10,000 cap that applied from 2018 through 2025. The higher cap was enacted by the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, and phases out for high earners.
What Is the SALT Deduction?
SALT stands for State and Local Taxes. It is an itemized deduction on Schedule A that lets you reduce your federal taxable income by the amount you pay in:
- State and local income taxes (or general sales taxes in states without income tax)
- Property taxes on your primary home and other personal-use real estate
The IRS does not let you deduct both state income taxes and sales taxes — you must pick one. Most people in states with income taxes choose income taxes, which are typically higher.
The 2026 SALT Cap: $40,400
The SALT deduction was capped at $10,000 per return from 2018 through 2025 under the 2017 Tax Cuts and Jobs Act. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raised the cap to $40,000 for 2025 and indexed it to increase roughly 1% per year through 2029. For 2026, the cap is $40,400 ($20,200 for married filing separately).
SALT Cap by Filing Status (2026)
| Filing Status | SALT Cap |
|---|---|
| Single | $40,400 |
| Married Filing Jointly | $40,400 |
| Married Filing Separately | $20,200 each |
| Head of Household | $40,400 |
Note: Married filing jointly couples share a single $40,400 cap — not $40,400 each. Married filing separately filers each get $20,200.
The High-Income Phase-Out
The higher cap phases out for taxpayers with modified AGI above $505,000 ($252,500 for married filing separately). Above that threshold, the allowable SALT deduction is reduced by 30 cents for every dollar of MAGI over the limit — but it never drops below a floor of $10,000 ($5,000 MFS). In practice, very high earners effectively end up back at the old $10,000 cap.
This Increase Is Temporary
Unlike the permanent standard deduction and estate tax changes in OBBBA, the higher SALT cap is a temporary window: it applies for tax years 2025 through 2029 only, with the cap and phase-out threshold both increasing about 1% per year during that period. Unless Congress extends it again, the cap is scheduled to revert to $10,000 starting in 2030.
What Counts Toward the SALT Cap
| Tax Type | Counts Toward Cap? |
|---|---|
| State income tax | Yes |
| Local income tax (e.g., NYC, Philadelphia) | Yes |
| State general sales tax (in lieu of income tax) | Yes |
| Personal property taxes (e.g., vehicle registration based on value) | Yes |
| Real property taxes on primary home | Yes |
| Real property taxes on second home | Yes |
| Foreign income taxes | No (separate foreign tax credit) |
| Property taxes on rental property | No (deducted as business expense) |
| Estate and inheritance taxes | No |
| Federal income taxes | Never deductible |
Who Actually Benefits
To claim the SALT deduction at all, you must itemize deductions rather than take the standard deduction ($16,100 single / $32,200 married filing jointly in 2026). That means you need enough total itemized deductions — SALT, mortgage interest, charitable contributions — to exceed your standard deduction.
When SALT Helps You Most
| Situation | Likely Impact |
|---|---|
| High-tax state (CA, NY, NJ, IL) + homeowner, MAGI under $505,000 | Most or all combined SALT now deductible — a major change from the old $10,000 cap |
| High-tax state + MAGI well above $505,000 | Phase-out pulls the effective cap back toward $10,000 |
| No income tax state + high sales tax | Sales tax deduction applies, rarely approaches the new cap |
| Renter in high-tax state | State income tax deduction only |
Worked Example: New Jersey Homeowner
Maria files jointly with her spouse in New Jersey. In 2026, their MAGI is $220,000 — well under the $505,000 phase-out threshold.
- State income tax paid: $14,000
- Property tax on primary home: $12,000
- Total state and local taxes: $26,000
SALT deduction claimed: $26,000 (the full amount — well under the $40,400 cap)
Under the old $10,000 cap, Maria would have lost $16,000 of this deduction. Under the 2026 cap, she deducts the full $26,000, since her combined state and local taxes stay under $40,400 and her income is well below the phase-out threshold.
Compare this to a high earner in the same state with $700,000 MAGI and the same $26,000 in state and local taxes: their MAGI exceeds the $505,000 threshold by $195,000, triggering a reduction of 30% × $195,000 = $58,500 — far more than needed to reduce their SALT deduction all the way down to the $10,000 floor.
SALT and the Standard Deduction Trade-Off
Because the 2026 standard deduction is $32,200 for married couples, many households still won’t itemize — but the math has shifted meaningfully compared to the $10,000-cap years. A homeowner with $26,000 in combined state and local taxes now only needs a modest amount of additional itemized deductions (mortgage interest, charitable giving) to clear the standard deduction, where previously they were stuck at a $10,000 SALT contribution toward that total.
Strategies for High-Tax State Residents
Watch the phase-out if you’re a high earner. If your MAGI is likely to exceed $505,000 ($252,500 MFS), model your SALT deduction carefully — the benefit of the higher cap shrinks quickly and disappears entirely well before your income triples the threshold.
Bunch deductions if you’re near the standard deduction threshold. In alternating years, accelerate deductible expenses (prepay charitable pledges, property taxes if permitted) to push total deductions above the standard deduction in “on” years, then take the standard deduction in “off” years.
Claim all eligible property taxes. If you own a vacation home or second property, those property taxes also count toward your SALT limit — make sure you’re tracking them, since the cap is now high enough that most filers can deduct them in full.
Consider your state’s SALT workaround. Many states (California, New York, New Jersey, and others) have enacted pass-through entity (PTE) tax elections that let business owners pay state income tax at the entity level rather than the individual level, bypassing the personal SALT cap entirely — still useful for high earners caught in the phase-out. If you own an S-corp, LLC, or partnership, ask your CPA whether your state offers this.
How to Claim the SALT Deduction
You claim SALT on Schedule A (Form 1040), Line 5. You report:
- State and local income taxes on Line 5a
- State and local general sales taxes on Line 5a (using IRS optional sales tax tables or actual receipts)
- Real estate taxes on Line 5b
- Personal property taxes on Line 5c
- Total capped at $40,400 (or your phase-out-adjusted amount) on Line 5e
Keep records of your state tax payments (Form W-2 Box 17 for state income tax withheld, estimated tax payment confirmations) and property tax bills.
The SALT cap applies to the combined total of property tax and state or local income tax — see property tax deduction for how the two interact when you have high property taxes. SALT is one of the main deductions reported on Schedule A, alongside mortgage interest, medical expenses, and charitable contributions. Whether itemizing beats the standard deduction depends on your total — see itemized vs. standard deduction to compare.
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