For years, the state and local tax deduction, known as SALT, was capped at $10,000. That limit hit hardest in high-tax states and for homeowners with large property tax bills. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the SALT deduction cap significantly for several years, with a phase-down for higher earners. If you pay substantial state income, sales, or property taxes, the higher cap may change whether it makes sense to itemize. This guide explains the new SALT deduction cap, how the phase-down works, and how to decide between itemizing and the standard deduction.
*This article is for general informational purposes only and is not tax advice. Consult a qualified tax professional about your situation.*
What the SALT deduction covers
If you itemize deductions on Schedule A, you can deduct certain state and local taxes you paid during the year:
- State and local income taxes, or alternatively general sales taxes (you choose one, not both)
- Real estate (property) taxes on your home and other real property
- Personal property taxes based on value, such as some vehicle registration fees
The cap applies to the total of these taxes combined.
The new cap under the OBBBA
| Tax year | SALT cap (most filers) | Married filing separately |
|---|---|---|
| 2024 and earlier (TCJA) | $10,000 | $5,000 |
| 2025 | $40,000 | $20,000 |
| 2026 | $40,400 | $20,200 |
| 2027–2029 | Increases 1% per year | Half of the joint amount |
| 2030 and later | Returns to $10,000 | $5,000 |
The higher cap is temporary. Under current law, it reverts to $10,000 starting in 2030.
The phase-down for high earners
The higher cap is reduced for taxpayers with modified adjusted gross income (MAGI) above a threshold:
- 2025: threshold of $500,000 ($250,000 if married filing separately)
- 2026: threshold of $505,000 ($252,500 if married filing separately), rising 1% per year through 2029
For every dollar of MAGI over the threshold, the cap is reduced by 30 cents. However, the cap can never fall below $10,000 ($5,000 for married filing separately).
Example
A married couple filing jointly in 2026 has MAGI of $555,000, which is $50,000 above the $505,000 threshold. Their cap is reduced by 30% of $50,000, or $15,000, leaving a SALT cap of $25,400.
At MAGI of about $606,333 or higher in 2026, the reduction would bring the cap all the way to the $10,000 floor.
Note that the threshold is the same for single and joint filers, which means the cap is not doubled for married couples. Married filing separately filers get half the cap and half the threshold.
Who benefits most
The higher cap mainly helps taxpayers who:
- Live in states with high income taxes or high property taxes
- Have total state and local taxes above $10,000
- Have MAGI below the phase-down threshold
- Have enough total itemized deductions, including mortgage interest and charitable gifts, to exceed the standard deduction
Many households in lower-tax states, or those without a mortgage, will still find the standard deduction larger.
Itemize vs standard deduction
You can either take the standard deduction or itemize, not both. For 2026, the standard deduction is:
| Filing status | 2026 standard deduction |
|---|---|
| Single or married filing separately | $16,100 |
| Married filing jointly | $32,200 |
| Head of household | $24,150 |
Taxpayers 65 or older or blind get an additional standard deduction, and the OBBBA’s separate senior deduction of up to $6,000 per eligible person is available whether you itemize or not.
A quick comparison
A married couple in 2026 has $18,000 in state income tax, $12,000 in property taxes, $14,000 in mortgage interest, and $3,000 in charitable donations:
- Under the old $10,000 cap, itemized deductions would total $10,000 + $14,000 + $3,000 = $27,000, less than the $32,200 standard deduction.
- Under the new cap, with MAGI below $505,000, SALT of $30,000 is fully deductible, so itemized deductions total $30,000 + $14,000 + $3,000 = $47,000, well above the standard deduction.
For this couple, itemizing becomes worthwhile again. Your result depends on your own numbers.
Other itemized deduction changes to know
The OBBBA also changed other rules that affect itemizers:
- Mortgage interest: The $750,000 limit on acquisition debt for loans after December 15, 2017, was made permanent. Interest on home equity debt is deductible only if the money is used to buy, build, or substantially improve the home.
- Charitable contributions: Beginning in 2026, itemizers can deduct charitable gifts only to the extent they exceed 0.5% of AGI. Non-itemizers can claim a charitable deduction of up to $1,000 ($2,000 for joint filers) for cash gifts to qualifying charities.
- Limit for the top bracket: Beginning in 2026, the tax benefit of itemized deductions is limited for taxpayers in the 37% bracket, generally capping the value at 35 cents per dollar.
Pass-through entity taxes
Many states created pass-through entity tax (PTET) elections after the original cap. These allow partnerships and S corporations to pay state income tax at the entity level and deduct it as a business expense, effectively working around the individual SALT cap for business owners. The final OBBBA did not eliminate these workarounds. If you own a pass-through business, ask your tax adviser whether a PTET election still makes sense with the higher cap.
How to calculate your SALT deduction step by step
Use this simple process when preparing your return or estimating your taxes for the year:
- Add up state and local income taxes paid during the year. Include amounts withheld from your paychecks (shown on Form W-2), state estimated tax payments made during the year, and any balance you paid with last year’s state return. If you choose sales tax instead, use actual receipts or the IRS optional sales tax tables, plus sales tax on major purchases such as a car.
- Add real estate taxes paid on your home and other personal real property. If you pay through a mortgage escrow account, use the amount your servicer actually paid to the taxing authority, usually shown on Form 1098.
- Add personal property taxes that are based on the value of the property, such as the value-based portion of some vehicle registration fees.
- Determine your cap. Start with the cap for the year, then reduce it by 30% of any MAGI above the threshold, but not below the $10,000 floor.
- Deduct the smaller of your total state and local taxes or your cap on Schedule A.
Remember that you should not include taxes that are not deductible, such as federal income tax, Social Security and Medicare taxes, transfer taxes on a home sale in most cases, or fees for services like trash collection.
Planning ideas
- Track your payments. Keep records of state estimated tax payments, withholding, and property tax bills.
- Watch timing. Generally, you deduct state and local taxes in the year you pay them. Prepaying property taxes that have been assessed may shift a deduction into an earlier year, but prepaying taxes that have not been assessed generally does not work.
- Manage MAGI near the threshold. If your income is near the phase-down range, contributions to pre-tax retirement accounts may reduce MAGI and preserve more of your cap.
- Plan for 2030. The cap is scheduled to drop back to $10,000, so strategies that depend on the higher cap may need revisiting.
- Run the numbers each year. Whether to itemize can change from year to year.
State tax returns
Your state may have its own rules for itemizing and deducting taxes. Some states do not allow you to deduct state income tax on the state return, and some follow federal itemized deductions differently. Check your state’s instructions.
Frequently Asked Questions
What is the SALT deduction cap for 2026?
For 2026, the cap is $40,400 ($20,200 for married filing separately), reduced for MAGI above $505,000 ($252,500 MFS), but not below $10,000 ($5,000 MFS).
Is the higher SALT cap permanent?
No. It increases 1% per year through 2029, then returns to $10,000 in 2030 under current law.
Is the SALT cap doubled for married couples?
No. Single and married filing jointly taxpayers have the same cap. Married filing separately filers get half.
Do I benefit if I take the standard deduction?
No. The SALT deduction is only available if you itemize. Compare your total itemized deductions to the standard deduction to decide.
Can I deduct both state income tax and sales tax?
No. You choose either state and local income taxes or general sales taxes, plus property taxes, all subject to the combined cap.
This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.
