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The One Big Beautiful Bill Act (OBBBA) introduced changes to several key tax deductions, including the federal deduction for state and local taxes (SALT). Deductions reduce your taxable income for the year, which can directly impact your overall tax bill.
What is the SALT deduction for 2025, and how will it change for 2026? Read on to learn how SALT works and who can claim this tax deduction.
Key Points
• The One Big Beautiful Bill increased the SALT deduction cap to an upper limit of $40,000 for 2025, increasing to $40,400 in 2026.
• Taxes eligible for the SALT deduction include state and local income taxes, sales tax, real property tax, and personal property tax.
• For 2026, taxpayers can claim the maximum SALT deduction if their MAGI is below $505,000 (or $252,500 for those married and filing separate returns).
• Taxpayers must itemize on Schedule A when filing their taxes to claim a SALT tax deduction.
• Beginning in 2030, the SALT deduction cap will revert to its previous maximum of $10,000, unless tax legislation is introduced to extend it.
What Is the SALT Deduction?
The SALT deduction is a federal tax deduction that allows taxpayers who itemize and meet specific income requirements (see more about that below) to write off certain state and local tax payments on their return. This deduction was established by the Revenue Act of 1913 and has undergone numerous changes over the years, most recently with the passage of the One Big Beautiful Bill Act in July 2025.
Claiming SALT deductions and other deductions is one of the potential ways to lower your taxable income and reduce the amount you owe when you file.
Breaking Down State and Local Taxes
The SALT deduction applies to several distinct categories of tax payments. They include:
• State, local, and foreign income taxes, OR state and local sales tax in lieu of income tax
• State and local real property taxes (real property tax includes taxes owed for any land you own, and the structures on it)
• State and local personal property taxes (personal property includes cars, boats, RVs, and other vehicles you pay property tax on)
Generally, it makes sense to claim the SALT tax deduction for sales tax if those taxes exceed your income tax payments or if you live in a state that does not assess income tax.
Why the SALT Deduction Prevents Double Taxation
The SALT deduction prevents you from paying taxes on income that you’ve already paid out to state and local governments. For example, say you pay $10,000 in property taxes for your primary home and another $5,000 in personal property taxes for several vehicles that belong to you. That $15,000 comes directly out of your income for the year.
If you didn’t have the option to deduct that amount from your total annual income, the federal government could assess taxes on it. By claiming the SALT deduction, you reduce the amount of income the IRS can tax.
The better you understand income taxes and how they work, the easier it becomes to find ways to help reduce what you owe.
The New SALT Deduction Cap: 2025 vs 2026 Rules
If you claimed the SALT deduction for 2025, you may have noticed a marked shift in the amount you could deduct from previous tax years. The OBBBA raised the cap significantly, allowing for continued adjustments annually until 2030. At that time, the deduction cap will drop back to its previous limit unless extended by Congress.
From $10,000 to $40,000: The OBBBA Expansion Explained
The Tax Cuts and Jobs Act (TCJA) of 2017 set the SALT deduction cap at $10,000, with a limit of $5,000 for married couples filing separate returns. That limit remained in place for tax years 2018 through 2025, until the OBBBA raised the threshold.
What is the new SALT deduction cap? For the 2025 tax year, the limit was set at $40,000, or $20,000 for married couples filing separately. The increase was intended to provide tax relief for taxpayers in states with high income and property taxes. It was also designed to help put more money back into local economies by reducing tax burdens for middle-income earners.
The 1% Annual Increase: Why the 2026 Cap Is $40,400
In 2026, the SALT deduction cap increased to $40,400, with a limit of $20,200 for married couples filing separately. This bump reflects a 1% annual increase mandated by the OBBBA, which is set to continue through 2029. Here’s how the SALT deduction is set to increase, year over year.
| Tax Year | SALT Deduction Caps |
|---|---|
| 2025 | $40,000; $20,000 for married couples filing separately |
| 2026 | $40,400; $20,200 for married couples filing separately |
| 2027 | $40,804; $20,402 for married couples filing separately |
| 2028 | $41,212; $20,606 for married couples filing separately |
| 2029 | $41,624; $20,812 for married couples filing separately |
How the 2026 Income Phase-Out Impacts Your Savings
You must itemize on Schedule A to claim the SALT tax deduction. However, this deduction is not unlimited. Your ability to claim the full deduction amount is determined by your modified adjusted gross income (MAGI). In addition to raising the SALT deduction cap, the OBBBA establishes income thresholds at which the deduction limit begins phasing out.
Understanding the $505,000 MAGI Threshold for 2026
For 2026, taxpayers can claim the maximum SALT deduction if their MAGI is below $505,000. The income threshold is $252,500 if married and filing separate returns.
The income cap exists to ensure that high-income earners pay their fair share in taxes. The expansion of the SALT tax deduction was primarily designed to benefit middle-income households and the income cap is meant to prevent wealthier taxpayers from unfairly taking advantage of this write-off.
The 30% Reduction Rule: How High Earners Lose Benefits
The MAGI threshold limit is not arbitrary. It’s based on the 30% rule, which reduces your deduction by 30 cents for every dollar your income exceeds the maximum MAGI limit for the year. Just as the OBBBA allows for a 1% annual increase to the SALT deduction cap, it also raises the MAGI threshold by 1% annually.
Here’s what taxpayers can expect through 2029.
| Tax Year | SALT Deduction MAGI Phaseout Limits |
|---|---|
| 2025 | $500,000; $250,000 for married couples filing separately |
| 2026 | $505,000; $252,500 for married couples filing separately |
| 2027 | $510,050; $255,025 for married couples filing separately |
| 2028 | $515,151; $257,575 for married couples filing separately |
| 2029 | $520,302; $260,151 for married couples filing separately |
Recommended: What Are the Tax Brackets for Married Couples?
Why the Deduction Never Drops Below the $10,000 Floor
While income phase-out limits prevent higher earners from exploiting SALT deductions, the limit does not phase out to $0. The deduction is never reduced below $10,000, or $5,000 for married couples filing separate returns. This amount is codified by the OBBBA as the minimum deduction available to taxpayers.
Calculating Your SALT Deduction: A Step-by-Step Guide
You may be interested in how to calculate SALT deduction amounts if you plan to itemize for the upcoming tax year. To do so, you’ll need to know how much you paid in eligible state and local taxes, your estimated modified adjusted gross income, and your filing status. Again, you can only claim this deduction if you itemize using Schedule A; you’re not eligible if you claim the standard deduction.
Choosing Between State Income Tax vs Sales Tax
As mentioned, the current SALT deduction rules allow you to deduct either state and local income taxes paid, or sales tax. Whether you should claim one or the other will depend on how much you paid in each and which offers the greatest benefit at tax time.
State and local income taxes paid should be listed on your W-2s if you’re a regular employee, or your Form 1099 if you’re self-employed. You can also use a paycheck tax calculator to estimate your total. Of course, if you live in a state with no income tax then you would naturally use sales tax. Currently, these states have no income tax:
• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming
If you plan to claim the SALT deduction for sales tax, accurate recordkeeping is critical. You may keep track of sales tax paid using an expense tracking app, tax software program, or spreadsheet. Remember, you can only deduct income tax or sales tax, not both. Learn more about the benefits of not having state income taxes.
Including Real Estate and Personal Property Taxes
If you own property, real estate or otherwise, you can include those tax payments for purposes of the SALT deduction. You can find the amount of real estate taxes paid by reviewing the Form 1098 sent by your mortgage lender, checking your local tax records, or reviewing your most recent mortgage statement. Your tax assessor’s office should be able to provide details about amounts paid for personal property taxes as well.
Once you have these amounts, plus the amount of sales or income tax paid, you can calculate your SALT tax deduction.
• Find the amount of eligible taxes paid
• Apply the deduction cap, based on your filing status
• Compare your MAGI against income phase-out limits
For example, let’s say you paid $15,000 in combined real estate taxes and personal property taxes. Assume you have another $15,000 in income tax paid to deduct. Your applicable cap comes to $30,000, which is below the $40,000 maximum, assuming you’re a single filer or married couple filing jointly. If your MAGI is below $505,000 for 2026, you can deduct the full $30,000.
You could consider depositing any tax refund you get in the bank, such as in a high yield savings account.
SALT Cap Workarounds: The Future of PTET in 2026
The Pass Through Entity Tax (PTET) allows business entities, like limited liability companies and s-corporations, to effectively turn individual taxes, including state and local taxes, into deductible business expenses. The OBBBA does not eliminate PTET tax benefits, meaning business owners can continue to benefit from this workaround for the 2026 tax year and beyond.
How Pass-Through Entity Taxes Help Business Owners
PTET benefits business owners, particularly higher earners, by allowing them to pay state income tax at the entity (or business) level. It also enables them to deduct state and local taxes as a business expense, bypassing SALT deduction limits. This, in turn, helps reduce the business’s net income for the year without concerns about hitting an upper cap on state and local tax deductions.
Thirty-six states and New York City passed PTET taxes to help lighten business owners’ tax burden in response to the $10,000 SALT cap imposed by the TCJA. While there were concerns that the OBBBA could eliminate this benefit, the final version of the bill did not address states’ PTET rules.
New Restrictions on Service-Related and Investment Partnerships
While the original draft of the OBBBA included a proposal to restrict PTET deductions for service-related and investment partnerships, that didn’t make it into the final version of the bill. That means businesses operating in the legal, accounting, medical, consulting, and financial industries, as well as investment partnerships, can continue to benefit from the PTET workaround.
Standard Deduction vs Itemizing: Which is Better in 2026?
The standard deduction allows you to deduct a flat dollar amount from your taxable income, based on your filing status. Itemizing, on the other hand, could potentially allow you to claim a larger deduction if your itemizable expenses exceed the standard deduction amount. Doing some simple math can help you decide which one to claim for 2026 and beyond.
The Impact of the Higher SALT Cap on Your Filing Strategy
The increased SALT deduction cap may only impact your tax filing strategy if the amount you could deduct from itemizing exceeds your standard deduction. If you live in a higher tax state and you’ve paid a substantial amount in income or sales tax, real property tax, and personal property tax, it may be worth doing some calculations to estimate what itemizing would be worth.
Of course, it would depend on what other itemized expenses you have to claim. Some common itemized deductions include:
• Mortgage interest
• Medical expenses exceeding 7.5% of your adjusted gross income
• Charitable contributions
• Self-employment expenses
• Student loan interest deduction
If you don’t have many other itemized expenses to deduct, you may benefit more from claiming the standard deduction instead. A good tax software program can help you run the numbers to compare the benefits.
How Recent Adjustments to the Standard Deduction Influence the Math
The OBBBA increased standard deductions slightly for all taxpayers. Here’s how the limits compare for 2025 and 2026.
| Filing Status | 2025 Tax Year | 2026 Tax Year |
|---|---|---|
| Single | $15,750 | $16,100 |
| Head of Household | $23,625 | $24,150 |
| Married Filing Jointly; Surviving Spouses | $31,500 | $32,200 |
| Married Filing Separately | $15,750 | $16,100 |
If you’re unsure about which deduction to use, the IRS says you should itemize if:
• The total amount of your allowable itemized deductions is greater than your standard deduction, OR
• You can’t use the standard deduction, OR
• Your standard deduction is limited because someone else claims you as a dependent
Talking to a financial advisor or tax professional can help you decide whether to itemize so you can claim the higher SALT deduction limit or stick with the standard deduction.
Additionally, reviewing 2026 tax brackets as well as other changes can help you feel more prepared when it’s time to file.
It’s also helpful to estimate the federal tax you may owe well in advance so that you’re not caught off-guard by a big tax bill.
Recommended: Tax Deductions for College Students
The Takeaway
For 2025, the SALT deduction increased to $40,000 ($20,000 for married couples who file separate returns); for 2026, the deduction increases to $40,400 ($20,200 for married filing separately).
The SALT deduction, like other deductions, can prove valuable at tax time as a way for eligible filers to reduce the amount of income that’s subject to federal tax. Keeping up with tax code changes can help keep individuals from missing out on key tax breaks.
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FAQ
What is the SALT deduction cap for the 2026 tax year?
The SALT deduction cap for 2026 is $40,400, with a reduced limit of $20,200 for married couples who file separate returns. These limits are the result of changes made to the tax code under the One Big Beautiful Bill Act. The higher SALT deduction limits are set to expire in 2030.
Does the $40,000 SALT cap apply to everyone?
The $40,000 SALT deduction for 2025 applies to everyone except married couples who file separately. If you’re married and file a separate return from your spouse, your 2025 deduction limit is $20,000, increasing to $20,200 for 2026.
Can I deduct both state income tax and state sales tax?
SALT deduction rules permit you to claim a tax break for state income taxes or sales tax, but not both. If you live in a state that assesses income tax and sales tax, you’ll have to decide which one to deduct, based on the estimated benefit.
What happens to the SALT deduction after the year 2029?
In 2030, SALT deduction limits revert to the limits imposed by the Tax Cuts and Jobs Act. That means a $10,000 cap, with a limit of $5,000 for married couples who file separately. Congress could pass additional legislation to extend or raise the current limits, however.
Is my property tax still limited by the SALT cap in 2026?
Property tax deductions are still limited by the SALT cap in 2026, but the threshold has increased substantially. Instead of deducting $10,000 in state and local taxes, you can deduct up to $40,400 for 2026, or $20,200 if you’re married and file separate returns.
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