If you live in a state with high income taxes or own a home with a big property tax bill, you pay thousands of dollars a year to state and local governments. For years, the federal tax code only let you deduct $10,000 of those taxes. That changed in 2025, when the SALT deduction cap jumped to $40,000. This guide explains what the SALT deduction is, what counts toward it, who benefits, and how to tell whether it is worth itemizing to claim it.
Quick answer
The SALT deduction lets you subtract state and local taxes you paid, such as state income tax and property tax, from your federal taxable income. For 2025 the deduction is capped at $40,000 per return, rising to $40,400 in 2026. You must itemize to claim it, and it only saves you money if your itemized deductions beat the standard deduction.
What Is the SALT Deduction?
SALT stands for state and local taxes. The SALT deduction is an itemized deduction on Schedule A of Form 1040 that lets you subtract certain taxes you paid to state and local governments from your federal taxable income. It does not reduce the taxes you owe to your state. It reduces the income the federal government taxes you on.
The deduction has existed for a long time, but the Tax Cuts and Jobs Act of 2017 capped it at $10,000 per return for tax years 2018 through 2024. That cap hit hardest in states with high income taxes and high home prices. The One Big Beautiful Bill Act, signed into law on July 4, 2025, raised the cap to $40,000 for tax years 2025 through 2029.
What Counts Toward the SALT Deduction?
The IRS allows three categories:
State and local income taxes
State and local income taxes withheld from your wages during the year, plus any estimated state and local income tax payments and prior-year state taxes you paid during the year. Foreign income taxes can also be deducted, or claimed as a credit instead.
State and local sales taxes
Instead of income taxes, you can elect to deduct state and local general sales taxes, using either your actual expenses or the IRS optional sales tax tables. You cannot deduct both. The sales tax choice usually helps people in states with no income tax, such as Texas and Florida.
State and local property taxes
Real property taxes on your home or other real estate, and personal property taxes based on the value of property such as a car or boat. The tax must be charged yearly at a uniform rate.
What Does Not Count
The IRS lists several payments that are not deductible as SALT: federal income taxes, Social Security taxes, transfer taxes on the sale of property, stamp taxes, homeowners association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection. Taxes for local benefits are also excluded unless they pay for maintenance, repair, or interest charges related to those benefits. And you deduct a tax in the year you pay it, not the year it was assessed.
The SALT Deduction Cap in 2025 and 2026
The cap applies to your combined SALT total: it is not $40,000 for income tax plus another $40,000 for property tax.
| Tax year | Cap per return | Married filing separately |
|---|---|---|
| 2018 through 2024 | $10,000 | $5,000 |
| 2025 | $40,000 | $20,000 |
| 2026 | $40,400 | $20,200 |
| 2027 through 2029 | Rises 1 percent a year | Half the joint cap |
| 2030 | $10,000 unless Congress acts | $5,000 |
The cap rises by 1 percent a year through 2029, then reverts to $10,000 in 2030 unless Congress acts. Do not build long-term plans around the higher cap.
How the Phase-Out Works for High Earners
The higher cap is not for everyone. For 2025, it starts to shrink once your modified adjusted gross income, known as MAGI, passes $500,000, or $250,000 if married filing separately. It falls by 30 cents for every dollar of MAGI above the threshold, but never below $10,000.
For example, a couple with $520,000 of MAGI in 2025 is $20,000 over the threshold. Their cap falls by 30 percent of $20,000, which is $6,000, leaving a $34,000 limit. Once MAGI reaches $600,000, the cap is fully phased down to $10,000. The phase-out threshold rises by 1 percent a year, so for 2026 it starts at $505,000. SALT is also not allowed when calculating the alternative minimum tax.
Itemizing vs the Standard Deduction
The SALT deduction only helps if you itemize. You cannot claim it on top of the standard deduction. So the real question is whether your total itemized deductions beat the standard deduction for your filing status. For the 2026 tax year, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.
That comparison is where the higher SALT cap matters most. Under the old $10,000 cap, many households found their total itemized deductions fell short of the standard deduction, so the SALT deduction was worth nothing to them. With a $40,000 cap, a homeowner in a high-tax state can now have enough SALT alone to clear the standard deduction hurdle, and every other itemized deduction adds savings on top. If your itemized total is below the standard deduction, take the standard deduction and forget about SALT for that year.
For a sense of where the line falls, see the 2025 federal tax brackets and the 2025 tax estimator to check your marginal rate, and confirm when your taxes are due before you file.
Worked Example: A California Couple
The following example is illustrative. It uses round numbers to show how the math works.
A married couple filing jointly in California pays $18,000 in state income tax and $14,000 in property tax in 2025, for $32,000 in total SALT. Because $32,000 is below the $40,000 cap, the full amount is deductible on Schedule A. At a 22 percent marginal tax rate, that deduction cuts their federal tax by $7,040. Under the old $10,000 cap, the same couple could have deducted only $10,000 and saved $2,200, so the higher cap is worth $4,840 to them.
The example also shows why the standard deduction comparison matters. Their $32,000 of SALT alone already beats the 2025 standard deduction of $31,500 for joint filers, so itemizing wins even before mortgage interest and charitable gifts are added. A similar couple with only $12,000 of SALT would be better off taking the standard deduction, since their itemized total would need another $19,500 of deductions to break even.
Common Mistakes to Avoid
- Treating the cap as per tax. The $40,000 limit covers income tax, sales tax, and property tax combined, not each one separately.
- Ignoring the phase-out. If your MAGI is above $500,000, your cap is smaller than $40,000. Check the phase-out before you count on the full amount.
- Deducting taxes you cannot deduct. Federal income tax, Social Security tax, homeowners association fees, and water, sewer, and trash charges are not SALT.
- Claiming both income tax and sales tax. You must choose one. Pick whichever is larger.
- Itemizing when the standard deduction is bigger. Add up all your itemized deductions first. If the total is below the standard deduction, itemizing costs you money.
- Deducting a tax in the wrong year. You deduct a tax in the year you pay it. A property tax bill paid in January counts in the new year, even if it covers the prior year.
- Forgetting the alternative minimum tax. SALT is disallowed under the AMT, so the deduction may not help if you owe AMT.
Pros and Cons of the SALT Deduction
Pros
- Lowers your federal taxable income, which lowers your federal tax bill.
- The 2025 to 2029 cap of $40,000 is four times the old limit, so far more households benefit.
- Combines income tax, sales tax, and property tax into one deduction.
- Can push your itemized total above the standard deduction, making other deductions valuable too.
Cons
- Only available if you itemize. It is worth nothing if you take the standard deduction.
- The cap still binds in very high-tax areas, where combined SALT can pass $40,000.
- The cap phases down for MAGI above $500,000 and disappears back to $10,000 at $600,000.
- The higher cap is temporary and reverts to $10,000 in 2030 unless Congress acts.
- The deduction is disallowed under the alternative minimum tax.
Frequently Asked Questions
Does the SALT deduction apply to renters?
Yes, in part. Renters who pay state income tax can deduct it, just like homeowners. Property tax is deductible by the person who pays it, which is usually the landlord, not the renter. If you rent, your SALT total is usually just your state income tax, which may not be enough on its own to beat the standard deduction.
Can I deduct sales tax instead of income tax?
Yes. On Schedule A you can elect to deduct general sales taxes instead of income taxes, using actual expenses or the IRS optional sales tax tables. This usually helps people in states with no income tax. You cannot deduct both.
What if my total SALT is below the cap?
Then you deduct the full amount, as long as you itemize. The cap only limits you when your total state and local taxes are above it.
Does the SALT deduction help if I take the standard deduction?
No. SALT is an itemized deduction, so you cannot claim it on top of the standard deduction. Compare your total itemized deductions to the standard deduction and take whichever is larger.
Will the SALT cap go back down?
Under current law, yes. The $40,000 cap applies for tax years 2025 through 2029, rising 1 percent a year, and then reverts to $10,000 in 2030 unless Congress acts. If your home value rises, appealing your property tax assessment may be worth a look.
The Bottom Line
The SALT deduction is worth real money again. For 2025 and 2026, the cap is $40,000 and $40,400, up from $10,000, covering state income tax or sales tax plus property tax. The catch: you must itemize, your income must be under the phase-out threshold, and the higher cap ends in 2030. Add up your state and local taxes, compare your itemized total to the standard deduction, and claim whichever saves you more.
Sources
- IRS Topic No. 503, Deductible Taxes — what counts as SALT, the $40,000 cap, and what is not deductible.
- The Tax Adviser: Cap raised, strings attached — the 2025 SALT shake-up — the 2026 cap of $40,400, the 1 percent annual increase, and the phase-out mechanics.
- H and R Block: What is the SALT Deduction? — the 2025 and 2026 caps, the phase-out floor, and the 2030 reversion.
Sources and methodology
The figures, rules, and rates in this guide come from the authoritative sources linked throughout the article, including irs.gov, thetaxadviser.com, resource-center.hrblock.com. Where a figure is an estimate or a worked example, the article says so.
