What is the SALT Deduction?

The SALT deduction lets taxpayers who itemize deduct state and local taxes paid from their federal taxable income. It covers property taxes plus either state and local income taxes or sales taxes, whichever you choose, but not both.

The deduction has been one of the most contested provisions in the tax code since 2017, when it was capped for the first time. The cap has since been raised substantially, and it is scheduled to fall back again, which makes this one of the few deductions where the planning question is as much about timing as amount.

The Cap and Its History

The Tax Cuts and Jobs Act introduced the $10,000 cap starting in 2018. The One Big Beautiful Bill Act, enacted in July 2025, raised it to $40,000 with roughly 1% annual increases through 2029, after which it is scheduled to return to $10,000.

The higher cap phases down for high earners. Above a modified adjusted gross income threshold (starting around $500,000), the deduction is reduced by 30% of income above that threshold, with a floor of $10,000. The effect is a band of income where each additional dollar earned costs more than a dollar of deduction, producing an unusually high effective marginal rate.

Because these figures step up annually and the phase-down threshold moves with them, verify the current year’s cap and threshold before relying on them. This is among the most volatile provisions in the code right now.

It Only Helps If You Itemize

The SALT deduction is an itemized deduction, so it does nothing unless your total itemized deductions exceed the standard deduction. For 2026 that means clearing $16,100 for single filers or $32,200 for married couples filing jointly.

This is why the cap’s effect was so uneven. Between 2018 and 2024, the combination of a $10,000 SALT limit and a near-doubled standard deduction pushed the share of taxpayers who itemize down sharply. Raising the cap to $40,000 reverses that for many households in high-tax states, since property tax plus state income tax alone can now clear the standard deduction and make mortgage interest and charitable gifts deductible again on top.

The practical consequence is that the higher cap can be worth far more than the SALT increase itself, because it unlocks the rest of your itemized deductions.

Income Tax or Sales Tax

You elect one, not both. Most people in states with an income tax deduct that, since it is usually the larger figure.

Deducting sales tax is the better choice for residents of states with no income tax (Florida, Texas, Washington, Nevada, Tennessee, South Dakota, Wyoming, Alaska, and New Hampshire on earned income), and occasionally for anyone in a year with a very large taxable purchase such as a vehicle or a major renovation. The IRS publishes optional tables so you do not need to keep every receipt, and you can add tax paid on large purchases to the table amount.

The Pass-Through Workaround

Most states now offer a pass-through entity tax election, often called PTET. Owners of S corporations and partnerships can have the business pay state income tax at the entity level, where it is deductible as a business expense and therefore not subject to the individual SALT cap at all.

The IRS blessed this approach in Notice 2020-75. Rules, election deadlines, and benefits vary considerably by state, and the mechanics reward getting the election timing right. If you own a pass-through business in a high-tax state, this is usually worth more than any other SALT planning move available to you.

Planning Around the Cap

The scheduled 2030 reversion makes the next several years unusual: a deduction worth up to $40,000 now may be worth $10,000 later.

For taxpayers near the itemizing threshold, bunching remains the main tool. Concentrating two years of charitable giving, or paying a property tax installment in December instead of January, can push you over the standard deduction in one year and let you take the standard deduction in the next. A donor-advised fund makes the charitable half of this straightforward.

Prepaying property taxes has limits worth knowing. You can deduct only taxes that have actually been assessed, not an estimated future bill, a point the IRS made explicitly when taxpayers attempted mass prepayments in December 2017.

Seeing how the cap, the phase-down, and your other itemized deductions interact across several years, rather than one filing at a time, is where the real decisions sit. Comparing multi-year scenarios in ProjectionLab’s tax analytics shows whether bunching or accelerating income actually pays in your situation.

Frequently Asked Questions

What is the SALT deduction cap? It was $10,000 from 2018 through 2024 and was raised to $40,000 beginning in 2025, with annual increases through 2029 and a phase-down for high earners. It is scheduled to return to $10,000 in 2030. Confirm the current year’s figure, since it changes annually.

What taxes count toward SALT? State and local property taxes, plus either state and local income taxes or state and local sales taxes. You choose one of the latter two, not both.

Do I need to itemize to claim it? Yes. If your total itemized deductions do not exceed your standard deduction, the SALT deduction provides no benefit.

Can I deduct property tax on a second home? Yes, property taxes on additional personal-use properties count toward the same cap. Taxes on rental property are deducted as a rental expense instead and are not subject to the SALT cap.

Why was the cap so controversial? It falls hardest on residents of high-tax states, where property and income taxes routinely exceeded $10,000. Supporters argued the uncapped deduction effectively subsidized high state tax rates; opponents argued it created double taxation and penalized specific states.

What is the pass-through entity tax workaround? Most states let S corporations and partnerships pay state income tax at the entity level, making it a deductible business expense outside the individual SALT cap. The IRS approved the approach in Notice 2020-75, but rules vary by state.