For eight years, the $10,000 cap on the State and Local Tax (SALT) deduction was a source of major frustration for homeowners in high-tax states like California, New York, New Jersey, Massachusetts, and Illinois. That changed significantly with the One Big Beautiful Bill Act, signed on July 4, 2025. The new law raises the SALT deduction cap to $40,000 for tax years 2025 through 2029.
What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize their federal deductions to deduct the state and local taxes they pay — specifically state and local income taxes (or sales taxes, if you choose that option), real property taxes, and personal property taxes such as annual vehicle registration fees based on value. You can deduct income taxes or sales taxes — not both. Residents of states with no income tax (Texas, Florida, Washington, etc.) typically deduct sales taxes instead using the IRS optional sales tax tables.
SALT Cap History: From Unlimited to $10,000 to $40,000
| Tax Years | SALT Cap | Law |
|---|---|---|
| Pre-2018 | Unlimited | Prior law |
| 2018–2024 | $10,000 | Tax Cuts and Jobs Act (2017) |
| 2025–2029 | $40,000 | One Big Beautiful Bill Act (2025) |
| 2030+ | $10,000 (returns to prior cap) | Requires new legislation to change |
Before 2018, high-income homeowners in states like California and New York commonly deducted $30,000, $50,000, or more in state income and property taxes. The TCJA's $10,000 cap hit these taxpayers hard, eliminating a large portion of their itemized deductions and pushing many to take the standard deduction for the first time.
How the New $40,000 Cap Works
- Cap amount: $40,000 ($20,000 for married filing separately)
- Income limit: The full $40,000 cap applies to taxpayers with MAGI at or below $500,000
- Phase-down: Above $500,000, the cap is gradually reduced by 30 cents for every dollar over the threshold, until it reaches the $10,000 floor at approximately $600,000 MAGI
- Annual increases: The cap and income threshold increase by 1% per year from 2026 through 2029
- After 2029: The cap returns to $10,000 unless new legislation is passed
Who Benefits Most from the $40,000 Cap?
The higher cap is most valuable for homeowners who pay significant state income taxes and property taxes — and who have enough total itemized deductions to exceed the standard deduction. Consider a married couple in New Jersey with $200,000 in combined income and $18,000 in annual property taxes:
| Under $10,000 Cap (2024) | Under $40,000 Cap (2026) | |
|---|---|---|
| State income taxes paid | $12,000 | $12,000 |
| Property taxes paid | $18,000 | $18,000 |
| Total SALT paid | $30,000 | $30,000 |
| SALT deduction allowed | $10,000 | $30,000 |
| Additional deduction vs. 2024 | — | +$20,000 |
| Federal tax savings (22% bracket) | — | ~$4,400 |
This couple saves roughly $4,400 in federal income tax compared to what they paid under the old cap. The higher their combined state income tax and property tax, the greater the benefit — up to the $40,000 ceiling.
Should You Itemize or Take the Standard Deduction?
With the 2026 standard deduction at $32,200 for married filing jointly ($16,100 for singles), itemizing only makes sense if your total deductions exceed those amounts. Here's a sample calculation for a joint filer:
| Deductible Expense | Example Amount |
|---|---|
| State income tax paid | $15,000 |
| Property tax paid | $12,000 |
| SALT total (capped at $40,000) | $27,000 |
| Mortgage interest | $14,000 |
| Charitable contributions | $3,000 |
| Total itemized deductions | $44,000 |
In this example, itemizing ($44,000) beats the standard deduction ($32,200) by $11,800 — saving an additional $2,596 in taxes at the 22% bracket. Under the old $10,000 SALT cap, their itemized total would have been only $27,000 — less than the standard deduction, so they wouldn't have itemized at all.
Average Property Taxes by State: Key Input for Your Calculation
Property taxes are typically the largest SALT component for homeowners. Average annual property taxes vary dramatically by state:
| State | Average Annual Property Tax |
|---|---|
| New Jersey | ~$9,600 |
| Illinois | ~$7,200 |
| New Hampshire | ~$7,000 |
| Connecticut | ~$6,600 |
| New York | ~$6,000 |
| California | ~$4,800 |
| Texas | ~$4,500 |
| Florida | ~$2,500 |
New: Charitable Deduction for Non-Itemizers
One less-discussed OBBBA provision: taxpayers who take the standard deduction can now deduct up to $1,000 in charitable contributions ($2,000 for married couples filing jointly) directly from their income. Even non-itemizers now get some tax benefit from charitable giving starting in 2026.
SALT and Pass-Through Entity Tax Workarounds
During the years of the $10,000 cap, many states enacted Pass-Through Entity (PTE) tax elections that allowed S corporations, partnerships, and LLCs to pay state income taxes at the entity level. Because the SALT cap applies to individuals, entity-level state tax payments were deductible in full as business expenses. These PTE elections remain available in most states even after the cap increase, and may still benefit business owners with very high state tax liability. Business owners with pass-through income should consult a tax professional to determine whether the PTE election still makes sense for their 2026 return.
Action Items for Homeowners
- Add up your state income taxes, property taxes, mortgage interest, and charitable donations
- Compare the total to the 2026 standard deduction ($32,200 married / $16,100 single)
- If itemizing wins, file Schedule A and capture the full SALT amount up to $40,000
- If you were just under the itemizing threshold before, recalculate — the higher SALT cap may tip the balance
- Check your state's income tax rates with our state income tax calculators
Use our Federal Income Tax Calculator to see how your choice between itemizing and the standard deduction affects your overall tax bill. For the full context on 2026 tax changes, see our 2026 tax brackets guide.
Timing Property Tax Payments to Maximize the SALT Deduction
If your annual property tax bill is due in January but you have the option to prepay before December 31, the prepayment may allow you to deduct it in 2026 rather than 2027 -- useful if you are on the borderline of itemizing or want to maximize your 2026 itemized deductions. However, the IRS requires that the tax be assessed before it can be prepaid and deducted. An estimated future property tax that has not yet been assessed by your local tax authority cannot be deducted even if you write a check for it in December. Check with your local assessor's office to confirm whether your 2027 property tax has been assessed and what amounts are eligible for early payment.
Married Filing Separately and the SALT Cap
For married couples who file separately, the SALT cap is cut in half -- $20,000 per return under the new $40,000 cap, rather than the full $40,000. This is an important consideration for couples deciding whether to file jointly or separately. In most cases, the halved SALT cap is one of several reasons that married filing separately results in a higher combined tax bill than filing jointly. If one spouse has a specific reason to file separately (such as income-driven student loan repayment calculations or concerns about joint liability), be sure to factor in the reduced SALT cap as part of the overall analysis. Use our income tax calculator with both filing status options to compare your total tax under each scenario.