Understanding the SALT tax deduction (state and local tax deduction) can help you maximize your itemized deductions by reducing your federal tax liability. This tax break allows you to claim certain state and local taxes you’ve paid — including income tax, sales tax, and property taxes — up to an annual limit.
To help you understand whether you can benefit from the state and local tax deduction in tax year 2026, let’s break everything down. Below, we explain what the SALT deduction is, how it works, and its limitations, including the 2026 SALT cap and income-based phaseout rules under the Working Families Tax Cut Act, also commonly known as the One Big Beautiful Bill Act.
At a glance:
- SALT stands for state and local taxes, including income, sales, and property taxes paid to state and local governments (NOT the federal government).
- The SALT tax deduction lets taxpayers who itemize subtract those taxes from their federal taxable income.
- To claim this deduction, you must itemize; you can’t take the SALT deduction if you claim the standard deduction.
- The SALT deduction cap imposes a limit on how much of your state and local taxes you are allowed to deduct.
- In 2025, the SALT cap rose significantly.
- For tax year 2026, the SALT deduction cap is $40,400 for most filers and $20,200 for married taxpayers filing separately.
What is the SALT tax?
SALT stands for state and local taxes, including the income taxes, sales taxes, and property taxes you pay to state and local governments throughout the year. These taxes fund essential state and local services like schools, infrastructure, and public safety.
Here are a few examples of SALT taxes you might pay:
- State income taxes withheld from your paycheck or paid through quarterly estimated payments
- Local income taxes imposed by certain cities or counties
- Property taxes on your home, vacation property, or land
- Sales taxes on goods and services (you can choose to deduct these instead of income taxes)
Not every state has all of these taxes, but most taxpayers pay at least some type of state or local tax each year. This is where the SALT tax deduction comes in, which we’ll talk about next.
What is the SALT deduction?
The SALT tax deduction is a tax break that lets you subtract certain state and local tax payments from your federal taxable income. Doing so can reduce your overall tax liability, meaning you might owe less federal income tax or receive a larger refund.
Again, here are some common examples of what can count toward your SALT deduction:
- State income taxes OR sales taxes (you can only deduct one of these, not both)
- Local income taxes
- Property taxes paid on real estate you own
Basically, the SALT deduction can help reduce the impact of “double taxation” — like being taxed at the state, local, and federal levels — by allowing taxpayers who itemize to deduct certain eligible state and local taxes (subject to the applicable SALT deduction cap, which we cover later).
How does the SALT deduction work?
When you itemize on Schedule A (Form 1040), you can include the total amount of eligible taxes paid (up to the annual limit, which we cover in the next section) to reduce your taxable income.
This, in turn, lowers your tax liability, meaning you might end up with a lower tax bill or get more money back as a tax refund.
Tax Tip: The SALT tax deduction only applies if you itemize deductions on your federal income tax return. If you choose to take the standard deduction, you won’t be able to deduct SALT.
Who benefits from the SALT deduction?
High-income taxpayers in high-tax states — like New York, New Jersey, Connecticut, or California — typically benefit the most from the SALT deduction. Essentially, if your combined property taxes and state income taxes (or sales tax) exceed the standard deduction, the SALT tax deduction will likely save you money.
Likewise, if your total allowable itemized deductions exceed your standard deduction, itemizing will typically provide a greater tax benefit. For tax year 2026, the standard deduction is $16,100 for single filers and married couples filing separately, $32,200 for married couples filing jointly, and $24,150 for heads of household.
Who qualifies to claim the SALT deduction?
You can claim the SALT deduction if you itemize deductions on your federal tax return and paid eligible state or local taxes during the same tax year.
If you’re self-employed or a business owner with a pass-through entity (like an S corporation or partnership), certain SALT workarounds may be available to help you deduct more. We talk more about this later on!
What is the SALT cap?
The SALT cap is the maximum amount of SALT taxes that you can deduct per year.
The SALT deduction cap was first introduced by the Tax Cuts and Jobs Act (TCJA) in 2017 under Donald Trump, which limited the SALT tax deduction to $10,000 per year (or $5,000 for those married filing separately).
However, that changed recently with the passage of the Working Families Tax Cut Act, also known as the One Big Beautiful Bill.
Updated SALT deduction cap 2025 through 2029
Starting with tax year 2025, the SALT tax cap increased by quite a bit. For tax year 2026, the SALT deduction cap is $40,400 for most filers and $20,200 for those married filing separately.
Here are the applicable limits by year:
| Tax year | SALT deduction cap | Married filing separately cap | Notes |
| 2025 | $40,000 | $20,000 | Higher temporary cap begins (previously $10,000) |
| 2026 | $40,400 | $20,200 | +1% increase |
| 2027 | $40,804 | $20,402 | 101% of the prior year’s amount |
| 2028 | $41,212 | $20,606 | 101% of the prior year’s amount |
| 2029 | $41,624 | $20,812 | 101% of the prior year’s amount |
| 2030 onward | $10,000 | $5,000 | Cap reverts to TCJA levels |
The new $40,400 SALT cap for 2026 is obviously a major boost from the old $10,000 SALT tax cap. However, not everyone can claim the full amount. Higher-income taxpayers may face a reduced SALT deduction cap based on their modified adjusted gross income (MAGI).
Now, let’s look more in-depth at how the cap works.
SALT deduction cap phaseout thresholds
The Working Families Tax Cut Act also introduced modified adjusted gross income (MAGI) thresholds that determine how much of the SALT deduction you can claim.
But first, how do you calculate your MAGI?
MAGI = AGI (your total income minus certain deductions) + certain types of income the IRS normally lets you exclude (i.e., foreign earned income or income from specific U.S. territories)
Don’t get too confused by MAGI — TaxAct crunches all those numbers for you when you file with us.
MAGI thresholds for the SALT deduction
For tax year 2026, the higher SALT deduction cap begins to phase down when your MAGI exceeds $505,000, or $252,500 if married filing separately.
The MAGI threshold increases by 1% each year after 2025 while the higher SALT deduction cap is in effect (we rounded to the nearest dollar):
| Tax year | MAGI phaseout threshold for most filing statuses | Married filing separately threshold |
|---|---|---|
| 2025 | $500,000 | $250,000 |
| 2026 | $505,000 | $252,500 |
| 2027 | $510,050 | $255,025 |
| 2028 | $515,151 | $257,575 |
| 2029 | $520,302 | $260,151 |
| 2030 and later | N/A — higher SALT cap expires | N/A — higher SALT cap expires |
Now, let’s review how MAGI impacts your SALT deduction amount:
- The phaseout begins when your MAGI exceeds $505,000 in 2026 (or $252,500 for those married filing separately).
- Your SALT deduction cap is reduced by 30% of your excess MAGI above the applicable threshold.
- The cap cannot go below $10,000 ($5,000 for married filing separately), no matter how high your income. So, taxpayers who fully phase out of the expanded SALT deduction will still be subject to the same minimum cap that applied under the Tax Cuts and Jobs Act.
- Just like the SALT cap, the MAGI phaseout threshold increases by 1% annually through tax year 2029.
Example SALT cap calculation
A married couple filing jointly has MAGI of $545,000 in 2026. Since they are $40,000 over the $505,000 MAGI threshold, their SALT cap is reduced by $12,000:
$40,000 × 30% = $12,000
That results in a maximum SALT deduction of:
$40,400 − $12,000 = $28,400
In short, higher-income taxpayers may still face limits on how much of the expanded SALT deduction they can use due to the MAGI threshold limits.
When does the SALT cap expire?
At this time, the higher SALT deduction cap will remain in place for tax years 2025 through 2029. Beginning in 2030, the cap will revert to the TCJA-era cap of $10,000 ($5,000 for married filing separately) unless Congress passes a new tax law before then.
SALT deduction pass-through workaround
Some states still offer SALT workarounds for pass-through entities, such as S corporations and partnerships. This workaround remains available even after the recent tax law changes.
These workaround programs enable the business to pay state income taxes directly, claiming the deduction as a business expense at the entity level rather than the individual level. Using this method, business owners and self-employed filers can bypass the SALT tax cap altogether.
If you operate a pass-through entity, check your state’s site for specific tax policy guidance.
How to claim the SALT deduction with TaxAct
When you use TaxAct, our software automatically walks you through entering your state income taxes, local taxes, sales taxes, and property taxes, then applies the correct SALT deduction cap based on your filing status, MAGI, and tax year.
We can also help you determine whether itemizing deductions or taking the standard deduction gives you the most tax savings so that you can make the most of your state and local tax deduction without any manual calculations on your part.
FAQs: SALT tax deduction 2026
The bottom line
The SALT deduction can help reduce the federal tax impact of the state and local taxes you pay. For tax year 2026, the SALT deduction cap is generally $40,400 ($20,200 if married filing separately), though the higher cap begins to phase down when MAGI exceeds $505,000 ($252,500 if married filing separately).
If you itemize deductions and pay significant state and local income or sales taxes and property taxes, the expanded SALT deduction could help lower your federal taxable income and make a noticeable difference in your next tax return. If you need assistance, TaxAct can help determine how much of the SALT deduction you may be able to claim based on your filing status, income, and other tax information.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
The One Big Beautiful Bill (OBBB) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.
Citations
Ponder, Meghen. “Guide to IRS Form 1040, Individual Income Tax Return.” TaxAct Blog, 6 Feb. 2026.
TaxAct. “Should I Itemize or Take the Standard Deduction?.” TaxAct Blog, 10 July 2025.
TaxAct. “IRS Tax Form 1120-S.” Accessed 26 Aug. 2026.
TaxAct. “IRS Form 1065.” Accessed 26 Aug. 2026.
TaxAct. “TaxAct.” Accessed 26 Aug. 2026.
Internal Revenue Service. “About Schedule A (Form 1040), Itemized Deductions.” 21 Aug. 2026.