SALT cap (state and local tax deduction limit)
Also known as: State and local tax cap, SALT deduction limit
The federal cap on the Schedule A deduction for combined state and local taxes paid (income, sales, property). Set at $10,000 by the Tax Cuts and Jobs Act of 2017 and temporarily raised to $40,000 for 2025–2029 by the One Big Beautiful Bill Act, it is the single largest swing factor in the itemizing decision for high-state-tax homeowners.
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Before 2018, US filers who itemized on Schedule A could deduct the full amount of state and local income taxes (or sales taxes in lieu) plus property taxes paid in the year, with no upper limit. A New Jersey homeowner paying $15,000 in property tax and $12,000 in state income tax could deduct the full $27,000 from federal AGI. The Tax Cuts and Jobs Act of 2017 imposed a $10,000 annual cap on this combined deduction starting in tax year 2018. That same New Jersey homeowner now gets exactly $10,000 of SALT deduction credit regardless of paying $27,000 in actual taxes — a $17,000 reduction in deductible expense.
The cap applies to the combined total of: state income tax paid (or general state sales tax, whichever is larger — the IRS publishes sales tax tables by state and income level for filers who choose the sales tax route, common in no-income-tax states like Texas, Florida, and Nevada), local income tax paid (where it exists, e.g., New York City, certain Pennsylvania localities), and property tax paid on real estate the filer owns (primary residence and second homes, but not investment property which goes on Schedule E instead). Foreign taxes paid are not affected by the SALT cap and can be deducted separately or claimed as a foreign tax credit.
The economic impact of the cap fell hardest on filers in high-state-tax states (California, New York, New Jersey, Massachusetts, Connecticut, Illinois, Maryland, Oregon, Hawaii) with significant property holdings. Estimates from the Joint Committee on Taxation and the Tax Policy Center showed that the SALT cap shifted billions of dollars in federal tax burden from low-state-tax states to high-state-tax states, which was the explicit political objective of the provision. Multiple legal challenges to the cap by affected states reached federal courts and were rejected; the cap is constitutionally settled.
The One Big Beautiful Bill Act (P.L. 119-21, enacted July 4, 2025) temporarily raised the cap from $10,000 to $40,000 for tax years 2025 through 2029 — $40,400 for 2026, then indexed roughly 1% a year. The higher cap phases down for high earners: above $500,000 of modified AGI ($250,000 for married filing separately) the $40,000 allowance is cut by 30% of the excess, but never below the original $10,000 floor ($5,000 if married filing separately). Unless Congress acts again, the cap reverts to $10,000 in 2030. The practical effect for 2026 is that far more homeowners in high-tax states — New Jersey, New York, California, Illinois — can once again deduct most or all of their state and local taxes, which flips the standard-vs-itemized math back toward itemizing for that group.
- Standard deduction The flat dollar amount the IRS lets every filer subtract from AGI to arrive at taxable income, regardless of actual expenses. Indexed annually for inflation and varies by filing status. The default choice for ~90% of US households post-2017.
- AGI (Adjusted Gross Income) AGI is your total gross income for the tax year minus a specific set of statutory adjustments listed on Schedule 1 of Form 1040. It is the figure on which most tax calculations and eligibility tests downstream actually operate — not your gross income, not your taxable income.
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