SALT Cap 2027: $40,804, With the Phase-Down Starting at $510,050

Every fall, this site walks through a stack of 2027 tax figures that are, technically, projections. The brackets, the standard deduction, the HSA limits — all of them ride on a chained-CPI formula that needs a full twelve months of Bureau of Labor Statistics data before the number can be computed, and even then the IRS has to publish the revenue procedure before anything is official. The cap on the deduction for state and local taxes is not one of those. The short answer: the 2027 SALT cap is $40,804, with the income-based phase-down beginning at $510,050 of modified adjusted gross income — and unlike the CPI-driven figures, this one isn’t an estimate. The statute itself defines 2027 as exactly 101% of 2026, and 2026’s figure is already written into the code. There is nothing left to forecast. The IRS’s own draft 2027 Form W-4 deductions worksheet, posted in June 2026, already carries this exact number.

Why this figure skips the projection step

Section 164(b)(7) of the tax code, added by the 2025 tax law known as the One Big Beautiful Bill Act, spells out the SALT cap year by year rather than leaving it to an inflation formula. For a taxable year beginning in 2025, the cap is $40,000. For 2026, it’s $40,400. For any year after 2026 and before 2030, the cap is “101 percent of the dollar amount in effect… for taxable years beginning in the preceding calendar year.” And for any year after 2029, the cap drops to a flat $10,000.

That middle clause is what makes 2027 different from nearly every other number this site tracks under a “2027 projection” label. A CPI-indexed figure needs the Bureau of Labor Statistics to finish publishing a twelve-month window of index readings before the calculation can even start. The SALT cap needs none of that. It needs only the prior year’s cap, which Congress already wrote directly into the statute. Take $40,400, multiply by 1.01, and the answer is $40,804 — not an estimate of what the IRS will probably announce, but the number the statute already produces. The same is true one year further out: the 2028 cap is 101% of $40,804, or $41,212.04, and 2029 is 101% of that, or $41,624.16. It’s worth flagging that the statute doesn’t specify any rounding convention for these figures, unlike some other indexed provisions in the tax code that round to the nearest $5 or $50 — so it’s possible the IRS prints a rounded version of these cents-inclusive numbers when it eventually confirms them, even though the underlying math is already settled.

The phase-down threshold moves on the same schedule

The cap isn’t the only number that steps up by 101% each year. The MAGI threshold where the phase-down begins follows an identical formula. For 2025, that threshold is $500,000. For 2026, it’s $505,000. For 2027 and beyond, each year’s threshold is 101% of the year before, which puts 2027 at $510,050 ($505,000 times 1.01), 2028 at $515,150.50, and 2029 at $520,302.01.

Because both the cap and the threshold move by the same 1% each year, the phase-down mechanism keeps roughly the same shape from 2027 through 2029 — it doesn’t get meaningfully more or less generous relative to itself, even as both dollar figures tick upward. What does change every year is the exact MAGI level at which a high earner’s cap bottoms out at the $10,000 floor, since that depends on both numbers together.

How the phase-down actually reduces the deduction

The mechanism is a straight 30-cent reduction for every dollar of MAGI above the threshold, not a cliff and not a percentage cut to the deduction itself. The statutory language reduces “the applicable limitation amount… by 30 percent of the excess (if any) of the taxpayer’s modified adjusted gross income over the threshold amount.” Modified adjusted gross income here means AGI plus amounts otherwise excluded under the foreign earned income exclusion (section 911), the Puerto Rico income exclusion (section 931), and the American Samoa income exclusion (section 933) — the same add-back definition used elsewhere in the code, covered in more detail in this site’s explainer on modified adjusted gross income.

Run the arithmetic for 2027: a married couple filing jointly with $560,050 of MAGI sits $50,000 above the $510,050 threshold. Thirty percent of that excess is $15,000, so their cap is reduced from $40,804 down to $25,804. If they paid $45,000 in state and local taxes for the year, they can deduct $25,804 of it — the cap, not the amount paid, is what limits them. Run the same couple’s numbers against the confirmed 2026 figures instead — a $505,000 threshold and a $40,400 starting cap — and the excess is $55,050, the 30% reduction is $16,515, and the cap comes out to $23,885. The 2027 formula, using only figures printed directly into the statute, produces a cap $1,919 higher than 2026’s for this same household.

Not every high earner is affected the same way. A couple with $300,000 of MAGI and $38,000 of state and local taxes paid sits comfortably under both the 2026 and 2027 thresholds — their MAGI never triggers the 30% reduction at all, so they deduct the full $38,000 they paid, in both years, without ever touching the cap. The phase-down only starts doing anything once MAGI crosses the threshold line.

At the other end, the reduction eventually overwhelms the cap entirely. Once the 30%-of-excess reduction would take the cap below $10,000, the statute stops it there instead: “the reduction… shall not result in the applicable limitation amount being less than $10,000.” Solving for where that happens in 2027 puts the floor at $612,730 of MAGI — a couple above that level has a $10,000 cap on state and local tax deductions no matter how much higher their income climbs. In 2026, that same floor sits at $606,333.33. A couple with $650,000 of MAGI in either year is already well past both floors: their cap is $10,000 flat, whether the year is 2026 or 2027.

What married filing separately looks like

Every figure in this calculation is cut exactly in half for a married taxpayer filing separately. The 2027 cap is $20,402 instead of $40,804. The phase-down threshold is $255,025 instead of $510,050. The floor is $5,000 instead of $10,000. The 30%-of-excess reduction rate itself doesn’t change — it’s applied against the smaller, MFS-specific threshold rather than being halved a second time.

The mechanical version of this calculation is spelled out in the IRS’s own State and Local Tax Deduction Worksheet, included in the 2025 Schedule A instructions. It starts with the statutory cap on line 1, adds back AGI and any excluded foreign or territorial income, subtracts the threshold, multiplies the excess by 30%, and compares the result against the floor — taking the larger of the computed cap or $10,000 ($5,000 if filing separately), then the smaller of that figure or the actual state and local taxes paid. Notably, the worksheet doesn’t even apply if the taxes actually paid come in at $10,000 or less ($5,000 MFS): with nothing above the floor to reduce, the phase-down math is simply skipped. The 2026 draft version of Schedule A, described in more detail in this site’s line-by-line breakdown of that draft form, carries the confirmed 2026 numbers — $40,400 and $505,000 — into that same worksheet structure; the 2027 return will use the same mechanics with the $40,804 and $510,050 figures above.

What it means to be “in the phase-down zone”

For a household whose MAGI sits between the threshold and the floor, every additional dollar of income does double duty against the household’s tax bill. That dollar is taxed as ordinary income the way any dollar would be, and it also shrinks the SALT deduction by 30 cents, which in turn increases taxable income by another 30 cents. The practical effect is that, inside this particular income band, a household’s taxable income rises by $1.30 for every $1 of additional MAGI — not because of a higher statutory tax rate, but because the phase-down is quietly clawing back part of an itemized deduction at the same time ordinary income tax applies to the underlying dollar. This site doesn’t publish a specific combined marginal rate for this zone, since it depends on which federal bracket a filer is already in and any state-level effects, which vary and aren’t part of this calculation — but the mechanism itself, a deduction shrinking in step with rising income, is worth understanding before assuming the SALT cap is a flat, income-independent number once you’re above six figures of MAGI.

Why this only matters if you itemize at all

None of this phase-down arithmetic is relevant to a filer who takes the standard deduction instead of itemizing. The SALT cap only limits what can be claimed on Schedule A, and a household whose total itemized deductions — state and local taxes plus mortgage interest, charitable gifts, and the rest — don’t clear the standard deduction has no reason to run the SALT worksheet at all. Whether the larger 2027 cap changes that calculus for a specific household, especially one near the crossover point, is the question this site’s comparison of the standard deduction and itemizing is built to answer.

Where this shows up before the IRS says anything

The clearest sign that this figure needs no further confirmation is that it’s already in circulation. The IRS’s draft 2027 Form W-4, posted in June 2026, includes a deductions worksheet for employees who want more accurate paycheck withholding when they plan to itemize — and that worksheet already carries the exact numbers this page derives from the statute: $40,804 and $510,050 for most filers, $20,402 and $255,025 for married filing separately. That’s a small but telling detail. Other dollar figures on that same draft W-4, like the child tax credit amount in Step 3, are still placeholders — literal strings like “$X,XXX” — because those figures genuinely can’t be finalized until the CPI window closes and the IRS runs its inflation adjustments. The SALT figures needed no such placeholder, because there was nothing left to wait for. More on how the draft W-4 handles both categories of number is in this site’s walkthrough of Form W-4 withholding mechanics, and the broader set of 2027 figures still waiting on that CPI window is tracked on this site’s 2027 IRS inflation adjustments tracker.

The years after 2027

The 101%-per-year schedule doesn’t run indefinitely. Section 164(b)(7) applies that annual step only to tax years beginning after 2026 and before 2030 — which in practice means 2027, 2028, and 2029 are the three years that get the 1% increase, landing at $40,804, $41,212.04, and $41,624.16 respectively (again, subject to whatever rounding convention the IRS ultimately applies when it confirms these). For any tax year beginning after 2029, the statute doesn’t keep stepping the cap up. It resets to a flat $10,000, with no MAGI-based threshold and no phase-down calculation at all, because every filer’s cap becomes the same fixed floor that high earners were already being pushed toward under the phase-down. That $10,000 figure isn’t new: it’s the same cap the 2017 tax law originally imposed with no inflation adjustment and no exceptions. Public Law 119-21, the 2025 law, is what raised the cap starting in 2025, added the phase-down for high earners, and built in the three years of 1% increases before letting the cap fall back to where it started.

Sources

• 26 U.S.C. § 164(b)(7) — law.cornell.edu/uscode/text/26/164
• 2025 Instructions for Schedule A, State and Local Tax Deduction Worksheet — irs.gov/pub/irs-pdf/i1040sca.pdf
• Draft 2026 Form 1040 Schedule A — irs.gov/pub/irs-dft/f1040sa—dft.pdf
• finbarrow, Schedule A 2026 draft: every itemized-deduction line that changed
• finbarrow, Form W-4 withholding mechanics — companion page for the draft 2027 W-4 deductions worksheet
• finbarrow, 2027 IRS inflation adjustments tracker
• finbarrow, Standard deduction versus itemizing
• finbarrow, Modified adjusted gross income (MAGI), explained