SALT Deduction Explained: Limits, Eligibility, and Tax Planning Tips
See how the SALT deduction can cut your tax bill. Learn which state and local taxes you can deduct, how the SALT cap applies, and why it matters. Plus, since the SALT deduction was recently changed, it’s important to stay up-to-date on this valuable tax break so you don’t miss out on any tax savings.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The SALT deduction is a federal itemized deduction for certain state and local taxes you paid during the tax year.
- You can only deduct state and local income taxes (or sales taxes), real property taxes, and personal property taxes.
- Your SALT deduction can’t be greater than the SALT cap for the year ($40,000 for the 2025 tax year), but the cap can be reduced if your modified adjusted gross income is above a certain amount.
- The SALT cap was $10,000 before the “One Big Beautiful Bill” temporarily increased it for the 2025 to 2029 tax years, and it will revert back to that amount in 2030.
What is the SALT deduction?
The SALT deduction is a federal tax deduction for certain state and local taxes you paid during the year (SALT is short for “state and local taxes”). The total deduction is subject to an annual limit – known as the SALT cap – that’s set by law.
The deduction helps reduce double taxation by providing a federal offset for taxes already paid to state and local governments. “In effect, by claiming the SALT deduction, the federal government reimburses you for some of the taxes you paid to the state,” says Kelly Wallace, a CPA and TurboTax Expert based in Homedale, Idaho.
What is the SALT deduction cap?
The SALT deduction cap is the annual limit placed on the federal deduction for state and local taxes. It didn’t exist before the 2018 tax year, which is when the first cap (created by the Tax Cuts and Jobs Act of 2017) took effect. From 2018 to 2024, the SALT cap was set at $10,000 ($5,000 for married people filing separate returns).
The cap was then increased by the “One Big Beautiful Bill” (OBBB), also known as the Working Families Tax Cut, which was enacted in July 2025. Under the OBBB, the cap jumped to $40,000 ($20,000 if married filing separately) for the 2025 tax year. However, it will increase by 1% each year until 2030, when the cap will drop back down to $10,000 again ($5,000 for MFS filers).
|
SALT Deduction Cap History |
||
|
Tax Year(s) |
Married Filing Separately |
All Other Filing Statuses |
|
Before 2018 |
$0 |
$0 |
|
2018 to 2024 |
$5,000 |
$10,000 |
|
2025 |
$20,000 |
$40,000 |
|
2026 |
$20,200 |
$40,400 |
|
2027 |
$20,402 |
$40,804 |
|
2028 |
$20,606 |
$41,212 |
|
2029 |
$20,812 |
$41,624 |
|
2030 and beyond |
$5,000 |
$10,000 |
The higher SALT deduction cap isn’t available to everyone, though. For the 2025 to 2029 tax years, it’s gradually reduced if your modified adjusted gross income (MAGI) is above a certain amount. If that’s the case, the SALT cap is cut by 30 cents for every dollar your MAGI is over the threshold amount – but the cap won’t dip below $10,000 ($5,000 for MFS filers).
For the 2025 tax year, the phase-out is triggered if your MAGI exceeds $500,000 ($250,000 if you’re married filing separately). As with the SALT cap itself, this threshold is increased by 1% each year from 2026 to 2029.
Since the limit reverts back to $10,000 in 2030, the phase-out – and, therefore, the phase-out thresholds – no longer apply after 2029.
Note: To calculate your MAGI for SALT cap purposes, start with your adjusted gross income (AGI), then add any deduction or exemption you claim that year for:
- foreign earned income
- foreign housing costs
- income for residents of Guam, American Samoa, the Northern Mariana Islands, or Puerto Rico
|
SALT Deduction Cap Phase-Out Thresholds |
||
|
Tax Year |
Married Filing Separately |
All Other Filing Statuses |
|
Before 2025 |
Not Applicable |
Not Applicable |
|
2025 |
$250,000 |
$500,000 |
|
2026 |
$252,500 |
$505,000 |
|
2027 |
$255,025 |
$510,050 |
|
2028 |
$257,575 |
$515,151 |
|
2029 |
$260,151 |
$520,302 |
|
2030 and beyond |
Not Applicable |
Not Applicable |
Let’s take a look at an example of how the SALT cap phase-out works:
For the 2025 tax year, you and your spouse pay $35,000 in eligible state and local taxes, file a joint return, and have a MAGI of $530,000. Since your MAGI is $30,000 over the $500,000 threshold for joint filers, your SALT cap is reduced by $9,000 ($30,000 x .30 = $9,000). That means you can only deduct $31,000 of your state and local taxes ($40,000 - $9,000 = $31,000). The remaining $4,000 of state and local taxes you paid for the year are not deductible ($35,000 - $31,000 = $4,000).
Who is eligible to claim the SALT deduction?
Since the SALT deduction is an itemized deduction, you must “itemize” on your return to claim it. When you itemize, you claim as many of the deductions on Schedule A that you qualify for. The total amount of all itemized deductions is then subtracted from your AGI, which lowers your taxable income.
However, if you itemize, you can’t take the Standard Deduction, which is a set amount that’s based on your filing status. Like itemized deductions, the Standard Deduction is subtracted from your AGI and lowers your taxable income.
“In most cases, you can choose the higher of the standard deduction or itemized deductions, but you cannot claim both,” Wallace points out. Fortunately, you can generally pick whichever amount is higher. However, if you and your spouse file separate returns and one of you itemizes, then the other spouse has to itemize, too.
What taxes qualify for the SALT deduction?
The following state and local taxes can be deducted on your federal income tax return as part of the SALT deduction:
- income or general sales taxes
- real estate taxes
- personal property taxes
Note that you can deduct income or sales taxes – but not both. You can pick whichever amount is higher. For example, if you live in a state that doesn’t have an income tax but does have a sales tax, you’ll want to deduct your sales tax if you otherwise qualify for the SALT deduction. In addition, Wallace notes that the sales tax option “can be especially beneficial if you paid sales taxes on particularly expensive purchases, such as a car, major appliances, or home building or repair materials.”
The total amount of deductible state and local taxes is added together before the SALT cap is applied. So, for instance, if you paid $25,000 in state income taxes, $21,000 in real estate taxes, and $14,000 in personal property taxes in 2025 (for a total of $60,000), you still can only deduct $40,000 (the SALT deduction cap for 2025) even though each separate type of tax was less than $40,000.
Let’s drill down a bit more on the deductibility of each type of state and local tax included in the SALT deduction.
Income taxes. You can deduct state and local income taxes withheld from your paycheck during the tax year. This amount is found on the W-2 form you get from your employer.
You can also deduct withheld state and local income taxes reported on:
- Form W-2G (gambling winnings)
- Form 1099-G (unemployment compensation)
- Form 1099-R (retirement plan distributions)
- Form 1099-MISC (miscellaneous income)
- Form 1099-NEC (nonemployee compensation)
However, you can’t deduct any state or local taxes as part of the SALT deduction if they’re deducted on other forms, such as on Schedule C (business profit or loss), Schedule E (supplemental income or loss), or Schedule F (farming profit or loss).
You can also deduct state and local income taxes paid during the tax year for a prior year. For example, when you’re filling out your federal return for the 2025 tax year (which you’ll file in 2026), you can deduct taxes paid in 2025 with your state or local income tax return for the 2024 tax year.
Estimated state and local income tax payments made during the tax year can be deducted, too. This includes any part of a refund from a prior tax year that is credited to your state or local income taxes for the current tax year.
TurboTax Tip:
"A common strategy for maximizing tax deductions is to ‘bunch’ your expenses all in one year by accelerating or delaying when you pay deductible expenses. The SALT deduction is no different. For instance, prepaying property or state estimated income taxes before year end can give you a much larger deduction." Kelly Wallace, CPA, Homedale, Idaho
Sales taxes. If you chose to deduct sales taxes instead of income taxes, you can calculate the amount of deductible sales taxes using either the:
- optional sales tax tables found in the instructions for Schedule A
- actual state and local general sales taxes you paid during the tax year
The IRS also has an online sales tax deduction calculator that can help you figure the SALT deduction. It’s based on the optional sales tax tables, but also allows you to add sales tax for the purchase of a motor vehicle, boat, airplane, home, or home renovation.
The optional sales tax tables provide an estimated amount of general sales taxes you paid during the year. The estimate is based on your location, income, and the size of your family. You can also add on sales tax from certain “big ticket” items you bought during the year, such as a:
- motor vehicle (including a car, truck, van, motorcycle, off-road vehicle, or recreational vehicle)
- airplane
- boat
- home (including a mobile home or prefabricated home)
- major home improvement
The IRS also has an online sales tax deduction calculator that’s based on the optional sales tax tables and related worksheets. The tables won’t necessarily generate the most accurate calculation of your sales tax burden, but this method is much easier than keeping track of all your sales tax payments during the year.
If you’re a big spender and/or purchased expensive items during the year that aren’t reflected in the optional sales tax tables (such as jewelry or art), you might want to use the actual amount of sales tax you paid for the year. That’s because the actual amount could be higher than the estimated amount calculated with the optional sales tax tables. But you’ll have to keep very good records for all your purchases if you go this route.
If you do use your actual sales tax payments, you normally can only deduct “general” sales taxes, which are taxes imposed at one rate for the retail sale of a broad range of items. However, there are two exceptions to the “one rate” rule – you can deduct sales taxes on:
- food, clothing, and medical supplies even if the tax rate on these items is less than the general sales tax rate
- motor vehicles even if the tax rate on them is different than the general sales tax rate, but your deduction can’t be based on a rate that’s higher than the general sales tax rate
Compensating use taxes – which some states impose on the use, storage, or consumption of taxable items instead of a sales tax – are also treated as general sales taxes for SALT deduction purposes.
“You will want to carefully consider which method, the tables or actual taxes paid, results in a larger deduction, as the tables may or may not correctly approximate your family’s spending pattern,” says Wallace.
Real estate taxes. Only state and local real estate taxes on non-business property qualify for the SALT deduction. In addition, the tax must be assessed uniformly at a similar rate on all real property in the community, and the tax proceeds have to be used for general community or governmental purposes.
If they satisfy these requirements, real estate taxes paid at a settlement or closing, through an escrow account, or directly to a taxing authority are deductible. If part of your mortgage payment is for real estate taxes, and your mortgage company keeps them in an escrow account until they’re paid, you can only deduct the amount of tax the mortgage company actually paid during the year.
If you’re thinking of prepaying real estate taxes at the end of the year to boost your SALT deduction, first check to see when the taxes are officially assessed (which is determined under state or local law). That’s because you can only deduct real estate taxes for a particular tax year if they’re assessed before the end of that year. For example, if your real estate taxes aren’t officially assessed until January 1, 2026, but you paid them in December 2025, you can’t deduct them on your 2025 tax return.
Personal property taxes. Only personal property taxes that are based solely on the value of property you own (such as a car or boat) are deductible. They also must be imposed on a yearly basis (although they can be collected more or less than once per year).
If only part of your personal property tax is based on value, then only that portion of the overall tax is deductible. For instance, if you pay an annual tax for your car, and part of the tax is based on the car's value and part is based on its weight, you can deduct only the part that’s based on value.
As with real estate taxes (see above), you can’t deduct personal property taxes that you pay early unless the tax is actually assessed (under state or local law) before the end of the year that you paid the tax.
What doesn’t count toward the SALT deduction?
State and local taxes, fees, or charges that can’t be deducted as part of the SALT deduction (or elsewhere on your federal tax return) include:
- alcoholic beverage taxes
- assessments for improvements that may increase the value of your real property (such as an assessment to build a new sidewalk)
- cigarette or other tobacco taxes
- estate taxes
- fines or penalties paid to a government agency
- foreign personal or real property taxes
- gasoline taxes
- gift taxes
- homeowner’s association fees
- inheritance taxes
- license fees (such as for a marriage or driver's license)
- motor vehicle registration fees based on weight, age of the vehicle, or something other than the car’s value
- motor vehicle inspection fees
- service charges for homeowners (such as for water, sewer, or trash collection)
- transfer or “stamp” taxes paid when you buy or sell a home
In addition, the following federal taxes and fees generally aren’t deductible on your federal income tax return:
- customs duties
- estate taxes
- excise taxes
- gift taxes
- income taxes
- payroll taxes (such as Social Security, Medicare, unemployment, and railroad retirement taxes)
How can I maximize my tax savings when claiming the SALT deduction?
If you plan to itemize on your federal income tax return, there are some things you can do now to boost your tax savings. For instance, you may want to consider:
- prepaying your real estate or personal property taxes
- making final state estimated income tax payment early
- purchasing big-ticket items before the end of the year
- reducing your MAGI
- working around the SALT cap (only for certain business owners)
Most of these tax planning strategies will increase your SALT deduction for the current tax year. If your SALT deduction is higher, then the total amount of all your itemized deductions will be higher, too – which can mean the difference between claiming the Standard Deduction or itemizing in the first place (since you can generally pick whichever one is larger).
On the other hand, if your state and local tax burden is already very close to, or more than, the SALT deduction cap for the year, it might not make sense to raise your SALT deduction any further. That’s because anything over the SALT cap will not be deductible. In that case, it may be better to save the increased SALT deduction for the following year.
Let’s take a closer look at each of these strategies. But before taking any action, it might help to consult a tax professional who can set up an overall tax savings plan for you.
Prepaying real or personal property taxes. Depending on where you live, you might have a property tax bill due in January. By paying the bill early – say, in December – you may be able to increase your SALT deduction for the tax year ending in December. This strategy of shifting future payments into the current tax year to increase a tax deduction is called “bunching.”
However, as noted earlier, bunching property tax payments into a single year only works if the taxes have been officially assessed under state or local law by the end of that tax year.
For example, suppose the local real estate tax on your home is officially assessed on January 1, 2027, and payment is due by January 15, 2027. Since the tax isn’t assessed until 2027, you can’t deduct a December 2026 payment of that tax on your federal income tax return for the 2026 tax year.
On the other hand, suppose the tax is officially assessed on December 1, 2026, and payment is due by January 15, 2027. In that case, if you pay the tax in December 2026, you can include it as part of the SALT deduction claimed on your return for the 2026 tax year.
Just remember that you won’t be able to deduct that payment on your return for the 2027 tax year if you pull it into the 2026 tax year. So, before prepaying a property tax bill, think about whether the increased deduction will be more valuable in the current tax year or the next. If, say, you expect to be in a higher tax bracket next year, it might be better to wait until the real estate taxes are due to pay them.
Making final state estimated income tax payment early. You can also “bunch” state estimated income tax payments. As with federal estimated tax payments, most states require estimated tax payments for the last quarter of each year to be paid by January 15 of the following year. However, if you pay your fourth-quarter state estimated taxes for the year in December, you can include them in your SALT deduction for that year.
But, again, paying and deducting the estimated tax early means you can’t use it to increase your SALT deduction for the following tax year. So, think twice before moving a deductible payment into the current year, because the deduction might save you even more money next year.
Purchasing big-ticket items before the end of the year. If you plan to use the general sales tax you paid during the year to figure your SALT deduction (instead of state and local income taxes), buying certain big-ticket items before the end of the year can increase your SALT deduction. That’s because you generally can deduct the sales tax on the new item when you file your tax return for the year of purchase.
Of course, we don’t recommend buying an expensive new toy just so you can deduct the related sales tax. But if you’re planning to make a purchase soon anyway, buying the item before the end of this year rather than next year might be a savvy tax move.
Also, as with other “bunching” strategies, don’t forget that you’re typically just moving the deduction from one year to another. So, while your SALT deduction will be higher in one year, it will be lower in the other.
Reducing your MAGI. As discussed earlier, the SALT deduction cap is reduced if your MAGI is too high. If your SALT cap is reduced, your SALT deduction might be, too. So, for some higher-income people, one way to raise their SALT deduction is to lower their MAGI – so that the SALT cap isn’t reduced, or reduced as much.
One of the best ways to lower your MAGI (which, for most people, is the same as their AGI) is to contribute to certain tax-advantaged accounts, such as traditional IRAs, traditional 401(k) plans, and health savings accounts. That’s because you may qualify for a tax deduction for your contributions to these accounts, and the deduction will in turn reduce your MAGI.
There are other ways to reduce your MAGI. For instance, if you’re expecting a year-end bonus, ask your boss to delay it until next year. Or, if you’re self-employed, wait until next year to submit some of your late-year invoices. By deferring income to the following year, you reduce your MAGI for the current year.
You can also lower your MAGI by claiming all the “above-the-line” tax deductions you can. That’s because above-the-line deductions reduce your AGI, which then lowers your MAGI. (“Below-the-line” deductions, including the Standard Deduction and itemized deductions, don’t affect your AGI.)
“Tax-loss harvesting” can also reduce your MAGI. This is a strategy whereby you sell stock or other assets at a loss that can then be used to offset capital gains (and maybe up to $3,000 of ordinary income).
Working around the SALT cap. Most states with a personal income tax have adopted SALT deduction cap “workarounds,” which help certain business owners bypass the cap by shifting the payment of state taxes from the owners (who are subject to the cap) to the business (which aren’t). The workarounds are optional, so it’s not something business owners have to do.
These state laws benefit owners of pass-through entities (PTEs), such as partnerships, S corporations, and many limited liability companies. PTEs aren’t subject to the federal income tax, but their income, gains, losses, deductions, and credits are “passed through” to their owners. The owners, in turn, claim those items on their own tax returns.
The rules can differ from state to state, but SALT cap workarounds typically require the PTE to pay a special state tax that’s roughly equal to the state tax the owners would pay on their income from the business. So, in essence, the PTE pays the owners’ personal income tax for them.
In addition, since the tax reduces the net income the PTE can pass through to the owners, the owners usually receive a state tax credit or other type of tax break to help offset the lost income. This also prevents double taxation of that income at the state level.
At the federal level, the special tax is a deductible business expense, which is subtracted from the PTE’s income. The PTE’s income, which is reduced by the business deduction, is passed through to the owners, who claim it on their own federal return. However, unlike the deduction for state and local taxes, the PTE’s business deduction isn’t limited by the SALT cap. So, ultimately, the owners can essentially end up deducting the full amount of the business deduction, even if it exceeds the SALT cap.
The owners’ state tax break also reduces the amount of state and local income taxes they have to deduct on their federal return. This gives them more room under the SALT cap for state and local property taxes.
Again, a tax advisor or other financial professional may be able to uncover additional strategies that work for you.
What should taxpayers expect in the future for the SALT deduction?
As it stands right now, the $40,000 SALT cap in place for the 2025 tax year ($20,000 for married people filing separate returns) will continue to increase by 1% each year through 2029. After that, the cap is scheduled to drop back down to $10,000 ($5,000 for married people filing separately). The MAGI thresholds for the cap’s phase-out will also increase by 1% each year until 2030, when the phase-out is repealed.
However, the increased SALT cap could be temporarily extended, made permanent, or changed in other ways before it expires in 2030. New legislation would have to be passed in order for that to happen, but it’s certainly not out of the question.
If changes are made, we’ll be sure to let you know. So, stay tuned…and don’t worry about missing out on potential tax savings in the future.
Frequently Asked Questions About the SALT Deduction
Q1: Where do I claim the SALT deduction on my tax return?
You can claim the SALT deduction on Schedule A along with all your other itemized deductions. See if you’re better off claiming the Standard Deduction or itemized deductions.
Q2: Who benefits from the SALT deduction?
Typically, wealthier taxpayers and people who live in states with higher state and local taxes benefit the most from the SALT deduction.
If your income is on the high end, you’re more likely to claim itemized deductions instead of the Standard Deduction. And, of course, if you don’t itemize, you can’t claim the SALT deduction. Wealthier people also tend to pay more in state and local taxes, since their income is higher, they buy more stuff, their homes are more valuable, and they own more items that are subject to personal property taxes.
Itemizers who live in high-tax states also benefit more from the SALT deduction – again, because their state and local tax burden is higher.
The higher SALT cap is particularly helpful for both groups, since they now may be able to deduct more of the state and local taxes they pay. Find out which states have the highest and lowest taxes.
Q3: What are some common SALT deduction mistakes?
Some common mistakes people make when claiming the SALT deduction include:
- including non-deductable payments, like special assessments for local improvements, homeowners’ association fees, or inheritance taxes
- failing to deduct sales taxes when they’re greater than your state and local income taxes
- claiming both sales taxes and state and local income taxes
- forgetting to add the tax on certain big-ticket items if you’re deducting sales taxes using the optional sales tax tables
- ignoring the SALT cap and claiming too much
- deducting state and local taxes that weren’t actually paid during the tax year (even though a tax bill arrived in the mail during the tax year)
- prepaying property taxes that weren’t assessed during the tax year
- counting taxes twice, such as when you pay property taxes as part of your monthly mortgage payment and then again when the mortgage company pays your tax bill
- overlooking the Alternative Minimum Tax (AMT), which can be triggered by a large SALT deduction
- including business-related tax payments in the SALT deduction
Check out some other common mistakes to avoid when doing your taxes.
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