How the SALT Cap Increase Could Lower Your Tax Bill

What changes were made to the SALT cap for the 2025 to 2029 tax years?

The annual limit on the federal deduction for state and local taxes – or SALT cap, for short – jumped from $10,000 to $40,000 for the 2025 tax year (from $5,000 to $20,000 for married taxpayers filing a separate return). The cap is even higher for the 2026 through 2029 tax years (see table below). Even if you don't pay $40,000 or more in state and local taxes each year, the higher SALT cap can still help you if your annual state and local taxes are more than $10,000.

However, the increased SALT cap is only temporary. "It increases by 1% per year from 2026 to 2029, after which it is reduced to $10,000 ($5,000 for MFS filers) for 2030 and later," says Victoria Adams, an enrolled agent and TurboTax Expert based in Aberdeen, Wash.

Also keep in mind that the SALT deduction is an itemized deduction. As a result, it’s not available if you claim the Standard Deduction, since you can’t claim both the Standard Deduction and itemized deductions on the same tax return.

Why did the SALT cap change?

The SALT cap increase was enacted as part of the “One Big Beautiful Bill” (OBBB), which is also known as the Working Families Tax Cut. The OBBB was signed into law on July 4, 2025, and the provisions increasing the SALT cap were retroactively effective to January 1, 2025. As a result, you were first able to take advantage of the higher cap when you filed your tax return for the 2025 tax year (which was due in 2026).

The SALT cap was initially created by the Tax Cuts and Jobs Act of 2017. The limit was set at $10,000 ($5,000 for married people filing separate returns) for the 2018 to 2024 tax years.

TurboTax Tip:

"The One Big Beautiful Bill temporarily raises the maximum deduction for state and local taxes to $40,000 for the 2025 tax year. It's then increased by 1% each year until it drops back down to $10,000 starting in 2030." – Victoria Adams, EA, Aberdeen, WA

How much is the SALT cap?

While the OBBB raised the SALT cap from $10,000 to $40,000 for the 2025 tax year (from $5,000 to $20,000 for married people filing separately), it also increased the cap by an additional 1% per year for the 2026 to 2029 tax years.

However, the increases are only temporary. The SALT cap reverts back to $10,000 ($5,000 for MFS filers) starting with the 2030 tax year.

SALT Cap Amounts
Tax Year(s)	Married Taxpayers Filing Separately	All Other Taxpayers
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

Is the SALT cap reduced for higher-income taxpayers?

The higher SALT cap come with a twist – it’s gradually reduced by 30 cents for every dollar your modified adjusted gross income (MAGI) is above a threshold amount (see table below). However, the phase-out stops once the SALT cap drops to $10,000 ($5,000 for MFS filers).

For example, suppose you’re single and paid $37,000 in eligible state and local taxes in 2026. Since your MAGI is $525,000 – which is $20,000 over the $505,000 threshold – your SALT cap is reduced by $6,000 ($20,000 x .30 = $6,000). That means you can only deduct $34,400 of your state and local taxes ($40,400 - $6,000 = $34,400). The remaining $2,600 of state and local taxes you paid for the year are not deductible ($37,000 - $34,400 = $2,600).

As with the SALT cap itself, the phase-out threshold is increased by 1% each year from 2026 to 2029. Then, since the SALT cap drops back down to $10,000 ($5,000 for MFS filers), the phase-out goes away starting with the 2030 tax year.

SALT Cap Phase-Out Thresholds
Tax Year	Married Filing Separately	All Other Filing Statuses
2018 to 2024	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

Note: To calculate your MAGI for SALT cap purposes, start with your adjusted gross income (AGI), then add any tax 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

What taxes can be included in the SALT deduction?

You can only include the following state and local taxes in the SALT deduction:

• income or sales taxes
• real estate taxes
• personal property taxes

Other state and local taxes – such as estate, inheritance, cigarette, gas, and real estate transfer taxes – can’t be included in the federal deduction.

Also note that you have to choose between deducting state and local income taxes or sales taxes. You can pick whichever amount is higher, but you can’t deduct both. Most people will be better off deducting state and local income taxes, unless you live in a state with no income tax. Deducting your sales tax also might be the better option if you paid sales tax on one or more high-priced items during the year, such as a car, boat, or airplane.

The SALT cap applies to the combined total of eligible state and local taxes. For example, if you paid $18,000 in state income taxes, $15,000 in real estate taxes, and $9,000 in personal property taxes in 2026 – for a total of $42,000 - you still can only deduct $40,400 (the SALT deduction cap for 2026) even though you paid less than $40,400 of each separate type of tax.

How much can the higher SALT cap save me?

The SALT deduction – like all other federal income tax deductions – lowers your taxable income. But your actual tax savings are only a percentage of the deductible amount, which depends on your tax bracket.

As a result, even though the maximum SALT deduction jumps from $10,000 to $40,000 or more for the 2025 through 2029 tax years (from $5,000 to $20,000+ for married people filing separately), that doesn’t mean you can reduce your tax bill by an additional $30,000 or more if you qualify for the full deduction.

For example, suppose you qualify for the maximum $40,400 SALT deduction in 2026. If you’re in the 24% tax bracket, the additional $30,400 SALT deduction will at most lower your tax bill by an extra $7,296 ($30,400 x 0.24 = $7,296). That’s certainly a nice additional tax reduction, but it’s still a far cry from $30,000 or more.

Who will benefit most from the SALT cap increase?

Generally speaking, people with higher incomes and/or who live in high-tax states are more likely to benefit from the increased SALT cap.

First of all, you have to claim itemized deductions – instead of taking the Standard Deduction – to claim the SALT deduction. And since well-paid people are more likely to claim itemized deductions than other taxpayers, they’re also more likely to benefit from the higher SALT cap. Lower- and middle-income taxpayers tend to claim the Standard Deduction, which means they can’t take advantage of the increased SALT cap.

Plus, for several reasons, high-salaried people also tend to pay more in state and local taxes. Among other things, they generally:

• earn more money, so their state income tax bills are higher
• buy more “stuff,” so they pay more sales tax
• own a home (as opposed to renting), so they owe real estate taxes
• live in more expensive homes, so their real estate tax bills are bigger
• own more cars, boats, and other items subject to personal property taxes

As a result, their total state and local tax burden is more likely to exceed the old $10,000 SALT cap.

But don’t forget that if your income is too high (MAGI above $505,000, or over $252,500 if you’re married filing separately, for 2026), your SALT cap is reduced – potentially back down to the old $10,000 limit ($5,000 for MFS filers).

And what if you live in a state with high income, sales, or property taxes? Even if you’re not rich, you still might pay more than $10,000 in deductible state and local taxes if you live in one of these states, such as California, Illinois, New York, or New Jersey (to name a few). In that case, you can benefit from the higher SALT cap if you itemize.

Should I itemize now that the SALT cap is higher?

Since the Tax Cuts and Jobs Act of 2017 nearly doubled the Standard Deduction and cut certain itemized deductions, around 90% of all taxpayers claim the Standard Deduction instead of itemized deductions. However, now that the SALT cap is higher, more people might do better claiming itemized deductions instead of the Standard Deduction on their federal tax return.

Remember, you can itemize or take the Standard Deduction – but not both. Fortunately, in most cases, you can pick whichever one is higher. And now that the maximum SALT deduction, which is an itemized deduction, was increased from $10,000 to $40,000 or more for the 2025 through 2029 tax years, the potentially higher deduction could make itemizing worthwhile for those tax years "if it pushes your itemized deductions above than the Standard Deduction for the year," Adams notes.

Let’s take a look at a hypothetical example: Suppose you’re single, paid $25,000 in deductible state and local taxes in 2026, and don’t qualify for any other itemized deductions for the 2026 tax year.

If the SALT cap wasn’t increased – that is, it remained at $10,000 – the $16,100 Standard Deduction available to single filers for 2026 is higher than a SALT deduction that’s capped at $10,000. So, in that case, you would choose the Standard Deduction over itemized deductions on your return for the 2026 tax year.

However, since the SALT cap was increased to $40,400 for the 2026 tax year, you’re better off claiming itemized deductions instead of the Standard Deduction. That’s because you can claim a $25,000 SALT deduction, which is more than the $16,100 Standard Deduction.

Frequently asked questions about the higher SALT cap

Q1: Can I still use a "Pass-Through Entity Tax" (PTET) workaround?

The “One Big Beautiful Bill” did not affect the ability to use state laws that help owners of pass-through entities – such as partnerships, S corporations, and certain limited liability companies – bypass the SALT cap. While these “SALT workaround” laws vary from state to state, they generally shift the payment of state taxes from the owners (who are subject to the cap) to their businesses (which aren’t).

If you’re wondering if the higher SALT caps make use of the state workaround laws unnecessary, consulting a qualified tax professional is your best bet.

See how you can get year-round business tax planning services from a TurboTax expert.

Q2: Will the increased SALT cap affect the Alternative Minimum Tax (AMT)?

The SALT deduction still isn’t used to calculate the AMT after passage of the “One Big Beautiful Bill.” As a result, even though your SALT deduction may be higher now that the SALT cap has been temporarily raised, you may still have to pay the AMT if your income is above a certain amount.

In fact, a larger SALT deduction, which lowers your regular tax bill, could trigger the AMT. You must pay the higher of your regular tax or the AMT. So, if a higher SALT deduction reduces your regular tax, but it doesn’t do the same for your AMT, it could push your regular tax liability below your AMT. If that happens, you will have to pay the AMT.

Check out this article to learn more about the AMT.

Q3: Should you claim the SALT deduction?

You should claim the SALT deduction if you paid deductible state and local taxes during the year, and your total itemized deductions exceed the Standard Deduction for your filing status. In addition to the SALT deduction, common itemized deductions include write-offs for:

• medical and dental expenses that exceed 7.5% of your AGI
• mortgage interest payments
• charitable donations
• casualty or theft losses

If your Standard Deduction is higher than your itemized deductions, then you don’t want to claim the SALT deduction.

See if you’re better off claiming itemized deductions or the Standard Deduction.

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