By Income Tax Service Editorial — Reviewed by Diyan Yap, EA (IRS Enrolled Agent) — Updated July 19, 2026
Quick answer: The cap on deducting state and local taxes (SALT) rose from $10,000 to $40,000 starting with 2025 returns ($20,000 if married filing separately), and it’s inflation-indexed through 2029. High earners phase back down: above roughly $500,000 of income, the cap shrinks by 30 cents per extra dollar — but never below $10,000. In 2030 it reverts to $10,000 unless Congress acts.
Key facts:
- New cap: $40,000 per return ($20,000 married filing separately), effective tax year 2025, indexed for inflation 2026–2029
- Replaces the $10,000 cap in place since 2018 under the Tax Cuts and Jobs Act
- Phasedown: cap reduced by 30% of MAGI above ~$500,000 — floor of $10,000 ($5,000 MFS)
- Sunsets after 2029 — back to $10,000 in 2030 unless extended
- Only matters if you itemize — the 2026 standard deduction is $32,200 (joint)
What is the SALT cap in 2026?
For 2026, itemizers can deduct up to $40,000 (indexed slightly above the 2025 base) of combined state and local taxes — property taxes plus either state income taxes or state sales taxes. The One Big Beautiful Bill Act (OBBBA) replaced the old $10,000 flat cap, which had been scheduled to expire at the end of 2025, with this higher “applicable limitation amount” under IRC §164(b)(6).
The 4x jump is the single biggest change to itemized deductions in years. Under the $10,000 cap, a homeowner with $18,000 of property taxes simply lost $8,000 of deduction. Under the new cap, that whole bill fits — plus state income or sales taxes on top.
Who actually benefits from the higher cap?
Three groups, roughly in order:
- Homeowners with big property-tax bills. In no-income-tax states like Texas, this is the group — SALT for Texans is mostly property taxes, so families with a high-value home (or several properties) can now deduct what they actually pay.
- Households in high-tax states (California, New York, New Jersey, Illinois) where state income tax alone blew past $10,000 quickly.
- Upper-middle incomes between roughly $150,000 and $500,000. Below that, many households still do better with the standard deduction; above ~$500,000, the phasedown starts clawing the cap back.
Renters with modest state taxes and anyone taking the standard deduction see no direct change.
One overlooked group: recent buyers of expensive homes. Property taxes reset to market value at purchase in most jurisdictions, so a family that bought in 2024–2025 may be paying two or three times the property tax of a long-tenured neighbor — exactly the profile that flips from standard deduction to itemizing under the new cap. If your first full property-tax year is 2026, run the numbers fresh rather than assuming last year’s answer.
How does the high-income phasedown work? (worked example)
The cap shrinks by 30% of the amount your modified AGI exceeds the ~$500,000 threshold, but never below $10,000.
Take Priya and Marcus, married filing jointly, with $550,000 MAGI and $45,000 of combined SALT paid:
- Excess over threshold: $550,000 − $500,000 = $50,000
- Cap reduction: 30% × $50,000 = $15,000
- Their cap: $40,000 − $15,000 = $25,000
- They deduct $25,000 of their $45,000 SALT paid.
Run the same math at $600,000 MAGI: $100,000 excess × 30% = $30,000 reduction → cap of $10,000 — the floor. So the benefit of the new cap is fully gone by around $600,000 of income:
| MAGI (joint) | Approximate SALT cap |
|---|---|
| $500,000 or less | $40,000 (full) |
| $550,000 | $25,000 |
| $600,000+ | $10,000 (floor) |
That 30% phasedown also creates a nasty effective marginal rate zone between ~$500,000 and ~$600,000 — each extra dollar of income costs 30 cents of deduction on top of its own tax. Income timing in that band deserves professional attention.
Should you itemize now?
Itemizing beats the standard deduction only when your itemized total exceeds $32,200 (joint) / $16,100 (single) for 2026. The new cap changes that math for a lot of homeowners:
- Example: a combined $22,000 of property and state taxes (now fully deductible under the $40,000 cap) + $14,000 mortgage interest = $36,000 — beats the $32,200 standard deduction, where the same household under the old $10,000 cap ($10,000 + $14,000 = $24,000) did not.
- Charitable giving pushes the total higher — though note the new 0.5% AGI floor on itemized charitable deductions starting in 2026.
- Business owners: pass-through entity tax (PTET) elections — the state-level SALT workaround — remain available under OBBBA. With a $40,000 personal cap, PTET still wins for many owners with large state liabilities, but the gap narrowed; re-run the comparison before renewing the election.
When does the $40,000 cap expire?
After tax year 2029. Unless Congress extends it, 2030 reverts to the $10,000 cap. Practical consequences: deduction-heavy decisions (prepaying property taxes, timing a state tax payment) are worth more in 2026–2029 than after; and if you’re planning multi-year finances, don’t build a permanent $40,000 assumption into them.
What should you do now?
- Re-run the itemize-vs-standard comparison for 2026. If you shrugged off itemizing since 2018, the math may have flipped.
- In the phasedown band (~$500K–$600K MAGI)? Look at deferring income, accelerating deductions, or retirement contributions that pull MAGI back toward the threshold.
- Texas property owners: protest your appraisal as usual — but track what you actually pay per calendar year; that’s what’s deductible.
- Business owners with PTET elections: have your preparer compare PTET vs the new personal cap before the next election deadline. An IRS Enrolled Agent can run both scenarios quickly.
- Keep every receipt in one place. Property tax statements, state estimated payments, and vehicle registration taxes all feed the same cap — a single folder per calendar year makes the itemizing decision a ten-minute exercise instead of an archaeology project.
FAQ
Does everyone get a $40,000 deduction now? No. The cap only matters if you itemize, and it’s a limit, not a grant — you deduct what you actually paid in state and local taxes, up to the cap.
What counts toward the SALT cap? Property taxes plus either state/local income taxes or state/local sales taxes (your choice of one). Federal taxes never count.
We file separately — what’s our cap? $20,000 each, with a $5,000 floor under the phasedown — half the joint numbers at every step.
Is the phasedown a cliff? No — it’s gradual: 30 cents of cap lost per dollar of MAGI above the ~$500,000 threshold, until the $10,000 floor. But the effective marginal cost in that band is real; plan income timing around it.
Are PTET workarounds dead now? No. OBBBA left pass-through entity tax elections intact. Whether PTET still beats the higher personal cap depends on your state liability size — worth re-running annually.
What happens in 2030? The cap reverts to $10,000 unless Congress extends the higher amount. Treat 2026–2029 as the window.
Sources
- IRS: One Big Beautiful Bill provisions for individuals and workers
- IRS: Tax inflation adjustments for tax year 2026
This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change and individual situations vary — consult a qualified tax professional about your specific circumstances.