SALT Deduction in 2026: How Much Can You Really Deduct?
The state and local tax deduction, commonly known as SALT, has been one of the most debated provisions in federal tax law since the Tax Cuts and Jobs Act capped it at $10,000 in 2018. For the 2026 filing season, which covers the 2025 tax year, the SALT deduction remains a central issue for homeowners and residents of high-tax states. This article explains how the SALT deduction works, who benefits, and what you can actually deduct on your 2025 return.[1][2]
What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize their deductions to deduct certain state and local taxes paid during the year from their federal taxable income. Before the 2018 cap was introduced, the deduction was unlimited, meaning taxpayers in high-tax states like California, New York, New Jersey, and Illinois could fully deduct all their state income taxes and local property taxes.[1][3]
The taxes that qualify for the SALT deduction include:[1][2]
State income taxes or state sales taxes (you must choose one or the other, not both)
Local income taxes
Real estate property taxes on personal property
Personal property taxes, such as annual vehicle registration fees based on value
The $10,000 Cap: What It Means for 2025 Returns
For the 2025 tax year, the combined total of all qualifying state and local taxes is capped at $10,000 for single filers, married couples filing jointly, and heads of household. Married couples filing separately each face a $5,000 cap.[1][2]
In practice, this means that a homeowner in a high-tax state who pays $8,000 in state income tax and $12,000 in property taxes could theoretically deduct $20,000 without a cap, but under current law can only deduct $10,000 total. The additional $10,000 provides no federal tax benefit.[3]
Legislative Developments: Has the Cap Changed?
Throughout 2024 and 2025, various legislative proposals sought to raise, modify, or eliminate the SALT cap. Several proposals in Congress gained support from representatives in high-tax states. Depending on whether any of these proposals were enacted and what effective date they carry, the applicable SALT cap for 2025 returns filed in 2026 may differ from the baseline $10,000 limit.[2][3]
Taxpayers in high-tax states should confirm the current applicable limit through IRS guidance, tax software, or a tax professional before filing, as any change could significantly affect their itemized deduction total and, consequently, whether itemizing makes financial sense.[2]
Who Benefits From the SALT Deduction?
The SALT deduction is only available to taxpayers who itemize deductions. Given the large standard deduction amounts, many taxpayers find that their total itemized deductions, including SALT, mortgage interest, and charitable contributions, do not exceed the standard deduction. In those cases, the SALT deduction provides no practical benefit even if the taxpayer paid significant state and local taxes.[1]
Taxpayers most likely to benefit from claiming SALT include:[2][3]
Homeowners with high property taxes who also pay significant state income taxes
Residents of states with high income tax rates such as California (up to 13.3%), New York, New Jersey, Hawaii, and Oregon
Taxpayers with large mortgage interest deductions who are already itemizing for other reasons
Workarounds: Pass-Through Entity Tax Elections
Several states have created pass-through entity tax programs that allow business owners who operate as S-corporations or partnerships to work around the SALT cap. Under these programs, the entity pays state income tax at the entity level, which is deductible as a business expense and not subject to the $10,000 SALT cap. The IRS approved this approach in 2021, and many states have adopted it.[1][2]
If you own a qualifying pass-through business and your state has a PTE tax election, consulting with a tax professional about whether electing this treatment could reduce your overall federal tax burden is worthwhile.[3]
State and Local Sales Tax Election
Taxpayers who live in states with no income tax, such as Florida, Texas, Washington, or Nevada, can elect to deduct state and local sales taxes instead of income taxes within the SALT cap. The IRS provides optional sales tax tables that estimate your deductible sales tax based on your income and state, so you do not need to save every receipt. You may also add the sales tax paid on large purchases such as vehicles, boats, or home building materials on top of the table amount.[1][3]
Calculating Your SALT Deduction
To determine your SALT deduction amount for your 2025 return:[1][2]
Add up all state and local income taxes paid in 2025
Add property taxes paid on your primary residence and any other personal property
Compare the total to the applicable cap ($10,000 for most filers)
The lesser of your actual taxes paid or the cap is your deductible amount
Add this amount to your mortgage interest, charitable contributions, and other itemized deductions
Compare your total itemized deductions to your standard deduction to determine which produces the larger benefit
Conclusion
The SALT deduction remains one of the most impactful provisions for taxpayers in high-cost states, though the $10,000 cap significantly limits its benefit for many. Understanding how much you can actually deduct, whether any legislative changes affect the 2025 cap, and whether pass-through entity elections or other strategies apply to your situation can materially affect your tax bill. Itemizing only makes sense if your total deductions exceed the standard deduction, so always run the comparison before deciding which approach to take.[1][2][3]
Sources
[1] IRS Publication 17, State and Local Taxes, IRS.gov
[2] Tax Foundation, SALT Deduction Cap Analysis, taxfoundation.org
[3] IRS Notice 2020-75, Pass-Through Entity Tax Workarounds, IRS.gov
