What Is the SALT Deduction?
The State and Local Tax (SALT) deduction allows you to deduct certain taxes you pay to state and local governments from your federal taxable income. This includes state income taxes (or sales taxes), local property taxes, and in some cases, personal property taxes.
For years, the SALT deduction was unlimited — you could deduct the full amount of your state and local taxes. That changed in 2018 when the Tax Cuts and Jobs Act (TCJA) capped the deduction at $10,000 ($5,000 for married filing separately). That cap hit taxpayers in high-tax states particularly hard.
Now, the One Big Beautiful Bill Act (OBBBA) has quadrupled the cap. Here’s everything you need to know about the SALT deduction for 2026.
SALT Deduction Changes Under OBBBA
The OBBBA makes several significant changes to the SALT deduction starting in 2026:
New $40,000 Cap
The SALT deduction cap increases from $10,000 to $40,000 for single filers and married couples filing jointly. This is the biggest change to the SALT deduction since the TCJA imposed the original cap in 2018.
- Single filers: $40,000 cap
- Married filing jointly: $40,000 cap
- Married filing separately: $20,000 cap
- Head of household: $40,000 cap
Income Phase-Out
There’s an important income threshold to be aware of. The $40,000 cap begins to phase out for taxpayers with adjusted gross income (AGI) above $500,000 ($250,000 for married filing separately). Above this threshold, the SALT cap gradually reduces, potentially back toward the old $10,000 limit for very high earners.
Annual Increases Through 2029
The OBBBA includes built-in increases to the SALT cap. Starting in 2027, the cap increases by 1% per year through 2029:
| Tax Year | SALT Cap (Single/MFJ) | SALT Cap (MFS) |
|---|---|---|
| 2025 | $10,000 | $5,000 |
| 2026 | $40,000 | $20,000 |
| 2027 | $40,400 | $20,200 |
| 2028 | $40,800 | $20,400 |
| 2029 | $41,200 | $20,600 |
What Taxes Count Toward the SALT Deduction?
The same types of taxes that qualified before the cap still qualify:
- State income taxes: What you pay to your state on earned income (or state sales taxes if you choose that option instead)
- Local property taxes: Real estate taxes on your primary residence, vacation home, or land
- Personal property taxes: Taxes on vehicles, boats, and other personal property assessed by state or local governments
Important: You can only claim the SALT deduction if you itemize deductions on Schedule A. If you take the standard deduction, you cannot claim SALT separately.
Who Benefits Most from the Higher SALT Cap?
The increased cap benefits taxpayers in high-tax states the most. If you live in a state with high income taxes and/or high property taxes, you were likely bumping up against the $10,000 cap.
States Where the SALT Increase Matters Most
Taxpayers in these states are most likely to benefit from the higher cap:
- New York: Top state income tax rate of 10.9% plus high property taxes
- California: Top state income tax rate of 13.3%
- New Jersey: Highest average property taxes in the nation
- Connecticut: High income taxes and property taxes combined
- Illinois: High property taxes despite a flat income tax
- Maryland: State plus county income taxes add up
- Massachusetts: 9% income tax rate after the millionaire’s tax
Example: How the SALT Change Saves Money
Consider a small business owner in New Jersey earning $200,000 per year:
| Tax Type | Amount |
|---|---|
| State income tax | $12,500 |
| Property tax | $14,000 |
| Total state and local taxes | $26,500 |
- Under the old $10,000 cap: Could only deduct $10,000 → lost $16,500 in deductions
- Under the new $40,000 cap: Can deduct the full $26,500
- Tax savings: At the 24% bracket, that’s roughly $3,960 in additional tax savings
SALT Deduction for Small Business Owners
If you’re a small business owner, the SALT deduction interacts with your business in specific ways:
Pass-Through Entity Taxes (PTET)
Many states introduced Pass-Through Entity Tax (PTET) elections as a workaround to the old $10,000 SALT cap. Under PTET, the business entity pays state taxes instead of the individual, and those taxes are deductible at the entity level — bypassing the SALT cap entirely.
With the SALT cap now at $40,000, the math on PTET elections changes. Some business owners may find that the higher individual SALT cap is sufficient without needing the PTET workaround. However, if your state and local taxes exceed $40,000, PTET may still be valuable.
Talk to your accountant about whether your state’s PTET election still makes sense under the new cap.
Business Property Taxes
Property taxes on business property (your office building, warehouse, or commercial space) are deducted as a business expense on Schedule C or your business return — they are not subject to the SALT cap. The SALT cap only applies to personal taxes deducted on Schedule A.
This means the SALT cap primarily affects your personal residence property taxes and state income taxes. Keep your business deductions separate from your personal SALT deductions.
SALT Deduction vs. Standard Deduction: Which Should You Take?
The higher SALT cap makes itemizing more attractive for many taxpayers. But you still need to run the numbers.
When Itemizing Makes Sense
You should consider itemizing if your total itemized deductions exceed the 2026 standard deduction:
- Single: $16,550 (plus $1,000 OBBBA bonus = $17,550)
- Married filing jointly: $33,100 (plus $2,000 OBBBA bonus = $35,100)
Your itemized deductions include SALT, mortgage interest, charitable contributions, and medical expenses (above 7.5% of AGI). If your SALT alone is $25,000-$40,000, you’re likely better off itemizing — especially when you add mortgage interest and charitable giving on top.
How to Track Your SALT-Eligible Taxes
To maximize your SALT deduction, you need to track all qualifying tax payments throughout the year:
What to Track
- State income tax withholding: Check your pay stubs or year-end W-2
- Estimated state tax payments: Quarterly payments you make directly to your state
- Property tax bills: Semi-annual or annual bills from your county or municipality
- Vehicle registration fees: The portion that qualifies as personal property tax (varies by state)
- State tax payments with your return: Any balance due paid when filing your state return
Keep Your Records Organized
Use a tool like SparkReceipt’s tax receipt tracker to capture and organize property tax bills, vehicle registration receipts, and estimated tax payment confirmations. When tax time comes, you’ll have everything your accountant needs in one place.
You can also use expense reports to generate a summary of all tax-related payments for the year — making it easy to compare your total SALT against the cap and decide whether to itemize.
Common SALT Deduction Mistakes to Avoid
- Double-counting business property taxes: If you deducted property taxes as a business expense, don’t also include them in your personal SALT deduction
- Forgetting estimated tax payments: State estimated tax payments count toward SALT but are easy to overlook
- Not checking the income threshold: If your AGI exceeds $500,000, your $40,000 cap may be reduced
- Ignoring the PTET calculation: With the higher cap, the PTET workaround may cost more in compliance fees than it saves
- Taking SALT with the standard deduction: You can only claim SALT if you itemize — it’s one or the other
FAQ
What is the SALT deduction cap for 2026?
The SALT deduction cap for 2026 is $40,000 for single filers and married couples filing jointly, and $20,000 for married filing separately. This is up from the previous $10,000 cap ($5,000 MFS) under the TCJA.
Is the $40,000 SALT cap permanent?
The $40,000 cap is set through 2029, with small 1% annual increases built in. After 2029, Congress will need to extend or modify the provision. Given the history of tax law extensions, most experts expect it to continue in some form.
Can I deduct more than $40,000 in SALT?
Not on your personal return. However, business owners using a Pass-Through Entity Tax (PTET) election in their state may be able to deduct state taxes at the entity level, which bypasses the individual SALT cap.
Does the SALT deduction affect my self-employment taxes?
No. The SALT deduction reduces your federal income tax, not your self-employment tax. Self-employment tax is calculated on your net self-employment earnings regardless of your SALT deduction.
Should I switch from standard deduction to itemizing in 2026?
It depends on your total itemized deductions. If your SALT, mortgage interest, and charitable contributions together exceed the 2026 standard deduction ($17,550 for single filers including the OBBBA bonus, $35,100 for MFJ), you should itemize. Use a tax calculator or consult your accountant to compare.
Bottom Line
The OBBBA’s increase of the SALT cap from $10,000 to $40,000 is a significant win for taxpayers in high-tax states. If you’ve been limited by the old cap, 2026 is the year to revisit your itemizing strategy and ensure you’re capturing every qualifying state and local tax payment.
Start by organizing your property tax bills, state tax records, and estimated payment receipts. SparkReceipt’s AI receipt scanner can help you digitize and categorize all of these documents, so you’re ready to maximize your deduction when it’s time to file.
For a complete overview of all 2026 tax changes, read our OBBBA Tax Changes 2026 guide.
