The 2026 SALT deduction cap, explained

What counts as state and local tax

The deduction covers three kinds of tax you paid during the year, reported on lines 5a to 5c of Schedule A:

• State and local income tax, including what was withheld from your pay, estimated payments, and last year's balance paid this year. Instead, you can choose to deduct general sales tax, using your receipts or the IRS sales tax tables plus big purchases like a car. You pick one or the other, never both; sales tax usually wins only in states with no income tax.
• Real estate tax on property you own, as long as it is charged on the property's value at a uniform rate. Fees for specific services, like trash pickup, do not count. Property tax on foreign real estate is not deductible at all.
• Personal property tax charged yearly and based only on value, such as the part of a car registration fee figured on the car's value.

All three share one limit. Taxes paid on a business or rental property go on those schedules instead and are not capped. The deduction only matters if you itemize; with the standard deduction, your state taxes do not lower your federal tax at all.

The cap from 2025 to 2030

The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, raised the cap set by the 2017 tax law for five years. Each year's cap and income threshold rise 1% over the year before, then everything returns to the old $10,000 limit:

2027 to 2029 are projected by applying the law's 1% increase; the IRS publishes each year's exact amounts. Married filing separately uses half of the cap, the threshold and the floor.

Modified adjusted gross income (MAGI) here is your adjusted gross income plus any foreign earned income or certain U.S. territory income you excluded; for most people it is simply the AGI on line 11 of Form 1040. The $505,000 threshold is the same for single filers and married couples filing jointly, which is one reason couples hit the phase-down sooner relative to their combined pay.

How the phase-down raises your marginal rate

Above $505,000, the cap falls by 30% of the excess: at $550,000 it is $40,400 minus 30% of $45,000, or $26,900. If you pay more state and local tax than the cap, every extra dollar you earn adds that dollar plus 30 cents of lost deduction to your taxable income. For a married couple paying $45,000 of state and local tax with $30,000 of mortgage interest:

Married filing jointly, wages only, itemizing. "Federal tax on the next dollar" is the federal income tax on the next $1,000 of wages divided by 1,000, from the income tax calculator's engine; it excludes the 0.9% Additional Medicare Tax.

Inside the zone the effective rate is 1.3 times the bracket rate: 41.6% instead of 32%, and 45.5% instead of 35%. Across the whole stretch from $505,000 to $606,334, this couple pays $43,771 more federal income tax on $101,334 more income, an average of 43.2%. About $10,640 of that is tax on the $30,400 of deduction they lose. Above the zone, the $10,000 floor holds and the rate falls back to the bracket rate. If your income lands near this range, pre-tax 401(k) contributions and other ways to lower AGI save more than usual.

Who should itemize now

You itemize when your state and local taxes (after the cap), mortgage interest, charitable gifts and other itemized deductions add up to more than the standard deduction, $32,200 for a married couple in 2026. Here is a married couple with a $500,000 home, 20% down and a 30-year mortgage at 7.24% ($28,833 of interest in the first year), in three states:

Wages only, no children, no charity. State income tax from our state return engines (New York without New York City tax); property tax at each state's average effective rate on the same $500,000 home (Census ACS 2024). Texas has no income tax; its general sales tax deduction is not counted. Federal tax saved is income tax with itemizing minus income tax with the standard deduction.

The higher cap matters most in the middle of the table. A California couple at $400,000 pays about $30,058 in state income and property tax, deducts all of it, and saves $4,814 more federal tax than they would have under the old $10,000 cap. At $550,000, the phase-down has already trimmed their limit to $26,900. In New York, higher property tax pushes even the $150,000 couple over the standard deduction, saving $2,196.

In Texas the couple pays only $6,550 of property tax, well under even the old cap, so the higher cap gains them nothing. They still itemize at today's rate, because $28,833 of first-year mortgage interest plus property tax clears the standard deduction by $3,183, saving about $764. With a smaller loan or a lower rate they would be back on the standard deduction. For the rates these savings are figured at, see the 2026 tax brackets guide, and for how no-tax states compare overall, states with no income tax.

The workaround for business owners

Partners and S corporation owners in most states with an income tax can still use a pass-through entity tax (PTET). The business elects to pay state income tax itself, deducts it as a business expense that the SALT cap does not touch, and the owners get a state credit or exclusion for the tax paid. The IRS approved this approach in Notice 2020-75. Earlier drafts of the 2025 law would have limited it, especially for doctors, lawyers and other service businesses, but the final law left it intact, so it remains valuable for owners whose income is above the phase-down range and whose cap is stuck at $10,000. Rules and deadlines vary by state; the income tax calculator does not model it.

Married couples filing separately each get half the limits: a $20,200 cap, phasing down above $252,500 of income to a $5,000 floor. Filing separately rarely lowers a couple's total tax, but it is worth checking when incomes are very uneven.