What Is the SALT Deduction? Rules and Limits

The SALT deduction stands for the state and local tax deduction. It allows taxpayers who itemize to deduct certain state and local taxes from their federal taxable income, up to an annual limit. 

Because it's a deduction—not a tax credit—the SALT deduction reduces taxable income rather than lowering your tax bill dollar-for-dollar. That may lower the amount of federal income tax you owe. Depending on your withholding, credits, and the rest of your return, this means you could owe less at tax time or receive a larger tax refund. 

The taxes that qualify—and the amount you can deduct—depend on IRS rules, annual caps, and income thresholds. 

To claim the SALT deduction, you must itemize deductions instead of taking the standard deduction. That means adding up eligible deductions—such as SALT, mortgage interest, charitable contributions, and certain medical expenses—and comparing that total with the standard deduction for your filing status. In general, itemizing may make sense only if your total itemized deductions exceed the standard deduction. 

To claim the SALT deduction, you must itemize your deductions on IRS Form 1040, US Individual Income Tax Return, using Schedule A. Talk to your tax advisor if you're unsure about whether to itemize your deductions or take the standard deduction.

• Real property tax: To qualify for the SALT deduction, state and local real estate tax must be for a non-business property (such as your home), the tax must be assessed uniformly on all real estate in the community, and the tax proceeds must be used for community or government purposes.
• Personal property tax: State and local governments may assess personal property tax on physical property you own (such as a car, boat, or trailer). You can potentially use the SALT deduction to write off personal property taxes if they're based on an item's value and imposed on a yearly basis.
• State and local income tax OR state and local sales tax (but not both): If you choose to deduct state and local income tax, you can deduct money withheld from your paycheck during the tax year, which can be found on your W-2 form provided by your employer. If you choose to deduct sales tax instead of income tax, you can calculate your deductions based on the IRS instructions for schedule A or the actual state and local sales tax you paid during the year. You can also use the IRS sales tax deduction calculator.

Taxes that can't be included in the SALT deduction include:

• Alcohol, cigarette, or tobacco taxes
• Gift, estate, or inheritance taxes
• Government fines or penalties
• Taxes paid to a foreign government
• Motor vehicle registration fees
• HOA (homeowner association) fees

Before 2018, taxpayers who itemized could generally deduct eligible state and local taxes without a specific dollar cap. The Tax Cuts and Jobs Act (TCJA) changed that by limiting the SALT deduction to $10,000 (or $5,000 if you're married filing separately). Starting in 2025, the One Big Beautiful Bill Act temporarily increased the cap to $40,000, with a lower cap for married taxpayers filing separately and 1% annual increases through 2029. Unless Congress changes the law, the SALT deduction cap is scheduled to return to $10,000 in 2030.

For the 2026 tax year, filers with a modified adjusted gross income (MAGI) over $505,000 ($252,500 if you're married filing separately) will have their SALT cap reduced by 30 cents for every dollar they make over the threshold amount. The cap does not phase out completely, but can fall as low as $10,000 ($5,000 if you're married filing separately).

Here's an example of how the SALT deduction could work. Say you paid $45,000 in eligible state and local taxes and plan to itemize deductions for the 2026 tax year. If your SALT deduction cap is $40,400, you may be able to deduct $40,400 of those taxes on your federal return. 

If you're in the 24% federal tax bracket, that $40,400 deduction could reduce the federal income tax you owe by about $9,696 ($40,400 x .24), assuming no other tax rules limit your benefit. Your actual tax savings will depend on your filing status, income, itemized deductions, and other tax rules that apply to you.

If you plan to itemize deductions, talk to your tax advisor about whether these state and local tax planning strategies could make sense for you:

• Pre-paying next year's state and local taxes, such as real estate or personal property taxes, so you can claim them in the current year.
• Making your final estimated state tax payment early, if you pay estimated state tax throughout the year.
• Making any big-ticket purchases before year end, if you plan to claim sales tax instead of state and local income tax.
• Looking for ways to reduce your MAGI, if your income is high enough to reduce your SALT deduction cap.

The SALT deduction may help reduce your federal taxable income, but only if you itemize deductions. That means a key question is whether your total itemized deductions—including SALT, mortgage interest, charitable contributions, and other eligible expenses—are greater than the standard deduction for your filing status. 

If your itemized deductions are higher, claiming the SALT deduction may be worthwhile. If they aren't, taking the standard deduction may result in a lower tax bill. A tax advisor can help you compare the options and determine which approach makes the most sense for your situation.