Are State Taxes Deductible on Your Federal Return?

Yes, state taxes are deductible on your federal return, but only if you itemize deductions on Schedule A rather than taking the standard deduction. For the 2026 tax year, the total you can deduct for all state and local taxes combined is capped at $40,400 for most filers, or $20,200 if you are married filing separately. That cap covers state and local income taxes (or sales taxes, your choice), real estate taxes, and personal property taxes.

Itemize or Take the Standard Deduction

The deduction only helps you if your total itemized deductions beat the standard deduction for your filing status. For 2026, the standard deduction is $16,100 for single filers and married filing separately, $32,200 for married filing jointly and surviving spouses, and $24,150 for heads of household.¹

Add your state and local taxes to your mortgage interest, charitable contributions, and other Schedule A items. If the total lands below your standard deduction, take the standard amount. You get no separate federal benefit from the state taxes you paid in that case; the standard deduction already accounts for them.

Which State and Local Taxes Qualify

Federal law recognizes four categories: state and local income taxes, general sales taxes, real property taxes, and personal property taxes. Income taxes and sales taxes are alternatives, not additions.²

Income Tax or Sales Tax, Not Both

You pick one. Deduct the state and local income taxes withheld from your paycheck and any estimated payments you made, or deduct general sales taxes. For most people in a state with an income tax, the income tax number is larger and wins by default. If you live in a state without an income tax, or you had a big-ticket year with a vehicle or boat purchase, the sales tax election may come out ahead.²

Going the sales tax route does not require saving every receipt. The IRS publishes optional sales tax tables based on income and family size and offers a free online calculator that produces an estimate. You can then add actual sales tax paid on major purchases on top of the table figure.³

Real Estate Taxes

Property taxes on your home or land qualify when they are based on assessed value and levied for general public purposes. Some line items on a property tax bill do not count:

Local improvement assessments that directly boost your property’s value, such as charges for sidewalks, water mains, or sewer lines.
Service fees billed per unit or as a flat charge, such as a per-gallon water fee or an annual trash collection fee, even when they show up on the same bill as your property tax.

If your bill mixes ad valorem tax with service charges, separate them and deduct only the tax.⁴

Personal Property Taxes

Taxes on movable property, most often vehicles, are deductible when the tax is based on the item’s value and imposed annually. A flat registration fee that does not vary with the vehicle’s value is not deductible. Only the value-based portion of what your state charges counts.²

The SALT Cap for 2026

The Tax Cuts and Jobs Act of 2017 capped total state and local tax deductions at $10,000 ($5,000 for married filing separately) from 2018 through 2024. The One Big Beautiful Bill Act, signed on July 4, 2025, raised the cap starting with the 2025 tax year.⁵

The 2026 cap is $40,400 for most filers and $20,200 for married filing separately, reflecting a 1% inflation bump from the $40,000 base set for 2025. The cap continues rising 1% a year through 2029, then reverts to $10,000 in 2030.¹

Phase-Down for Higher Incomes

The full $40,400 cap applies if your modified adjusted gross income is at or below $505,000 ($252,500 for married filing separately). Above that, the cap shrinks by roughly 30 cents for every dollar of income over the threshold, and it will not fall below $10,000 ($5,000 for married filing separately). The Schedule A instructions include a worksheet for calculating the reduced limit.⁶

Taxes That Escape the Cap

The SALT cap applies only to personal itemized deductions on Schedule A. State and local taxes tied to a business or rental activity are deducted as business expenses on Schedule C or Schedule E and are not capped. For a property with both personal and rental use, only the personal share of the property tax falls under the SALT limit.

Many states also let S corporations, partnerships, and LLCs pay state income tax at the entity level. When the entity pays, the payment is deducted on the entity’s return as a business expense and does not eat into any owner’s individual SALT cap. The IRS confirmed this treatment in Notice 2020-75.⁷ Even with the higher cap, this election can still pay off for owners whose state tax bills exceed the cap or whose income triggers the phase-down.

When a State Tax Refund Becomes Federal Income

If you deducted state income taxes one year and received a state refund the next, some or all of that refund may be taxable on your federal return. The deduction lowered your federal bill, and the refund gave part of that money back, so the IRS recaptures the benefit.⁸

Two situations keep the refund off your federal return:

You took the standard deduction in the year you paid the tax, so you got no federal benefit to recapture.
Your SALT deduction was capped. If you paid $45,000 in state and local taxes but only deducted $40,400, a small refund may fall within the amount that was never deducted in the first place.

Your state will send Form 1099-G showing the refund amount. Whether federal tax is owed on it depends on how much of the original payment actually reduced your bill.

Claiming the Deduction

State and local taxes are reported on Schedule A, attached to Form 1040. Line 5a is for state and local income taxes or sales taxes (with a box to check if you elect sales taxes), line 5b is for real estate taxes, and line 5c is for personal property taxes. Line 5d totals those three, and line 5e is the amount allowed after applying the cap and, if applicable, the phase-down worksheet. The line 5e figure joins your other itemized deductions and flows to Form 1040 to reduce taxable income.⁶

Have these records ready before you file:

State income tax withholding from Box 17 of your Form W-2, plus any estimated payments you sent to the state.
Real estate tax amounts from your Form 1098 if paid through an escrow account, or from your local assessor’s statements if paid directly.
The value-based portion of any vehicle registration or personal property tax bill.
Sales tax receipts, table amounts, or a figure from the IRS Sales Tax Deduction Calculator if you elect sales taxes.³

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
2
Office of the Law Revision Counsel. 26 USC 164 – Taxes
3
Internal Revenue Service. Use the Sales Tax Deduction Calculator
4
Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses
5
Bipartisan Policy Center. How Does the 2025 Tax Law Change the SALT Deduction?
6
Internal Revenue Service. Instructions for Schedule A (Form 1040)
7
Internal Revenue Service. Notice 2020-75
8
Internal Revenue Service. Taxable Refunds, Credits or Offsets of State or Local Income Taxes