Primary Residence Property Tax Deduction: SALT Cap, Escrow, and AMT

If you own your home and paid state or local property taxes during the year, you can deduct those taxes on your federal return by itemizing on Schedule A. For 2026, the property tax deduction on your primary residence is folded into a combined state-and-local-tax cap of $40,400 for single, head-of-household, and married-filing-jointly filers ($20,200 if married filing separately). The deduction only helps you if your total itemized deductions beat the standard deduction for your filing status.¹

One point worth clearing up early: federal law does not restrict this deduction to your primary home. Taxes on a second home count too. The same overall cap applies to all of them combined.¹

What Qualifies as a Deductible Property Tax

The IRS allows a deduction for real estate taxes assessed uniformly at a like rate on all real property in the taxing jurisdiction. In plain terms, the annual bill your county or municipality sends based on your home’s assessed value qualifies. The tax has to be imposed by a state, local government, or U.S. territory.²

You must have actually paid the tax during the tax year to claim it. Property taxes are deductible in the year they are paid, not the year they are assessed. If your county assesses a 2026 bill but you don’t pay it until January 2027, the deduction belongs on your 2027 return. Taxes you pay at closing when buying a home count for the year of the settlement.²

Charges You Cannot Deduct

The IRS draws a firm line between taxes based on property value and fees for specific services or improvements. Mixing them up is one of the most common Schedule A mistakes.

Service charges for water, trash collection, or lawn-mowing enforcement, even when billed alongside your taxes.
Local benefit assessments for new sidewalks, streets, water lines, or sewer systems that increase your property’s value. These get added to your cost basis instead.
Homeowners’ association fees. An HOA is not a government entity.
Transfer or stamp taxes charged when you buy or sell.
Foreign real estate taxes on personal-use property.

There is a narrow exception inside local benefit assessments: if the charge is specifically for maintenance or repair of an existing improvement, or interest on such an assessment, it can be deductible. Repaving an existing sidewalk qualifies. Building a new one does not.²

The 2026 SALT Cap

The Tax Cuts and Jobs Act originally capped the total state and local tax deduction at $10,000. The One Big Beautiful Bill Act, signed in 2025, raised it. For tax year 2026, the ceiling on combined state and local property taxes, income taxes, and sales taxes is $40,400 for single filers, head-of-household filers, and joint filers. Married couples filing separately get $20,200.¹

The higher cap isn’t permanent. It rises 1% per year for 2027 through 2029, then drops back to $10,000 ($5,000 for married filing separately) starting in 2030 unless Congress acts again.¹

Because the cap covers all state and local taxes combined, homeowners in high-tax states can hit it fast. If you pay $25,000 in property taxes and $12,000 in state income taxes, your $37,000 total fits under the 2026 limit. Push those to $30,000 and $15,000 and you land at the $40,400 ceiling, losing the benefit of $4,600 you actually paid.

High-Income Phasedown

Higher earners don’t get the full amount. If your modified adjusted gross income exceeds roughly $505,000 in 2026 ($252,500 for married filing separately), the cap phases down at 30 cents per dollar over the threshold. It cannot fall below a floor of $10,000, or $5,000 for married filing separately.²

Does Itemizing Actually Pay Off

The property tax deduction only helps if you itemize, which means your total Schedule A deductions have to exceed the standard deduction. For 2026:³

Single: $16,100
Married filing jointly: $32,200
Married filing separately: $16,100
Head of household: $24,150

Add up your property taxes (subject to the SALT cap), mortgage interest, charitable contributions, and any other allowable deductions. If the total beats your standard deduction, itemize. If not, take the standard deduction. Roughly two-thirds of taxpayers take the standard, but homeowners with mortgages and higher property tax bills more often come out ahead by itemizing.⁴

A trap for married couples filing separately: both spouses must either itemize or both take the standard deduction. If one spouse has enough deductions to itemize, the other has to itemize too, even if their own deductions fall short of $16,100.⁵

Escrow: The Amount You Deduct Is Not the Amount You Paid

Most homeowners pay property taxes through an escrow account with their mortgage lender. This is where people go wrong. The monthly amount you pay into escrow is not your deduction. Your deduction is the amount the lender actually disbursed to the taxing authority during the year. Those two figures regularly diverge because lenders estimate escrow payments and adjust after annual analyses.²

Your actual bill from the county or municipality shows what was paid. If your lender’s figure differs, use the amount that actually went to the taxing authority. Lenders may report property taxes in Box 10 of Form 1098, labeled “Other,” but the box is optional and lenders use it inconsistently. Don’t rely on it as your only record.⁶

How to Claim It on Your Return

Property taxes go on Line 5b of Schedule A (Form 1040), labeled “State and local real estate taxes.”⁷

Pull together your documentation first. You want the property tax bill from the county or municipality showing the amount paid. If a lender pays through escrow, cross-check the year-end statement against the taxing authority’s records. If you paid directly, keep the official receipt from the county treasurer or tax collector.

Line 5c of Schedule A combines all your state and local taxes and cannot exceed $40,400 for 2026. If your total is higher, enter the capped amount. The IRS can match property tax figures against lender and state records, so accuracy matters more than rounding in your favor.¹

Keep your return and supporting documents for at least three years from the filing date, which is the general statute of limitations for IRS assessments. The window stretches to six years if you underreported income by more than 25%, so holding records longer than the minimum is sensible.⁸

If You Owe Alternative Minimum Tax

The property tax deduction disappears under the Alternative Minimum Tax. When computing alternative minimum taxable income, no deduction is allowed for the state and local taxes covered by the main property tax provision.⁹

Most taxpayers don’t owe AMT. It only applies when the tentative minimum tax exceeds your regular tax. Homeowners with high property taxes, large families, and income in the $200,000 to $500,000 range are the group most likely to trigger it. If you’re near that line, running your return both ways, or using software that does it automatically, is worth the effort.¹⁰

1
Office of the Law Revision Counsel. 26 USC 164 – Taxes
2
Internal Revenue Service. Publication 530, Tax Information for Homeowners
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Internal Revenue Service. Deductions for Individuals: What They Mean and the Difference Between Standard and Itemized Deductions
5
Office of the Law Revision Counsel. 26 US Code 63 – Taxable Income Defined
6
Internal Revenue Service. Instructions for Form 1098
7
Internal Revenue Service. Instructions for Schedule A (Form 1040) – Section: Line 5b
8
Internal Revenue Service. How Long Should I Keep Records
9
Office of the Law Revision Counsel. 26 US Code 56 – Adjustments in Computing Alternative Minimum Taxable Income
10
Internal Revenue Service. Topic No. 556, Alternative Minimum Tax