The state and local tax deduction cap for 2026 is $40,400 for single filers, heads of household, and married couples filing jointly, and $20,200 for married taxpayers filing separately.1Office of the Law Revision Counsel. 26 USC 164 – Taxes That is the ceiling on how much you can subtract from your federal taxable income for property taxes plus either state and local income taxes or general sales taxes. The cap only matters if you itemize on Schedule A, and it phases down for higher earners before flattening at a $10,000 floor.
Where the $40,400 Cap Came From
The Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000, and that limit held for seven years. In July 2025, the One Big Beautiful Bill raised the cap to $40,400 for the 2026 tax year. The cap increases by 1% each year through 2029, so the figure will be slightly higher in each of those years.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
Which Taxes Count Toward the Cap
Three categories can go into your SALT total: property taxes, state and local income taxes, and general sales taxes. You choose either income or sales taxes for the year, not both, and add property taxes on top of whichever you picked.2Internal Revenue Service. Topic No. 503, Deductible Taxes
Real estate taxes on your home or other non-business property qualify if they’re based on assessed value and charged uniformly within the jurisdiction. Personal property taxes count when they’re value-based and charged annually. A vehicle registration fee calculated from the car’s current market value is the common example; a fee based on weight or age is not deductible.2Internal Revenue Service. Topic No. 503, Deductible Taxes
Most people in states with an income tax will deduct income taxes, because paycheck withholding usually exceeds annual sales tax spending. In states without an income tax, or in a year with unusually large purchases, sales tax can win. The IRS Optional Sales Tax Tables estimate a deduction based on income and household size, so you don’t have to keep receipts to use that route.3Internal Revenue Service. Instructions for Schedule A (Form 1040)
One boundary worth naming: foreign real property taxes are not deductible under SALT at all. Foreign income taxes follow a separate track and are typically claimed through the foreign tax credit instead.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
The Income Phase-Out
The full $40,400 cap is only available if your modified adjusted gross income is at or below $505,000, or $252,500 for married filing separately. Above that threshold, the cap shrinks by 30 cents for every dollar of excess income. It never drops below $10,000.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
An example. A joint filer with $550,000 in modified adjusted gross income is $45,000 over the threshold. The reduction is 30% of $45,000, or $13,500, which brings the cap down to $26,900. The cap reaches its $10,000 floor at roughly $606,333 of income for joint filers. At that point, a higher earner gets no more benefit from the raised cap than they did under the old $10,000 limit.
Business Taxes Sit Outside the Cap
The cap applies only to personal taxes claimed on Schedule A. State and local property or income taxes you pay in the course of running a business are deductible on the business return with no dollar cap. Sole proprietors deduct those on Schedule C. Landlords deduct property taxes on rental properties on Schedule E. The SALT cap doesn’t touch either.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
You Have to Itemize for the Cap to Matter
The SALT deduction only exists on Schedule A. Itemizing beats the standard deduction only when your total itemized deductions exceed the standard deduction for your filing status. For 2026, those standard deduction amounts are:4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Single: $16,100
- Married filing jointly: $32,200
- Married filing separately: $16,100
- Head of household: $24,150
A married couple paying $15,000 in state and local taxes still needs another $17,200 in mortgage interest, charitable donations, or medical expenses before itemizing produces any savings. The higher cap does make itemizing viable again for many filers who were shut out at $10,000. If you own property in a high-tax state, run the comparison both ways. Tax software does it automatically.
How the Alternative Minimum Tax Can Erase the Benefit
The alternative minimum tax runs as a parallel calculation. You figure your tax under the regular system and again under the AMT system, then pay whichever is higher. Under the AMT, state and local tax deductions are disallowed entirely. Not reduced, not capped differently. Gone.5Office of the Law Revision Counsel. 26 USC 56 – Adjustments in Computing Alternative Minimum Taxable Income
For 2026, the AMT exemption shields the first $90,100 of alternative minimum taxable income for single filers and $140,200 for married couples filing jointly. The exemption begins phasing out at $500,000 for single filers and $1,000,000 for joint filers.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The people most likely to owe AMT are those in high-tax states with moderately high incomes. If the AMT applies, a large SALT deduction on Schedule A won’t translate to actual savings on your final bill.
State Tax Refunds and the Following Year
If you itemized and claimed SALT one year, then received a state or local tax refund the next, part or all of that refund may be taxable on your federal return. You got a benefit from deducting taxes you overpaid, so the IRS treats the refunded overpayment as income when it comes back.6Internal Revenue Service. Taxable Refunds, Credits or Offsets of State or Local Income Taxes
This only applies if you itemized in the year the deduction was claimed. If you took the standard deduction, your state refund isn’t taxable, because you never got a federal benefit from the state taxes you paid. Under the tax benefit rule, only the portion of the refund that actually reduced your federal tax counts as income.7Office of the Law Revision Counsel. 26 USC 111 – Recovery of Tax Benefit Items
The Pass-Through Workaround for Business Owners
Owners of partnerships and S corporations have a route around the cap. More than 30 states now offer a pass-through entity tax election, which lets the business pay state income taxes at the entity level rather than passing the obligation through to individual owners.
The IRS confirmed in Notice 2020-75 that state income taxes paid by a partnership or S corporation are deductible by the entity when computing its income.8Internal Revenue Service. Notice 2020-75 Those payments reduce the business income flowing to owners on Schedule K-1, so the taxes are effectively deducted before the individual SALT cap ever comes into play. The election is voluntary, made at the entity level, and administered differently in each state. Most participating states give owners a corresponding credit or exclusion on their personal state return to avoid double taxation. With the cap at $40,400, the workaround matters less when total state taxes fall under that number, but it stays valuable when an owner’s share of entity-level state tax runs higher.
What Happens After 2029
The $40,400 cap and its annual 1% bumps are temporary. Under current law, the cap reverts to $10,000, or $5,000 for married filing separately, for tax years beginning after 2029. The income-based phase-out disappears at that point, since everyone lands at the same $10,000 limit regardless of income.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
Whether Congress will let the cap fall that sharply is a political question. The original TCJA had the same sunset structure, and Congress raised the cap before it expired. Taxpayers in high-tax states should plan around the current law while recognizing that this provision has proven difficult for Congress to leave alone.