The SALT tax deduction lets you subtract state and local taxes you’ve already paid from your federal taxable income, so the same dollars aren’t taxed twice. For the 2026 tax year, the cap is $40,400 for single filers and married couples filing jointly, and $20,200 for married individuals filing separately. You can only claim it if you itemize deductions on Schedule A, which means it helps only when your itemized total beats the standard deduction for your filing status.
The 2026 Cap and How Income Shrinks It
The $40,400 ceiling came from the One Big Beautiful Bill Act, signed into law in July 2025. That legislation replaced the $10,000 cap that had been in place since 2018 and set a schedule of small annual increases through 2029, after which the cap drops back to $10,000 in 2030.1Office of the Law Revision Counsel. 26 USC 164 – Taxes Excess SALT payments above the cap cannot be carried forward or applied elsewhere on your return.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The higher cap comes with an income-based phase-down. For 2026, the $40,400 ceiling begins shrinking once your modified adjusted gross income tops $505,000, or $252,500 if you file separately. The cap is reduced by 30 cents for every dollar of MAGI above the threshold, and it will not fall below $10,000 ($5,000 for married filing separately).2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A married couple filing jointly with $600,000 in MAGI, for instance, is $95,000 over the threshold; their cap is reduced by $28,500, leaving an effective ceiling of $11,900. At roughly $606,000 of MAGI, the cap bottoms out at $10,000.
Which Taxes Count Toward the Cap
Federal law recognizes four categories of deductible state and local taxes. State and local income tax is the first, meaning amounts withheld from your paycheck plus any estimated payments or balance-due payments you sent to a state or local authority. State and local general sales tax is the second, and you can elect it in place of income tax but not on top of it. Real property tax on land and buildings you own is the third. Personal property tax is the fourth, and only the portion of a charge like vehicle registration that is based on value (not a flat fee) qualifies.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
The income-versus-sales-tax choice matters most in states with no income tax. If you go the sales tax route, the IRS provides tables and a Sales Tax Deduction Calculator that estimate your deduction from income, family size, and local rates, so you don’t have to keep every receipt. You can add actual sales tax paid on large items like a car or boat on top of the table amount.3Internal Revenue Service. Use the Sales Tax Deduction Calculator
Several payments people assume are deductible are not. Federal income tax and Social Security tax never qualify. Transfer taxes on property sales, stamp taxes, estate and inheritance taxes, and homeowner’s association dues are excluded. Water, sewer, and trash charges don’t count, even when your city bills them. Local assessments for improvements such as new sidewalks or sewer lines are generally not deductible unless the charge covers maintenance, repairs, or interest.4Internal Revenue Service. Topic No. 503, Deductible Taxes Foreign real property taxes are also outside the SALT deduction, though foreign income taxes remain deductible under a separate provision that isn’t subject to the SALT cap, or you can claim a credit for them instead.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
Do You Come Out Ahead by Itemizing
The SALT deduction is only available if you itemize on Schedule A. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and married individuals filing separately, and $24,150 for heads of household.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Itemizing pays off only when your SALT payments plus mortgage interest, charitable contributions, and medical expenses above 7.5% of AGI add up to more than that flat number.
With the raised cap, more homeowners in higher-tax areas will find that itemizing now works out where it didn’t at $10,000. Run the numbers both ways. If your itemized total falls even a dollar short of the standard deduction, take the standard deduction.
How to Claim It on Schedule A
Report SALT payments in the “Taxes You Paid” section of Schedule A (Form 1040). Line 5a is for state and local income tax or general sales tax, with a box to check if you’re electing sales tax. Line 5b is for real estate taxes. Line 5c is for personal property taxes. Line 5d totals those three, and Line 5e applies the cap: you enter the lesser of your total or $40,400 ($20,200 if married filing separately). If your income triggers the phase-down, the Schedule A instructions walk you through the reduced cap.5Internal Revenue Service. Schedule A (Form 1040)
Your Schedule A total flows to Form 1040 and reduces your adjusted gross income to arrive at taxable income. E-filers transmit Schedule A automatically; paper filers must attach it.6Internal Revenue Service. About Schedule A (Form 1040), Itemized Deductions
Records to Keep
Match every number on Schedule A to a document. Your Form W-2 shows state and local income tax withheld by your employer. Confirmations from estimated payments or balance-due payments cover the rest, and those amounts count in the year you actually paid them. For property taxes, keep the county tax office receipt or the year-end statement from your mortgage servicer, which sometimes appears on Form 1098 when the payment came out of escrow. Vehicle registration renewals typically break out the value-based portion that qualifies as personal property tax.
If you elect sales tax, you can total up receipts or use the IRS optional sales tax tables and add actual sales tax on large purchases like vehicles, boats, or building materials.3Internal Revenue Service. Use the Sales Tax Deduction Calculator Hold on to everything for at least three years in case the IRS asks.
Timing Rules That Trip People Up
State and local taxes are deductible in the year you pay them, not the year they’re assessed. A fourth-quarter estimated state tax payment made in January 2027 for the 2026 tax year goes on your 2027 federal return. Estimated payments for 2027 that you send in December 2026 count toward your 2026 SALT total.
Property tax prepayment has an extra rule: the tax must be officially assessed before you pay it. If your county doesn’t assess the 2027 property tax until January 2027, cutting a check in December 2026 won’t move the deduction into 2026. You can only deduct property taxes that are both assessed and paid within the tax year. Check your local assessment calendar before trying to bunch deductions.
When Next Year’s State Refund Becomes Taxable
If you deducted state income taxes on Schedule A and then received a refund from your state the following year, part or all of that refund can count as taxable federal income. You got a tax benefit from the deduction, so the IRS treats the refund as a partial recovery. This is the tax benefit rule.7Office of the Law Revision Counsel. 26 US Code 111 – Recovery of Tax Benefit Items
Only the amount you actually benefited from is taxable. If the SALT cap kept you from deducting the full amount you paid, only the portion that lowered your tax is on the table when the refund arrives. If you took the standard deduction the year before, your state refund isn’t taxable at all, because there was no deduction to recapture.
The Pass-Through Entity Workaround
Owners of partnerships and S corporations have a legitimate way around the individual cap. Most states now offer a pass-through entity tax election that lets the business itself pay state income tax at the entity level. Because the entity pays the tax, it’s treated as an ordinary business deduction rather than a personal SALT payment, and the IRS confirmed in Notice 2020-75 that these payments are not subject to the individual SALT cap.8Internal Revenue Service. Notice 2020-75
The election is typically made annually on the entity’s state return, and you generally receive a credit or income exclusion on your individual state return so the same income isn’t taxed twice at the state level. Mechanics vary by state. The workaround does not help W-2 employees or sole proprietors; it applies only to owners of pass-through entities. If your state and local tax burden runs well above the federal cap, this election is worth raising with a tax professional.