SALT Deduction Cap 2026: The $40,400 Limit, Income Phase-Down, and PTET Workaround Explained

The 2026 SALT Deduction Cap at a Glance: $40,400 After OBBBA

For eight years the deduction for state and local taxes (SALT) was one of the most resented numbers on the U.S. tax return: the 2017 Tax Cuts and Jobs Act had clamped it at a flat $10,000, hitting homeowners in high-tax states especially hard. The One Big Beautiful Bill Act (OBBBA, Public Law 119-21), signed on July 4, 2025, quadrupled it. The cap rose to $40,000 for 2025 and, after the law's built-in 1% annual increase, to about $40,400 for 2026. The limit now lives in 26 U.S.C. §164(b)(6), and the headline figure is confirmed by IRS Topic No. 503.[9, 14, 1]

A bigger cap only helps if you itemize, and here the math has flipped. With the 2026 standard deduction at $16,100 (single) and $32,200 (married filing jointly), a homeowner whose property and state income taxes alone approach $40,000 can suddenly clear the itemizing hurdle that the old $10,000 cap kept out of reach. But three catches decide whether the new cap actually pays off: a phase-down for high earners that begins at $505,000 of modified AGI in 2026, the Alternative Minimum Tax, which ignores SALT entirely, and a 2030 cliff that snaps the cap back to $10,000. According to the Tax Foundation, the more generous cap is strictly temporary. This guide works through each piece — and the legal PTET workaround that sidesteps the cap altogether.[17]

What Is the SALT Deduction? State, Local, Income, Property, and Sales Taxes

SALT is shorthand for the itemized deduction allowed under Internal Revenue Code §164 for certain taxes you pay to state and local governments. Three categories count: (1) state and local income taxes withheld from your paycheck or paid as estimates; (2) real property taxes on your home and land; and (3) personal property taxes that are based on value, such as part of a vehicle registration fee. You claim them on Schedule A (Form 1040), lines 5a through 5c, and only if you itemize instead of taking the standard deduction. Foreign real property taxes and assessments for local benefits (like a new sidewalk) are not deductible.[14, 4, 1]

There is an important either-or in the income line: under §164(b)(5) you may deduct either your state and local income taxes or your state and local general sales taxes — not both. For residents of the seven states with no broad income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming), the sales-tax election is the obvious choice; everyone else compares the two and takes the larger. The IRS publishes a free Sales Tax Deduction Calculator that estimates your deductible sales tax from optional tables plus any big-ticket purchases (a car, boat, or home addition). Whichever you pick, the combined SALT total — income-or-sales plus property — is what the $40,400 cap limits.[7, 20]

From $10,000 to $40,400: How the TCJA Cap Became the OBBBA Overhaul

Before 2018, SALT was deductible without any dollar limit — a feature worth the most to high earners in high-tax states. The 2017 Tax Cuts and Jobs Act introduced the $10,000 cap ($5,000 for married filing separately) to help pay for its rate cuts, and it was scheduled to expire after 2025 along with the rest of the individual TCJA provisions. Instead of letting it lapse, Congress used the OBBBA to raise the cap rather than remove it. The new ceiling is $40,000 for 2025, rising 1% a year through 2029, with the increase written directly into §164(b)(6). The Congressional Research Service's report "The SALT Cap: Overview and Analysis" traces this history and the distributional debate behind it.[14, 9, 15]

The change was one of the most fought-over pieces of the entire bill. Lawmakers from high-tax states pushed for a far higher cap, while budget hawks worried about the cost; the IRS overview of OBBBA deductions lists the SALT change alongside the bill's other new write-offs. The compromise — a quadrupled but income-limited and temporary cap — is why 2026 planning is unusually time-sensitive: the window of generosity is only five years wide, and the Joint Committee on Taxation scored the provision as a meaningful revenue cost over that span. The sections that follow translate the statute into the exact numbers, thresholds, and strategies that decide your 2026 return.[10, 16]

2026 SALT Cap Amounts by Filing Status (and the 2025–2030 Schedule)

Here is the part to bookmark. The figures the IRS has officially published — in Topic No. 503 and the Instructions for Schedule A — are the 2025 amounts: a $40,000 cap ($20,000 if married filing separately), a phase-down that begins once modified AGI exceeds $500,000 ($250,000 MFS), and a floor below which the deduction never falls of $10,000 ($5,000 MFS). Because §164(b)(6) increases the cap and the threshold by 1% a year, the 2026 figures step up to roughly $40,400 and $505,000. The table below shows 2026 by filing status.[1, 2, 12]

2026 SALT cap by filing status:

The cap year by year (single/MFJ):

The SALT Cap Phase-Out for High Earners: The 30-Cent MAGI Haircut

The generous cap is means-tested. Once your modified adjusted gross income (MAGI) crosses the threshold — $505,000 for 2026 (half that, $252,500, if married filing separately) — the cap shrinks by 30 cents for every dollar of MAGI above the line, but it never drops below the $10,000 floor. The math, confirmed by the Instructions for Schedule A and Topic No. 503, is simply: reduced cap = $40,400 − 0.30 × (MAGI − $505,000), with a $10,000 minimum. Note it keys off MAGI, not taxable income, so it bites before deductions.[2, 1]

Two examples make it concrete. A married couple with $550,000 of MAGI in 2026 is $45,000 over the line, so their cap falls by 0.30 × $45,000 = $13,500, leaving $26,900. Push MAGI higher and the cap keeps shrinking until it hits the $10,000 floor — which, for 2026, happens at roughly $606,333 of MAGI ($505,000 + $30,400 ÷ 0.30). Inside that $505,000–$606,333 band, every extra dollar of income not only gets taxed at your regular rate but also strips 30 cents of deduction, adding roughly 10.5 percentage points of hidden tax for someone in the 35% bracket — an effective marginal rate near 45.5%. This is sometimes called the SALT "torpedo," and it makes income-timing especially valuable for filers hovering near $505,000.[17, 15]

SALT and Homeowners: Property Tax, Escrow, and the High-Tax States

For most households the largest SALT line is the real property tax on their home, detailed in IRS Publication 530, Tax Information for Homeowners. If your mortgage servicer collects taxes through an escrow account, the deductible amount is what the servicer actually paid to the taxing authority during the year — not necessarily what you deposited into escrow. Stack that property tax on top of your state income tax (or sales tax), and a typical homeowner in a high-tax state easily reaches $20,000–$40,000 of SALT, where the new cap finally lets the full amount through.[5, 1]

One common mix-up: your home mortgage interest deduction is not part of the SALT cap. It sits on its own Schedule A lines (8a–8e) under a separate limit and is unaffected by the $40,400 ceiling — so a homeowner can deduct property tax (within SALT) and mortgage interest (separately) in the same year. The taxpayers who gain most from the bigger cap cluster in high-tax states: New Jersey, Illinois, New York, Connecticut, and California top most lists for combined income and property tax burdens. The Tax Policy Center notes the SALT deduction has always flowed disproportionately to these higher-income, higher-tax areas. Run your housing numbers to see where you land.[20]

The PTET Workaround: How Pass-Through Owners Legally Bypass the SALT Cap

Owners of pass-through businesses — S corporations, partnerships, and most multi-member LLCs — have a powerful and entirely legal way around the individual cap: the Pass-Through Entity Tax (PTET). Instead of the owner paying state income tax personally (where it is squeezed by the $40,400 cap), the business elects to pay the state tax at the entity level and deducts it as an ordinary business expense, which is not subject to the SALT cap. The owner then claims a credit or income exclusion on their state return. The IRS expressly blessed this structure in Notice 2020-75, and according to the AICPA, about 36 states plus New York City now offer a PTET.[13, 19, 21]

The mechanics vary by state but the idea is consistent. New York's PTET is an optional annual election for partnerships and S corporations; California's pass-through entity elective tax applies a 9.3% rate to qualified net income; and New Jersey's BAIT lets eligible entities pay at the entity level on each member's share of distributive proceeds. Because the election usually must be made (and estimated payments timed) before year-end, PTET is a planning decision, not a filing-season afterthought. The rules are genuinely intricate — eligibility, credit ordering, and resident-credit interactions differ across states — so this is an area to work through with a CPA.[22, 23, 24]

One question dominated 2025: would the OBBBA kill the PTET workaround? Earlier House and Senate drafts contained language that would have denied PTET deductions to “specified service trades or businesses” (SSTBs) — law, accounting, consulting, health, and similar fields. That restriction was dropped from the final law. As enacted, the OBBBA leaves the PTET workaround fully intact for all pass-throughs, SSTBs included, preserving parity with C corporations. (The Tax Foundation documented the threatened draft version; treat that analysis as legislative history, not the final result.) Bottom line for 2026: PTET remains one of the most valuable SALT-cap strategies for business owners — but it is a state-by-state election, so confirm your state's rules each year.[18]

The AMT Trap: Why SALT Disappears Under the Alternative Minimum Tax

Even a perfectly good SALT deduction can vanish for one reason: the Alternative Minimum Tax (AMT). The AMT is a parallel tax system that recomputes your liability without certain breaks — and the SALT deduction is the single largest add-back. On Form 6251 you add your entire SALT deduction back to income, so a taxpayer who itemizes a large SALT amount can find that it buys little or nothing once the AMT is figured. In other words, the bigger $40,400 cap is most useful to people who are not caught by the AMT.[8]

Who is at risk in 2026? Per IRS IR-2025-103, the 2026 AMT exemption is $90,100 (single) and $140,200 (married filing jointly), and it begins to phase out at $500,000 / $1,000,000. Crucially, the OBBBA made the AMT bite harder starting in 2026: the Tax Foundation notes the exemption phase-out rate jumped from 25% to 50%, and the phase-out thresholds reset to lower (2018-based) levels. Notice how the AMT phase-out for singles ($500,000) sits almost exactly where the SALT phase-down begins ($505,000) — high earners can get squeezed from both directions at once. If you carry large SALT, model the regular tax and the AMT side by side before counting on the deduction.[11, 17]

Should You Itemize in 2026? The Bigger SALT Cap Changes the Math

Itemizing only helps when your total itemized deductions beat the standard deduction — for 2026, $16,100 (single) or $32,200 (married filing jointly), per IRS IR-2025-103. Your three biggest itemized candidates are SALT (now up to $40,400), home mortgage interest, and charitable gifts. IRS Topic No. 501 walks through the choice. The key shift for 2026: when the SALT cap was $10,000, a single filer needed more than $6,100 of other deductions just to break even with the standard amount; now a homeowner with $25,000 of property and state income tax is already $9,000 over the standard deduction on the SALT line alone.[11, 3]

A simple worked case: a single homeowner with $22,000 of state income tax and property tax plus $9,000 of mortgage interest has $31,000 of itemized deductions — nearly double the $16,100 standard deduction, so itemizing is clearly better. For married couples the bar is higher ($32,200), so a joint-filing couple usually needs a meaningful SALT total plus mortgage interest or charitable gifts to come out ahead. Either way, you report the detail on Schedule A and the software (or your preparer) takes whichever total is larger. The practical takeaway: millions of taxpayers who defaulted to the standard deduction from 2018–2025 should re-run the comparison for 2026.[4]

SALT Timing Strategies: Bunching, Prepayment, and Year-End Moves

If your deductions hover near the standard-deduction line, bunching can win you a deduction you would otherwise lose. The idea is to concentrate two years of discretionary deductible payments into a single year so you clear the standard deduction that year and take the standard deduction the next. SALT is partly bunchable — a second property-tax installment or a January state estimated payment can sometimes be pulled into December — and it pairs naturally with bunched charitable giving (often through a donor-advised fund). Just remember the ceiling: prepaying state or property tax beyond the $40,400 cap delivers no extra federal benefit.[4]

Two timing cautions. First, a property tax is only deductible once it has been assessed — you cannot deduct an estimated future bill you prepay before the tax is actually imposed, a point the IRS made clear when taxpayers tried to prepay 2018 taxes in late 2017. Real property taxes are detailed in Publication 530. Second, if you deduct sales tax instead of income tax, timing a large purchase (a vehicle or major home project) into a high-deduction year can lift your total; the IRS Sales Tax Deduction Calculator lets you add those big-ticket items on top of the table amount. Coordinate any year-end move with the phase-down and AMT checks from the previous sections.[5, 7]

The 2030 SALT Cliff: What Happens When the Cap Drops Back to $10,000

Is the SALT cap going away? No — it is going back. The OBBBA wrote the higher cap as a temporary measure: under §164(b)(6), the elevated amount runs from 2025 through 2029, and in 2030 the cap reverts to $10,000 ($5,000 for married filing separately) for everyone, regardless of income. The Tax Foundation states it plainly: "Starting in 2030, the SALT deduction cap will revert to its prior-law value of $10,000 for all filers." That makes 2026 through 2029 a defined four-year window in which a large SALT deduction is actually available.[14, 17]

Two planning implications follow. First, deductions you control — a discretionary property-tax payment, a PTET election, the timing of a home purchase in a high-tax state — are worth more during 2026–2029 than they will be in 2030, all else equal. Second, do not over-commit to projections: a future Congress could extend, raise, or shrink the cap before 2030 ever arrives, and the Joint Committee on Taxation's revenue scoring of the provision is exactly the kind of budget math that drives such changes. Treat the 2030 cliff as the current law of the land, plan around it, but stay flexible. The next section turns all of this into a concrete checklist.[16]

Special Situations: Married Filing Separately, State Refunds, and Trusts

A few situations deserve their own note. Married filing separately (MFS): every SALT number is cut in half — a $20,200 cap (2026), a $252,500 phase-down threshold, and a $5,000 floor — and a long-standing rule still applies: if one spouse itemizes, the other must itemize too (they cannot take the standard deduction). The Instructions for Schedule A spell out the MFS amounts. Because the cap does not double for joint filers, couples occasionally find that the SALT math alone favors filing separately, though other joint-only benefits usually outweigh it — model both.[2]

A subtler point is the state tax refund. If you itemized and deducted state income tax, a refund of that tax can be taxable the following year — but only to the extent the deduction gave you a federal benefit, under the "tax-benefit rule" explained in IRS Publication 525. During the $10,000-cap years, many filers were already at the cap, so a refund produced no benefit and was not taxable; with the higher 2026 cap, more taxpayers receive an actual benefit from each SALT dollar, which can make a future state refund taxable. Finally, estates and trusts have their own rules, and part-year or multi-state residents generally prorate, so complex returns are worth professional review. Topic No. 503 is the IRS starting point.[6, 1]

Your 2026 SALT Action Plan: Putting the Higher Cap to Work

Pull it together into five steps. (1) Estimate your 2026 MAGI and compare it to the $505,000 phase-down threshold — if you are near or above it, the income-timing moves matter most. (2) Tally your SALT: state income tax (or sales tax) plus property tax, capped at $40,400. (3) Run itemized vs. standard: add mortgage interest and charitable gifts, and compare to $16,100 / $32,200. (4) If you own a business, evaluate a PTET election with your CPA before year-end. (5) Check the AMT on Form 6251 so a big SALT deduction is not quietly clawed back. IRS Topic No. 503 and the Sales Tax Deduction Calculator are the official tools for steps 2 and 3.[1, 7]

Whatever the higher cap saves you, the smartest move is to put that money to work rather than absorb it into everyday spending. A few thousand dollars of tax savings redirected each year — into a brokerage account, an IRA, or simply a high-yield account — compounds into a meaningful sum over the four-year window the elevated cap is in force, and well beyond it. None of this is tax advice for your specific situation: the SALT rules interact with the AMT, your state, and your full return, so confirm the details with a qualified tax professional. Then model what your refund could become if you invest it instead of spending it.

Frequently Asked Questions: The 2026 SALT Deduction Cap