Effective for the 2026 tax year, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has significantly changed the State and Local Tax (SALT) deduction.
2026 SALT Deduction Cap
The previous $10,000 limit (established by the 2017 TCJA) has been temporarily quadrupled for the years 2025 through 2029.
- Married Filing Jointly / Single / Head of Household: The cap is increased to $40,000.
- Married Filing Separately: The cap is increased to $20,000.
Income-Based Phaseouts (The “SALT Torpedo”)
The full $40,000 deduction is only available to taxpayers below certain income levels. If your Modified Adjusted Gross Income (MAGI) exceeds the threshold, the deduction is reduced by 30 cents for every dollar over that amount.
| Filing Status | Full Deduction Threshold (2026) | Income Where Cap Reverts to $10,000 |
|---|---|---|
| Single / Joint / Head of Household | $500,000 | $600,000+ |
| Married Filing Separately | $250,000 | $300,000+ |
Rules & Eligibility
- Itemization Required: You can only claim the SALT deduction if you choose to itemize deductions on Schedule A instead of taking the standard deduction. For 2026, the standard deduction is $15,750 for singles and $31,500 for joint filers.
- Qualifying Taxes: You can deduct state and local property taxes plus either income taxes or general sales taxes (not both).
- Future Increases: The $40,000 cap and the $500,000 income threshold are scheduled to increase by 1% annually from 2026 through 2029.
- Sunset Provision: In 2030, the SALT deduction is scheduled to revert to the permanent $10,000 cap for all taxpayers regardless of income.
Strategic Planning
- Pass-Through Entities (PTET): Business owners in many states (e.g., California, New York, Illinois) may still use PTET elections to bypass the SALT cap entirely by paying taxes at the entity level.
- Accelerating Payments: Taxpayers may benefit from “lumping” strategies, such as prepaying property taxes or making fourth-quarter estimated state tax payments by December 31, 2026, to maximize the $40,000 limit
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