SALT Tax Deduction Guide (2025 & 2026)
The State and Local Tax deduction is back to being worth itemizing for. Here's the new OBBB Act cap ($40,000 for 2025, $40,400 for 2026), the income-vs-sales-tax election, and how to actually claim it.
We verify every calculator and guide against primary IRS sources — Revenue Procedures, IRS publications, and the tax code — and cite them so you can check the numbers yourself.
What is the SALT deduction cap for 2025?
The State and Local Tax (SALT) itemized deduction is capped at $40,000 in 2025 ($20,000 for Married Filing Separately) under the OBBB Act, up from the $10,000 TCJA cap. The cap rises to $40,400 in 2026 ($20,200 MFS). State income tax (or general sales tax — pick one), real estate property tax, and ad valorem personal property tax all share this single cap on Schedule A.
- •2025 SALT cap: $40,000 ($20,000 MFS) — OBBB Act.
- •2026 SALT cap: $40,400 ($20,200 MFS) — a statutory 1% step.
- •You elect state income tax OR sales tax annually — never both.
- •Temporary under OBBB: +1% a year through 2029, then back to $10,000 ($5,000 MFS) from 2030 (IRC §164(b)(7)).
- •AMT still adds SALT back to taxable income for filers who hit AMT.
What changed under the OBBB Act
From 2018 through 2024 the Tax Cuts and Jobs Act capped SALT at $10,000 ($5,000 MFS) — a wall that quietly cost high-tax-state homeowners tens of thousands in deductions every year. The One Big Beautiful Bill Act (OBBB), enacted in 2025, raised the cap fourfold:
- 2025 cap: $40,000 ($20,000 MFS)
- 2026 cap: $40,400 ($20,200 MFS), then 1% more each year through 2029 (about $40,804, $41,212 and $41,624).
- Temporary: the cap returns to $10,000 ($5,000 MFS) for 2030 and later years under IRC §164(b)(7)(A)(iv). Until then it is reduced by 30% of MAGI over $500,000 ($505,000 in 2026, then +1% a year), but not below $10,000. If you're married filing separately, the phase-down starts at half those thresholds ($250,000 for 2025, $252,500 for 2026) and you get half of the reduced cap: $20,000 ($20,200 for 2026) minus 15 cents for each dollar of MAGI over the threshold, never below $5,000.
- Same election rules: income tax OR sales tax, never both.
Income tax vs sales tax — which do I deduct?
You pick one each year. Run both numbers, deduct the larger. Two clear camps:
Deduct state income tax
If you live in a state with a meaningful income tax. Top candidates:
California, New York, New Jersey, Oregon, Minnesota, Hawaii, Massachusetts, Illinois, Maryland, DC, Vermont.
Source: W-2 box 17 + estimated payments + prior-year balance paid in current year.
Deduct general sales tax
If you live in a no-income-tax state, or your income is low relative to your spending:
Florida, Texas, Tennessee, Washington, Nevada, South Dakota, Wyoming, Alaska, New Hampshire (no wage tax).
Source: actual receipts OR IRS Publication 600 optional tables + big-ticket purchases (vehicles, boats, building materials).
Publication 600 sales-tax tables
The IRS publishes optional sales-tax tables every year inside the Schedule A instructions (legacy name: Publication 600). The table value depends on your state, filing status, income, and number of exemptions, plus a separate local sales-tax factor. You can layer the actual sales tax paid on big-ticket purchases on top.
The IRS also offers an interactive Sales Tax Deduction Calculator on irs.gov — use it whenever you don't have a year of receipts.
AMT clawback
The Alternative Minimum Tax disallows the entire SALT deduction. If you're a high earner in a high-tax state, calculate AMT before assuming your full SALT lands — Form 6251 walks through it. The 2025 AMT exemption is $88,100 single / $137,000 MFJ, phasing out at $626,350 / $1,252,700. Anyone near or above the phase-out should run both regular and AMT side-by-side.
PTE (Pass-Through Entity) workaround
36+ states let pass-through entities (S-corps, partnerships, multi-member LLCs) elect to pay state tax at the entity level. The federal deduction happens at the entity level, bypassing the individual SALT cap entirely — the owner then receives a state credit to avoid double tax.
With the cap now at $40,000, the workaround still helps pass-through owners whose state-tax bill alone exceeds $40,000, but it's less critical for moderate-income owners who now fit comfortably under the higher cap. Check your state's specific election deadlines — many require a March or April election filed before the entity return.
The four-fold cap jump is the single biggest itemization change since TCJA. If you stopped itemizing in 2018 because the $10,000 wall made it pointless, redo the math for 2025.
Real-world scenario
California homeowner, married filing jointly
$22,000 state income tax + $11,500 property tax = $33,500 SALT. Under TCJA they were capped at $10,000 and lost $23,500. Under the OBBB cap all $33,500 is deductible, $23,500 more than TCJA allowed. If their other itemized deductions are large enough that they would itemize either way (the 2025 joint standard deduction is $31,500), that extra $23,500 cuts federal tax by about $5,170 at a 22% bracket or $7,520 at 32%.
The part most people miss
The cap is shared across all SALT line items. People assume property tax has its own bucket — it doesn't. State income tax, property tax, and ad valorem vehicle fees all compete for the same $40,000 ($40,400 for 2026).
Frequently asked questions
Sources & References
Primary references used for this content
Itemized Deductions (Form 1040) — 2025
Line-by-line SALT instructions including the Pub 600 tables.
View on irs.gov
Itemized Deductions — About page
Optional sales-tax tables now live in the Schedule A instructions (Pub 600 was retired).
View on irs.gov
Taxes — SALT limitation
Statutory basis for SALT cap and the income-vs-sales election.
View on law.cornell.edu
One Big Beautiful Bill Act
Statute that raised the SALT cap to $40,000.
View on congress.gov
Alternative Minimum Tax — Individuals
AMT calculation that disallows SALT.
View on irs.gov
✓5 primary sources; links re-checked on a weekly rotation by the source watcher
Related Tools & Guides
Related guide: Standard Deduction vs. Itemizing in 2026 — Is Itemizing Worth It With the $40,000 SALT Cap? Walks the break-even math with the raised SALT cap.
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.