The state-and-local tax (SALT) deduction cap is one of the most consequential provisions in the current federal tax code for high-tax-state residents. The One Big Beautiful Bill Act (OBBBA, Pub. L. 119-21) raised the cap from $10,000 to $40,000 in 2025, and it steps up approximately 1% per year for inflation. For tax year 2026, the cap is roughly $40,400 for single filers and $40,800 for married couples filing jointly. This article explains how the cap works, who it hurts most, and the phase-out that applies to high earners.
How the SALT deduction works
When you itemize, you can deduct state and local income taxes (or sales taxes, if you choose the sales-tax route) plus property taxes on the federal return. Before 2018, there was no cap — you could deduct all of it. The TCJA introduced a $10,000 cap ($5,000 if married filing separately), and the OBBBA raised it to $40,000 starting in 2025.
The cap applies to the total of state/local income (or sales) taxes plus property taxes. It is not two separate caps. If you pay $30,000 in state income tax and $15,000 in property tax, your total SALT deduction is capped at $40,400 (single) or $40,800 (joint) in 2026 — meaning $4,600 of your $15,000 property tax is disallowed.
The 2026 cap numbers
| Filing status | 2026 SALT cap (approximate) |
|---|---|
| Single | $40,400 |
| Married filing jointly | $40,800 |
| Married filing separately | $20,400 |
| Head of household | $40,400 |
These figures are estimated by applying a 1% step-up to the 2025 cap of $40,000, as the OBBBA provides for annual inflation adjustment. The IRS will publish the exact figures in Rev. Proc. 2026-XX, but the approximation is sufficient for planning.
Who is most affected
The SALT cap primarily affects residents of high-tax states: New York, New Jersey, Connecticut, Maryland, Massachusetts, California, Illinois, and Minnesota. In these states, a family with moderate-to-high income and a modest home can easily exceed the cap.
For example, a married couple filing jointly in New York City paying $25,000 in NYC income tax and $20,000 in property tax has total SALT of $45,000 — $4,200 above the 2026 cap. They lose $4,200 in deductions, which at a 24% marginal rate costs them about $1,008 in additional federal tax.
The high-earner phase-out
The SALT deduction is an "above-the-line" preference that is subject to the Pease-style phase-out. Specifically, the OBBBA restored a provision that reduces certain itemized deductions (including SALT) by 3% of the amount by which your modified AGI exceeds the threshold:
- $500,000 for single filers
- $600,000 for married filing jointly
This phase-out applies to SALT, charitable contributions, and medical expenses — but not to mortgage interest or state/local real property taxes that are already capped. Wait, that last point needs clarification: the phase-out reduces the total of all affected itemized deductions. If your total itemized deductions (after the SALT cap) exceed the phase-out threshold, the reduction applies to the remaining deductions.
The practical effect is that a high earner in a high-tax state who is already capped by the SALT limit may still face an additional reduction in other itemized deductions. The combined impact can be significant.
Workarounds and planning strategies
There is no way to bypass the SALT cap for the federal return, but there are strategies to minimize its impact:
- Spousal income splitting. If one spouse earns most of the income and the other owns a home, the non-working spouse may be able to itemize separately (if married filing separately) and capture a larger share of the property tax deduction — though the MFS cap of $20,400 makes this rarely beneficial.
- Prepay property taxes. If you owe property taxes in December and the payment is due in January, prepaying in December brings the deduction into the current tax year. However, the Prepaid Property Taxes prohibition in IRC Section 164(b)(5) disallows prepayment of state and local income taxes — only property taxes can be prepaid this way.
- Charitable contributions. Boosting charitable giving can offset some of the lost SALT deduction by increasing your total itemized deductions in other categories.
- Moving to a no-income-tax state. Some families consider relocating to states with no income tax (Florida, Texas, Nevada, etc.) to eliminate the state tax component of the SALT deduction entirely. The federal cap still applies to property taxes, but eliminating state income tax removes the largest chunk of disallowed deductions.
The sunset is coming back into play
Just as with the estate tax exemption, the elevated SALT cap is tied to the TCJA's temporary provisions. Unless Congress extends the higher cap, it reverts to $10,000 after 2025. Planning around the SALT cap should therefore account for the possibility that the current level is not permanent.
Bottom line
The 2026 SALT cap of approximately $40,400/$40,800 is far more generous than the $10,000 cap, but it still bites hard for itemizers in high-tax states. High earners face an additional phase-out that further erodes their itemized deductions. If you live in a high-tax state and itemize, run your actual numbers through the federal income tax calculator and the SALT cap planner to see exactly how much the cap costs you — and consider the planning strategies above before filing.
Disclaimer: This article is general educational information, not tax, legal, or investment advice. Dollar amounts come from the 2026 sources listed at the end of this article and may change. Before you act, talk to a licensed CPA, EA, or tax attorney about your own situation.