SALT deduction cap

How the SALT cap works (2025)

The State and Local Tax (SALT) deduction lets taxpayers who itemize on Schedule A deduct certain state and local taxes paid during the year. The deduction has existed in one form or another since the federal income tax was introduced in 1913. The 2017 Tax Cuts and Jobs Act (TCJA) capped it at $10,000 per return ($5,000 MFS). On July 4, 2025 the One Big Beautiful Bill Act (OBBB) raised the cap to $40,000 ($20,000 MFS) for tax year 2025, with a 1% annual increase through 2029 before the cap reverts to $10,000 in 2030.

Eligible taxes include:

• State and local income taxes OR state and local sales taxes — your choice; pick the larger
• Property taxes on real estate you own
• Property taxes on personal property (vehicles in states that tax them — VA, MA, MO, etc.)

Foreign income taxes can be deducted (subject to other rules) but foreign property taxes generally cannot. Federal income tax, federal excise taxes, and Social Security taxes are not part of SALT. See IRS Topic 503 and the 2025 Schedule A instructions for the current authoritative rules.

Deductible SALT = min(Property tax + State/local tax, Effective cap)

The MAGI phase-out for high earners

The $40,000 cap is not flat. Taxpayers with modified adjusted gross income (MAGI) above $500,000 for single / MFJ / HoH filers ($250,000 for MFS) see the cap reduced by 30% of the MAGI excess — but never below a guaranteed minimum of $10,000 ($5,000 MFS).

Effective cap = max($10,000, $40,000 − 30% × max(0, MAGI − $500,000))

Worked through the math: a joint filer with $560,000 MAGI gets $40,000 − 30% × $60,000 = $22,000 cap. A joint filer with $700,000 MAGI gets $40,000 − 30% × $200,000 = floored at $10,000. The phase-out is fully complete (back to the $10K floor) at MAGI of $600,000 for joint filers. The phase-out threshold itself increases 1% annually through 2029.

Why the new cap matters

Under the TCJA's $10K cap, a New Jersey homeowner paying $14,000 in property tax and $8,000 in state income tax could only deduct $10,000 — losing $12,000 of deduction (worth ~$3,000 in additional federal tax at the 24% bracket). Under OBBB's $40K cap (assuming MAGI below $500K), the same household now deducts the full $22,000 — recovering ~$2,880 in federal tax savings vs. the TCJA-cap era. For middle-class households in NJ, NY, CA, CT, IL, and MA, OBBB largely eliminated the SALT-cap bite. For high-MAGI households, the phase-out reintroduces it.

The 2030 revert

OBBB's elevated cap is temporary. Unless extended, the cap reverts to a flat $10,000 ($5,000 MFS) on January 1, 2030 — with no MAGI phase-out (or floor) at that point. Plan for OBBB-era treatment through 2029, but build the 2030 revert into multi-year planning for property purchases, charitable bunching, and Roth conversion timing.

Itemize vs. standard deduction

The SALT deduction only matters if you itemize. The 2025 standard deduction is $15,000 (single / MFS), $30,000 (MFJ), or $22,500 (HoH). Itemizing makes sense only when SALT + mortgage interest + charitable + other itemized deductions exceeds those amounts. With the cap raised to $40K, itemizing becomes worthwhile for meaningfully more households than under the TCJA $10K cap.

• Standard deduction (2025): $15,000 single / MFS · $30,000 MFJ · $22,500 HoH
• Itemized deduction = effective SALT cap + mortgage interest + charitable + other

Worked examples (tax year 2025)

Example 1 — Middle-class New Jersey couple, no phase-out. Married filing jointly, MAGI $225,000: $12,500 property tax, $8,800 NJ income tax, 24% federal bracket.

• Total SALT paid: $21,300
• Effective cap (MAGI under $500K): $40,000
• Deductible: $21,300 (full — under cap)
• Federal savings lost to cap: $0
• vs. TCJA $10K cap: this same household used to lose ~$2,712 in federal tax. OBBB restored it.

Example 2 — Texas household with high property tax. Property tax $11,500, no state income tax, sales-tax election ~$2,000, MAGI $180,000, 32% bracket.

• Total SALT paid: $13,500 (using sales-tax election)
• Effective cap: $40,000
• Deductible: $13,500 (full)
• Federal savings lost to cap: $0

Under the TCJA $10K cap this household lost $1,120 of federal savings. OBBB eliminates that for any taxpayer below the MAGI phase-out.

Example 3 — High-MAGI California single filer in the phase-out band. Single, MAGI $580,000: $9,000 property tax, $35,000 CA income tax, 35% bracket.

• Total SALT paid: $44,000
• MAGI excess over $500K threshold: $80,000
• Cap reduction: 30% × $80,000 = $24,000
• Effective cap: $40,000 − $24,000 = $16,000
• Deductible: $16,000
• Lost to cap: $28,000
• Federal savings lost: $28,000 × 35% = $9,800

Example 4 — Very high-MAGI, cap at the floor. Joint filer, MAGI $720,000: $22,000 property tax, $28,000 state income tax, 37% bracket.

• Total SALT paid: $50,000
• MAGI excess over $500K: $220,000
• Cap reduction: 30% × $220,000 = $66,000 (would zero the cap)
• Effective cap: floored at $10,000
• Deductible: $10,000
• Lost to cap: $40,000
• Federal savings lost: $40,000 × 37% = $14,800

For very high-MAGI households the effective cap collapses to the $10K floor — they're treated as they were under TCJA. The phase-out is complete (cap at floor) around MAGI $600,000 for joint filers and $300,000 for MFS.

Example 5 — Below cap, no impact. Indiana homeowner: $3,400 property tax, $4,800 state/local income tax, 22% bracket, any MAGI.

• Total SALT paid: $8,200
• Deductible: $8,200 (well under cap)
• Cap impact: $0

For most US households outside high-cost states, SALT is well below even the $10K floor — the cap has never been the binding constraint.

Common mistakes

• Assuming the cap is still $10,000. Many taxpayers (and tax software defaults written before OBBB) still reflect the TCJA $10K cap. For tax year 2025, the cap is $40,000 ($20,000 MFS) before the MAGI phase-out.
• Ignoring the MAGI phase-out. If your modified AGI is over $500,000 ($250,000 MFS), your effective cap is reduced. The phase-out is sharp — every $1,000 of MAGI excess costs $300 of cap.
• Forgetting the income-vs-sales-tax election. You can deduct state and local income taxes or state and local sales taxes — not both. In no-income-tax states (TX, FL, WA, NV, TN, SD, WY, AK, NH on most income), the sales-tax election is usually the right choice. The IRS publishes sales tax tables you can use without receipts.
• Skipping personal property tax. If your state taxes vehicles (VA, MO, MA, KY, MS, RI, AR, etc.), the registration / "personal property tax" portion is part of SALT and often forgotten.
• Counting prepaid taxes incorrectly. You deduct what you actually paid in the tax year. Prepaying next year's property tax in December only counts if it was actually billed in the current year (the IRS clarified this after TCJA).
• Forgetting to itemize at all. If you take the standard deduction, you get no SALT deduction. Compare carefully — with the $40K cap, itemizing is worthwhile for more households than under TCJA, but the standard deduction still wins for many.
• Using marginal rates incorrectly. The federal savings-lost calculation uses your marginal bracket — the rate you'd pay on the next dollar of income — not your effective rate.

Frequently asked questions

Is the cap really $40K now? What changed?

Yes. The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, raised the SALT deduction cap from $10,000 to $40,000 ($20,000 MFS) for tax year 2025. The cap rises by 1% annually through 2029, then reverts to $10,000 in 2030 (no phase-out at that point). The IRS reflects the change in Topic 503 and the 2025 Schedule A instructions.

How does the MAGI phase-out work exactly?

Above $500,000 MAGI for single / MFJ / HoH (or $250,000 for MFS), the cap is reduced by 30% of the MAGI excess. The reduction is capped at a guaranteed minimum deduction of $10,000 ($5,000 MFS) — your effective cap can never drop below that floor. The thresholds increase 1% annually through 2029. A joint filer with $560K MAGI gets a $22K cap; one with $700K MAGI is at the $10K floor.

Does the SALT cap apply per person or per return?

Per return. A married couple filing jointly gets a single $40,000 cap, not $40,000 each. Married filing separately gets $20,000 each — usually worse than joint because the MAGI phase-out threshold is also halved.

Can I deduct SALT on rental properties?

Property taxes on rental properties are deducted as an expense on Schedule E, not as part of SALT on Schedule A. They're not subject to the cap because they're a business expense, not a personal itemized deduction.

Are HOA fees deductible as SALT?

No. HOA fees are not taxes — they're private association dues. They can be deductible against rental income for rental properties, but they're not part of personal SALT.

Are special assessments (CDDs, Mello-Roos) deductible?

It depends. Charges that primarily fund services (operations, maintenance) are generally deductible as property tax. Charges that fund capital improvements on your specific property are generally not. The IRS calls these "non-deductible local benefits." Talk to a CPA if your line items are large.

What's the PTE workaround — is it still available under OBBB?

Yes. Many states (NJ, NY, CT, MA, CA, CO, and others) have enacted pass-through-entity (PTE) tax regimes that let business owners pay state taxes at the entity level. The entity gets a federal deduction (not subject to the SALT cap), and the owner gets a state credit. OBBB did not restrict these workarounds — they remain a substantial benefit for S-Corp and partnership owners, though they don't help W-2 wage earners. CPA consultation strongly recommended.

Should I bunch property tax payments?

Less relevant under the $40K cap than it was under TCJA's $10K cap. Bunching still helps if your itemized total is close to the standard deduction threshold — you alternate years between itemizing and standard. But with the cap raised, more SALT is deductible in the first place, so the marginal value of bunching has shrunk. Run the math both ways before committing.

Does the cap apply to AMT?

Yes — the SALT deduction is also disallowed under the Alternative Minimum Tax. With the TCJA AMT exemption increases still in effect (and extended by OBBB), most taxpayers don't hit AMT, so the regular cap binds first. High-MAGI taxpayers should verify both calculations with a CPA.

When does the cap expire?

OBBB's elevated cap is scheduled to revert to a flat $10,000 ($5,000 MFS) — with no MAGI phase-out — on January 1, 2030 unless Congress acts. Plan for OBBB-era treatment through 2029, but build the 2030 revert into multi-year planning.