The state and local tax (SALT) deduction cap increased from $10,000 to $40,000 for the 2025 tax year under the One Big Beautiful Bill Act (OBBBA). This is the single largest change to itemized deductions in years, and it benefits homeowners in high-tax states more than almost any other provision in the new law. Below is a full explanation of how the new cap works, who benefits most, how the income-based phase-down operates, and how to decide whether itemizing now makes sense for you.
Use our SALT Deduction Calculator to see exactly how the new cap affects your tax situation based on your specific property taxes, state income taxes, and filing status.
What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize on Schedule A to deduct certain state and local taxes from their federal taxable income. Eligible taxes include state income taxes (or state and local sales taxes as an alternative) plus real estate property taxes. Before 2018, there was no cap on how much you could deduct — taxpayers in high-tax states like New York, California, and New Jersey routinely deducted $20,000, $30,000, or more.
The deduction only benefits taxpayers who itemize. If your total itemized deductions — including SALT, mortgage interest, charitable contributions, and other eligible expenses — do not exceed the standard deduction, you are better off taking the standard deduction and the SALT amount becomes irrelevant to your tax calculation. This is why the interplay between the SALT cap and the standard deduction amount is so important to understand.
Personal property taxes, such as annual vehicle registration fees calculated based on the vehicle's value, are also included in the SALT deduction. However, fees for services (trash collection, water, sewer) are not deductible as SALT even if they appear on your property tax bill. The SALT deduction is claimed on Schedule A, line 5d of Form 1040.
The New $40,000 SALT Cap: How It Changed
The Tax Cuts and Jobs Act (TCJA) of 2017 capped the SALT deduction at $10,000 ($5,000 for married filing separately) starting in 2018. This was one of the most controversial provisions in the TCJA, particularly for taxpayers in states with high income and property taxes. The $10,000 cap forced millions of previously itemizing taxpayers to switch to the standard deduction because their remaining itemized deductions were no longer large enough to exceed it.
The OBBBA, signed into law in mid-2025, quadrupled the cap to $40,000 ($20,000 for married filing separately) for tax years 2025 through 2028. This represents a significant restoration of the deduction for upper-middle-income homeowners in high-tax states. The cap is not indexed for inflation during this period, so it remains at $40,000 for all four years.
For taxpayers whose combined state income and property taxes fall between $10,001 and $40,000, the change is immediately impactful. A homeowner who was previously limited to deducting $10,000 in SALT but actually paid $25,000 now deducts the full $25,000 — an additional $15,000 deduction that could reduce their federal tax bill by $3,300 to $5,550 depending on their marginal tax bracket.
Who Benefits Most from the Higher Cap?
Homeowners in high-tax states see the largest benefit from the increased SALT cap. States where residents are most likely to exceed the old $10,000 cap include California, New York, New Jersey, Connecticut, Illinois, Massachusetts, Maryland, and the District of Columbia. These states combine relatively high state income tax rates with high property values and property tax rates.
Consider a homeowner in New Jersey who pays $15,000 in property taxes and $8,000 in state income taxes — a combined $23,000 in SALT. Under the old $10,000 cap, they lost $13,000 of deductions. Under the new $40,000 cap, they deduct the full $23,000. At the 24% federal marginal rate, that additional $13,000 deduction saves them $3,120 in federal taxes. For a dual-income household in a high-tax state with a more expensive home, the savings can be considerably larger.
Taxpayers in states without an income tax (Texas, Florida, Washington, Nevada, Wyoming, South Dakota, Alaska, New Hampshire, and Tennessee) are less affected because their SALT deductions consist primarily of property taxes and, optionally, sales taxes. While some of these states have high property taxes (particularly Texas), the total SALT for most residents in no-income-tax states was already below or near the $10,000 cap. Use our Federal Income Tax Calculator to model how the higher SALT cap affects your overall tax picture.
SALT Deduction vs. Standard Deduction: Which Wins?
You should only itemize if your total Schedule A deductions exceed the standard deduction for your filing status. For 2025, the standard deduction is $15,750 for single filers and $31,500 for married filing jointly. The higher SALT cap shifts the math significantly in favor of itemizing for many homeowners who were forced to take the standard deduction under the $10,000 cap.
To determine which is better, add up your SALT (up to $40,000), mortgage interest, charitable contributions, and any other itemized deductions. If the total exceeds your standard deduction, itemize. For example, a married couple with $25,000 SALT, $12,000 mortgage interest, and $3,000 charitable giving has $40,000 in itemized deductions — well above the $31,500 standard deduction. Under the old $10,000 SALT cap, their itemized total would have been only $25,000, making the standard deduction the better choice.
This is the key dynamic the higher SALT cap creates: it pushes many homeowners in high-tax states back over the itemizing threshold. Millions of taxpayers who switched to the standard deduction in 2018 when the $10,000 cap was imposed will now find that itemizing saves them more money. If you haven't itemized since 2017, it is worth re-evaluating your situation for 2025.
The SALT Phase-Down Above $500,000 Income
The OBBBA included an income-based phase-down that reduces the $40,000 SALT cap for higher earners. Once your modified adjusted gross income (MAGI) exceeds $500,000, the $40,000 cap decreases by $1 for every $1 of income over the threshold. The cap cannot fall below $10,000, which means the phase-down is complete at $530,000 MAGI.
For a taxpayer with $515,000 MAGI, the cap is reduced by $15,000 ($515,000 minus $500,000), leaving an effective SALT cap of $25,000. At $525,000 MAGI, the cap drops to $15,000. At $530,000 and above, the cap is $10,000 — the same as the pre-OBBBA level. This phase-down targets the benefit of the higher cap to middle- and upper-middle-income taxpayers rather than the highest earners.
The phase-down thresholds are the same for all filing statuses, which means married couples filing jointly face the same $500,000 threshold as single filers. This creates a marriage penalty of sorts for dual-income households where each spouse earns above $250,000, as they may exceed the threshold when combined but would each have been below it filing individually. Financial planning around these thresholds can yield meaningful tax savings for households near the phase-down range.
How to Maximize Your SALT Deduction
There are several strategies to maximize the benefit of the SALT deduction. First, consider prepaying your property taxes before the end of the tax year. If your property tax bill is due in January but your local tax authority accepts early payments, paying in December shifts the deduction into the current tax year. This is particularly useful if you expect your income (and therefore your marginal tax rate) to be higher in the current year.
Second, time your state estimated income tax payments strategically. If you make quarterly estimated payments to your state, the timing of those payments affects which federal tax year they fall into. A state estimated tax payment mailed or electronically submitted by December 31 is deductible in the current year even if it covers state tax liability for the following year.
Third, compare your state income tax deduction against the sales tax deduction and choose whichever is higher. Most taxpayers in income-tax states will find the income tax deduction more valuable, but in years with large purchases (a vehicle, a boat, or home furnishings) the sales tax deduction may exceed the income tax amount. The IRS sales tax calculator can help you estimate your deductible sales tax using the optional tables. Finally, combine your SALT with other itemized deductions — mortgage interest and charitable contributions — to ensure your total exceeds the standard deduction.
Frequently Asked Questions
Can I deduct both state income tax and sales tax?
No. You must choose between deducting state and local income taxes or state and local sales taxes — you cannot deduct both. Most taxpayers in states with an income tax will find the income tax deduction more valuable. However, residents of states without an income tax (such as Texas, Florida, Washington, Nevada, Wyoming, South Dakota, and Alaska) should use the sales tax deduction. The IRS provides optional sales tax tables based on income and family size, or you can track actual receipts throughout the year.
What property taxes are deductible under the SALT deduction?
State, local, and foreign real estate taxes on property you own are generally deductible, including taxes on your primary residence, vacation home, and land. Personal property taxes (such as annual vehicle registration fees based on the car's value) are also deductible. However, taxes on property used for business are deducted on Schedule C or another business schedule rather than Schedule A. Fees for services like trash collection, water, and sewer are not deductible as property taxes even if they appear on your property tax bill.
Does the SALT deduction apply to renters?
Renters cannot deduct property taxes because they do not directly pay property taxes to the taxing authority — the landlord does. However, renters can still deduct state and local income taxes (or sales taxes) as part of their SALT deduction on Schedule A. In practice, most renters find that their total itemized deductions do not exceed the standard deduction, making the SALT deduction less relevant for them. A few states offer separate state-level renter credits, but these are not part of the federal SALT deduction.
Is the SALT cap per person or per return?
The $40,000 SALT cap is per return, not per person. A married couple filing jointly shares a single $40,000 cap. If they file separately (married filing separately), each spouse has a $20,000 cap. This means that married filing separately provides no advantage for SALT purposes — the combined cap is the same $40,000 either way. Before the TCJA imposed the original $10,000 cap in 2018, there was no cap on SALT deductions regardless of filing status.
Can I deduct foreign property taxes?
Foreign real estate taxes are generally not deductible as part of the SALT deduction on Schedule A for tax years 2018 through 2025 under the Tax Cuts and Jobs Act. This prohibition was maintained by the OBBBA. If you own foreign rental property, the property taxes may be deductible as a business expense on Schedule E. Alternatively, you may be able to claim a foreign tax credit for income taxes paid to a foreign government, but property taxes paid to foreign governments do not qualify for either the SALT deduction or the foreign tax credit on your personal return.