What Is the SALT Deduction and How Does It Work?
The State and Local Tax (SALT) deduction allows taxpayers who itemize their deductions to subtract certain state and local taxes from their federal taxable income. Eligible taxes include state income taxes (or sales taxes as an alternative), local income taxes, and property taxes on real estate and personal property. Before 2018, there was no cap on the SALT deduction. The Tax Cuts and Jobs Act of 2017 introduced a $10,000 cap that remained in place through 2024.
The SALT deduction only benefits taxpayers who itemize on Schedule A. If your total itemized deductions (SALT plus mortgage interest, charitable contributions, and medical expenses) do not exceed the standard deduction for your filing status, the SALT deduction provides no additional benefit. The higher $40,000 cap for 2025 makes itemizing advantageous for many more homeowners, especially those in high-tax states.
The New $40,000 SALT Cap for 2025
The One Big Beautiful Bill Act quadrupled the SALT deduction cap from $10,000 to $40,000 for tax years 2025 through 2028. Married filing separately filers see the cap increase from $5,000 to $20,000. This change was one of the most debated provisions of the OBBBA, championed by lawmakers representing high-tax states where homeowners were disproportionately affected by the $10,000 cap. A New York homeowner paying $20,000 in property taxes and $12,000 in state income tax was limited to a $10,000 deduction under old law — now they can deduct $32,000.
Who Benefits Most from the Higher SALT Cap?
Homeowners in states with high income taxes and high property taxes see the greatest benefit. California, New York, New Jersey, Connecticut, Illinois, and Massachusetts are the states where residents were most constrained by the $10,000 cap. A family in Westchester County, New York paying $25,000 in property taxes alone was already over the old cap before counting state income taxes. With the new $40,000 cap, that family can now deduct all their property taxes plus up to $15,000 in state income taxes.
Renters in states with no income tax see minimal benefit since they have no SALT to deduct. Homeowners with low property taxes and low state income taxes may still find the standard deduction more advantageous. The calculator above compares your total itemized deductions against the standard deduction so you can see which option saves you more.
SALT Deduction vs. Standard Deduction: Which Is Better for You?
You should itemize only if your total Schedule A deductions exceed the standard deduction ($15,750 single, $31,500 MFJ, $23,625 HoH for 2025). For a married couple, this means your combined SALT, mortgage interest, charitable contributions, and qualifying medical expenses must exceed $31,500. With the higher SALT cap, many homeowners in high-tax states will cross this threshold. For example, $25,000 in SALT plus $12,000 in mortgage interest already totals $37,000 — well above the $31,500 MFJ standard deduction.
The SALT Phaseout Above $500,000 Income
The $40,000 SALT cap is not available at all income levels. For taxpayers with modified adjusted gross income above $500,000, the cap reduces by $1 for every $1 of income over the threshold. The cap cannot drop below $10,000 — the pre-OBBBA cap level. This means a single filer earning $520,000 would have a SALT cap of $20,000, and at $530,000 and above the cap returns to $10,000. This phaseout targets the higher cap toward middle and upper-middle income taxpayers rather than the highest earners.