What Is State And Local Tax (SALT) Deduction?

The SALT deduction allows taxpayers who itemize on Schedule A to deduct certain state and local taxes paid during the year. Eligible amounts include either state and local income taxes or general sales taxes (you may choose one category, not both), plus real property taxes and personal property taxes, up to the applicable cap. The deduction reduces taxable income and can be valuable for households in higher-tax jurisdictions, although the benefit depends on whether itemizing exceeds the standard deduction and on statutory limits that apply in a given year.

Key Takeaways

• You must itemize on Schedule A to claim SALT; you can deduct either income taxes or general sales taxes, plus property taxes, within the cap.
• Under the One Big Beautiful Bill Act of 2025, the SALT cap is $40,000 for tax year 2025, increases by 1 percent each year through 2029, then is scheduled to revert to $10,000 in 2030 unless Congress acts.
• A phaseout reduces the higher cap for high-income filers, with thresholds beginning around $500,000 of income for joint filers and a floor of $10,000.
• For married filing separately, the temporary cap is $20,000 per person.
• Pass-through entity tax workarounds adopted by many states continue to operate under the new law.

Eligible Taxes And How The Deduction Works

The Internal Revenue Service instructs filers that they may elect to deduct state and local general sales taxes instead of state and local income taxes, but not both. Taxpayers then add real estate taxes and personal property taxes, subject to the overall SALT cap. Property taxes must be based on the assessed value of the property and charged uniformly; fees and assessments for specific benefits are not deductible. These amounts are reported on Schedule A. Whether the SALT deduction is useful in a given year depends on the total of all itemized deductions relative to the standard deduction.

An example illustrates the mechanics. Suppose a married couple in a high-tax state pays $18,000 in property tax and $22,000 in state income tax, and they choose to deduct income tax rather than sales tax. Their SALT total is $40,000. If they itemize and their other itemized deductions push the total above their standard deduction, the full $40,000 would be considered toward itemized deductions in 2025, subject to any high-income phaseout rules that apply under current law. If their income exceeds the phaseout threshold, the allowable SALT amount may be reduced toward $10,000.

Current Law Under The One Big Beautiful Bill Act (2025–2029)

The One Big Beautiful Bill Act, enacted in July 2025, temporarily expands the SALT deduction cap. For tax year 2025, the cap is $40,000 per return, rising by 1 percent annually through 2029. Beginning in 2030, the cap is scheduled to revert to $10,000 unless extended or modified by Congress. The law includes a specific rule for married filing separately, where the cap is $20,000 per spouse. Several analyses note that these changes are temporary and that the higher cap phases down for high-income households.

For high earners, the law introduces a phaseout that reduces the $40,000 cap as income rises, with published summaries indicating a 30 percent reduction rate above specified thresholds. Many overviews cite thresholds beginning around $500,000 of income for joint filers, with a minimum SALT cap of $10,000 once the phaseout is complete. Law firm and policy analyses emphasize that these limits are intended to focus the larger benefit on moderate to upper-middle-income taxpayers in high-tax states.

Interaction With State Pass-Through Entity Taxes

Since 2018, numerous states have enacted pass-through entity tax (PTET) regimes that allow partnerships and S corporations to pay state income tax at the entity level, often yielding a federal deduction at the business level rather than being limited by the individual SALT cap. Commentaries following the 2025 law note that the new federal changes do not restrict these PTET workarounds, which means planning opportunities for owners of pass-through businesses may continue under the expanded SALT framework. Coordination with state rules and entity elections remains essential.

Who Benefits, And Who May Not

Households in high-tax states with significant property taxes and state income or sales taxes are most likely to benefit, particularly if they already itemize. The expanded cap can materially increase itemized deductions for many middle and upper-middle-income households. Conversely, very high-income filers may see limited additional benefit because the phaseout reduces the larger cap as income rises and can return the effective cap to $10,000. Several news and policy outlets also point out that expanding SALT relief tends to confer a larger dollar benefit where tax burdens are higher, which is concentrated in certain states and metropolitan areas.

Practical Planning Considerations

Taxpayers should confirm whether itemizing delivers more value than taking the standard deduction, then evaluate which election, state income tax or sales tax, yields the larger deduction. The IRS provides an online sales tax calculator and optional sales tax tables for those who do not track actual sales taxes paid. Homeowners should gather property tax bills and ensure amounts are for taxes based on assessed value, not fees. Given the temporary nature of the higher cap and the phaseout at higher incomes, timing strategies may be relevant, for example, paying assessed property taxes within the tax year when itemizing and higher caps apply. Those with pass-through income should review PTET elections with their tax professional because entity-level elections can affect individual SALT exposure.

Historical Context

Before 2018, the SALT deduction was uncapped for most taxpayers, although alternative minimum tax rules limited its usefulness for some. The Tax Cuts and Jobs Act introduced a $10,000 cap beginning in 2018. The 2025 legislation temporarily increases that cap, with modest annual increments through 2029, and schedules a return to the prior $10,000 limit in 2030 absent further action. The policy debate over SALT has continued for years because it influences the distribution of federal tax burdens across states and income levels.

Compliance Notes

To claim SALT, maintain records such as W-2s showing state income tax withholding, property tax bills, and sales tax documentation if you elect the sales tax option. Report amounts on Schedule A and apply the cap in effect for the tax year, as modified by any phaseout rules. The IRS instructions provide detailed guidance on what qualifies and how to compute the deduction.

The Bottom Line

The SALT deduction remains a central feature of itemized deductions for many taxpayers. The One Big Beautiful Bill Act temporarily expands the cap to $40,000 beginning in 2025, with small annual increases through 2029 and a scheduled reversion to $10,000 in 2030, while also phasing down the larger cap for high-income households. Taxpayers must still choose between deducting state income taxes or general sales taxes and should weigh whether itemizing beats the standard deduction. With PTET workarounds still available and the current rules set to change again after 2029, careful year-by-year planning is warranted.