SALT Deduction 2026: The New $40,000 Cap and What It Means for You

February 7, 2026·8 min read

taxesSALTdeductionshomeownership2026

The state and local tax deduction has been a source of frustration for homeowners in high-tax states since 2018. For years, you could deduct tens of thousands in property taxes and state income taxes, but the Tax Cuts and Jobs Act slammed a $10,000 ceiling on the entire deduction. For many homeowners in states like New Jersey, California, or New York, that cap wiped out a significant chunk of real tax relief.

That changed with the One Big Beautiful Bill Act. The SALT cap is now $40,000, and it applies starting with your 2025 tax return. This is the most consequential change to itemized deductions for middle-and upper-middle-income homeowners in nearly a decade.

Here is what you need to know.

What Is the SALT Deduction?

The state and local tax (SALT) deduction lets you deduct taxes you pay to state and local governments from your federal taxable income. It has three components:

State income tax (or state sales tax -- you pick one, not both)
Local income tax, if your city or county charges one
Property taxes on your primary residence (and in some cases, other real estate)

You add these up and deduct the total on Schedule A when you itemize. Before 2018, there was no cap. Homeowners in high-tax states could deduct $20,000, $40,000, or even more in combined state taxes. That is no longer the full story.

The History: Unlimited to $10,000 to $40,000

Before 2018, the SALT deduction was unlimited. A homeowner in New Jersey paying $18,000 in property taxes and $14,000 in state income taxes could deduct all $32,000.

Starting in 2018, the Tax Cuts and Jobs Act (TCJA) capped the SALT deduction at $10,000 for all filers -- whether single or married filing jointly. The cap was applied identically regardless of household size or state, which hit married homeowners in high-cost areas especially hard. A married couple paying $30,000 in combined state taxes could only deduct $10,000. The other $20,000 was simply gone.

Starting with tax year 2025, the One Big Beautiful Bill Act raised the cap to $40,000. This is not an adjustment or inflation tweak -- it is a fourfold increase that restores meaningful SALT relief for millions of taxpayers. The cap increases by 1% annually and remains in effect through 2029, at which point it reverts to $10,000 unless Congress acts again.

The New $40,000 Cap: Key Details

The mechanics of the new SALT deduction limit are straightforward, but a few details deserve attention.

The annual cap amounts:

2025: $40,000
2026: $40,400 (1% increase)
2027: $40,804
2028: $41,212
2029: reverts to $10,000

Single vs. married filers: Both single filers and married filing jointly taxpayers face the same $40,400 cap in 2026. Married filing separately filers are subject to a $20,200 limit (half the joint cap), consistent with how most itemized deductions work under MFS status.

Income phaseout: This is where it gets complicated. Taxpayers with modified adjusted gross income (MAGI) above $500,000 ($250,000 for married filing separately) see their SALT deduction reduced. For every dollar of MAGI over $500,000, the SALT cap decreases by $0.30 -- but it cannot drop below $10,000. High earners above a certain threshold effectively revert to the old $10,000 cap.

Who Benefits Most

The homeowners who gain the most from the new SALT cap are those with high combined state and local tax bills who previously hit the $10,000 ceiling hard. That means:

Homeowners in New Jersey, Connecticut, New York, California, Illinois, and Massachusetts -- states with both high property taxes and significant income taxes
Dual-income households where both spouses pay state income tax
Longer-term homeowners whose property tax assessments have grown substantially

Let us look at two concrete examples.

Example 1 -- New Jersey homeowner:

Property taxes: $15,000
State income tax: $12,000
Total SALT: $27,000
Previously deductible: $10,000
Now deductible (2026): $27,000
Additional deduction: $17,000
At a 32% marginal rate, this saves approximately $5,440 in federal taxes

Example 2 -- California homeowner:

Property taxes: $8,000
State income tax: $25,000
Total SALT: $33,000
Previously deductible: $10,000
Now deductible (2026): $33,000
Additional deduction: $23,000
At a 32% marginal rate, this saves approximately $7,360 in federal taxes

These are not edge cases. Millions of homeowners in high-tax states were sitting at SALT bills between $15,000 and $40,000, all of which was effectively capped at $10,000 for seven years.

Itemizing vs. the Standard Deduction Under the New Rules

Higher SALT limits alone do not mean you should itemize. You need your total itemized deductions to exceed the standard deduction before itemizing makes financial sense.

For 2026, the standard deduction amounts are:

Single: $16,100
Married filing jointly: $32,200
Head of household: $24,150

Now consider a married couple with:

SALT: $33,000
Mortgage interest: $18,000
Charitable contributions: $3,000
Total itemized: $54,000

Their itemized deductions ($54,000) far exceed the standard deduction ($32,200). Itemizing saves them money.

Compare that to a single renter in a low-tax state:

State income tax: $4,000
No property taxes
No mortgage interest
Total itemized: $4,000

That is well below the $16,100 standard deduction, so the standard deduction wins.

The critical question is whether your SALT bill alone -- or combined with mortgage interest -- clears the standard deduction threshold. For homeowners with mortgages in high-tax states, the math shifted significantly in 2025.

Use the Tax Calculator to run your specific numbers and compare what you would owe under each approach.

The Income Phaseout Trap

If your MAGI exceeds $500,000, you do not get the full $40,400 benefit. The phaseout works like this:

Formula: SALT cap reduction = (MAGI - $500,000) x 0.30

At $600,000 MAGI:

Excess over threshold: $100,000
Reduction: $100,000 x 0.30 = $30,000
Adjusted cap: $40,400 - $30,000 = $10,400

At $633,333 MAGI:

Excess: $133,333
Reduction: $40,000
Adjusted cap: $10,400 (floor, not further reduced)

At incomes above roughly $633,000, the SALT deduction effectively returns to the $10,000 floor.

This means the new law's benefit is concentrated in roughly the $100,000 to $500,000 income range for single filers and households. High-income earners in high-tax states -- think a family earning $700,000 in the Bay Area or Manhattan -- get almost no additional relief compared to the old $10,000 cap.

If your income is in or near the phaseout range, the exact calculation matters. A small change in MAGI from contributing more to a pre-tax retirement account could preserve thousands in SALT deductions.

What to Do Now

1. Review your 2025 SALT expenses

Start by tallying your 2025 property tax payments and state income taxes withheld or paid. If your total exceeds $10,000, the new cap likely benefits you directly when you file your 2025 return.

2. Decide whether to itemize for 2025

If you have been taking the standard deduction for years because itemizing was not worth it under the $10,000 SALT cap, recalculate. Pull together your:

Property tax statements
State income tax paid (from W-2 or quarterly payments)
Mortgage interest (Form 1098)
Charitable donations

If those combined exceed the standard deduction ($15,750 single, $31,500 MFJ for 2025), itemizing will reduce your tax bill.

3. Consider property tax payment timing

If you pay property taxes in installments, make sure you know which year each payment falls in. Bunching property tax payments into one tax year -- if your county allows it -- can sometimes help maximize your SALT deduction in that year.

4. Check the income phaseout if your MAGI is near $500,000

Run the phaseout math before you assume you get the full deduction. If you are close to $500,000 in MAGI, increasing pre-tax retirement contributions (401k, traditional IRA, HSA) can reduce your MAGI and preserve more of your SALT deduction.

5. Estimate your 2026 taxes now

Do not wait until tax season. Use the Tax Calculator to model your full 2026 tax picture with the new $40,400 SALT cap factored in. Adjusting your W-4 withholding now avoids either a big underpayment penalty or an overly large refund.

If you own a home, also review the full list of deductions available to you in the Homeowner Tax Deductions 2026 guide. The SALT deduction is one piece -- mortgage interest, energy credits, and home office deductions can add further savings depending on your situation.

For homeowners considering a purchase or refinance, understanding how your mortgage interest will combine with your SALT deduction is essential. Use the Mortgage Calculator to model different loan scenarios and see how total interest paid affects your itemized deduction picture over time.

The Bottom Line

The SALT deduction cap increase from $10,000 to $40,400 is significant. For homeowners in high-tax states with combined state and local tax bills between $15,000 and $40,000, the new limit could restore thousands of dollars in annual federal tax savings -- money that was effectively confiscated by the 2018 cap.

The benefit is not universal. It phases out for high earners, and it does nothing for renters or those in low-tax states who already took the standard deduction. It also expires after 2029 unless Congress extends it.

But if you own a home, pay meaningful property taxes, and live in a state with real income taxes, 2025 and 2026 are the years to review whether itemizing makes financial sense again. The math has genuinely changed.