The SALT deduction, short for “state and local tax deduction”, is a federal income tax provision that allows taxpayers who itemize to deduct certain state and local taxes paid from their federal taxable income. The deduction covers state and local income taxes, real property taxes, and personal property taxes, or, at the taxpayer’s election, state and local general sales taxes in lieu of income taxes. The SALT deduction is claimed on Schedule A of Form 1040 and is a key benefit for taxpayers in high-tax states, as it helps offset the burden of state and local taxes by reducing federal taxable income.
The SALT deduction cap was first introduced by the Tax Cuts and Jobs Act (TCJA) of 2017, which limited the total deduction for state and local taxes to $10,000 ($5,000 for married filing separately) for tax years 2018 through 2025. The cap was designed to broaden the federal tax base and limit the benefit of the deduction, which disproportionately favored taxpayers in high-tax states and those with higher incomes.
With the passage of the One Big Beautiful Bill (OBBB) in 2025, the SALT cap was significantly expanded. For tax years beginning in 2025, the cap increased to $40,000 ($20,000 for married filing separately), with annual inflation adjustments through 2029. However, the expanded cap phases out for higher-income taxpayers: the allowable deduction is reduced by 30% of the amount by which a taxpayer’s modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married filing separately), but the deduction cannot fall below $10,000 ($5,000 for married filing separately). After 2029, the cap is scheduled to revert to $10,000.
In response to the original $10,000 SALT cap, many high-tax states enacted “SALT cap workarounds” for owners of passthrough entities (such as S corporations and partnerships). These workarounds allow the entity to pay state income tax at the entity level, which is deductible as a business expense for federal tax purposes and not subject to the individual SALT cap. The IRS confirmed the validity of these arrangements in Notice 2020-75, allowing eligible owners to benefit from a full deduction for state taxes paid by the entity, even if their individual SALT deduction is capped.
Other strategies include maximizing deductible property taxes on rental or business property, and, where possible, electing to deduct state and local sales taxes instead of income taxes if that results in a higher deduction. Because SALT rules and workarounds vary widely by state, a proactive strategy is to consult with state and local tax (SALT) professionals who can identify jurisdiction-specific opportunities and ensure compliance while optimizing available deductions.
The increased SALT deduction cap under the One Big Beautiful Bill is temporary. For tax years 2025 through 2029, the cap is $40,000 (indexed for inflation), but it is scheduled to revert to $10,000 for tax years beginning after December 31, 2029. This means that unless Congress acts to extend or modify the provision, the stricter $10,000 cap will return for 2030 and beyond, significantly reducing the potential SALT tax deduction for many taxpayers, especially those in high-tax states.
For tax year 2025, the SALT deduction cap is $40,000 for single filers and married couples filing jointly, and $20,000 for married individuals filing separately. This cap is indexed for inflation through 2029 and is subject to a phase-out for higher-income taxpayers. The minimum deduction allowed is $10,000 ($5,000 for married filing separately).
The expanded SALT cap is in effect for tax years 2025 through 2029. Beginning in 2030, the cap is scheduled to revert to $10,000 ($5,000 for married filing separately), unless further legislation is enacted. Taxpayers should plan ahead by following SALT best practices, such as modeling potential impacts of the reversion and considering strategies to maximize deductions before the cap is reduced.
Owners of passthrough entities, such as S corporations and partnerships, may qualify for the SALT cap workaround if their state has enacted an elective entity-level tax regime. The entity pays state income tax directly, which is deductible for federal tax purposes and not subject to the individual SALT cap. Eligibility and mechanics depend on state law and IRS guidance.
Yes. The SALT deduction includes state and local income taxes, real property taxes, and personal property taxes. Taxpayers may also elect to deduct state and local general sales taxes instead of income taxes, but not both. The total deduction is subject to the SALT cap tax limit.
For tax years 2025–2029, the SALT deductions tax cap is reduced by 30% of the amount by which a taxpayer’s MAGI exceeds $500,000 ($250,000 for married filing separately). However, the deduction cannot be reduced below $10,000 ($5,000 for married filing separately), ensuring a minimum deduction for all taxpayers.
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