SALT Deduction 2026: $40,400 Cap, Phaseout Rules & Who Benefits

What Is the SALT Deduction?

SALT stands for state and local taxes. It is an itemized deduction — meaning you claim it on Schedule A instead of taking the standard deduction — that lets you subtract certain taxes you paid to state and local governments from your federal taxable income. If you paid $25,000 in state income tax and $15,000 in property tax, a full SALT deduction removes $40,000 from the income the IRS taxes.

The deduction has a turbulent recent history. Before 2018 it was unlimited: high earners in high-tax states could deduct every dollar of state income and property tax. The Tax Cuts and Jobs Act (TCJA) capped it at $10,000 ($5,000 married filing separately) for 2018 through 2025 — a change that hit homeowners in New York, New Jersey, California, and Connecticut hardest. For 2026 through 2029, the One Big Beautiful Bill Act (Public Law 119-21) quadruples the cap to $40,400, with an income-based phaseout for the highest earners.

One critical point up front: the SALT cap only matters if you itemize. If your total itemized deductions don't exceed the 2026 standard deduction — $16,100 single, $32,200 married filing jointly, $24,150 head of household — you take the standard deduction and the SALT rules are irrelevant to you.

What Counts as SALT (and What Doesn't)

Not every tax you pay qualifies. The IRS allows three buckets, and you need to know exactly which bucket each of your payments falls into:

The income tax vs. sales tax election trips up a lot of filers. Each year you pick whichever is larger — you cannot claim both. If you live in a state with an income tax (California, New York, New Jersey), income tax almost always wins. If you live in a no-income-tax state (Texas, Florida, Washington, Nevada), elect the sales tax: the IRS even publishes an optional sales tax table so you don't have to save every receipt, and you can add sales tax paid on big-ticket items like a car or boat on top of the table amount.

The 2026 SALT Numbers at a Glance

Here are the exact figures under Public Law 119-21 for tax year 2026:

Three things to notice. First, the cap is not doubled for joint filers — a married couple gets the same $40,400 as a single filer (more on this marriage penalty below). Second, the phaseout uses MAGI (modified adjusted gross income), not plain AGI — for most people the two are identical, but add-backs like foreign earned income can push MAGI higher. Third, the expanded cap is temporary: it covers 2026 through 2029, then reverts to $10,000 ($5,000 MFS) in 2030 unless Congress acts.

How the 30% Phaseout Works

If your MAGI is at or below the threshold, you get the full cap — simple. Above the threshold, your cap shrinks by 30 cents for every $1 of MAGI over the limit, down to the floor:

Your 2026 cap = $40,400 − [30% × (MAGI − $505,000)], never below $10,000.

Work through a real example. Say your MAGI is $550,000:

• Excess over threshold: $550,000 − $505,000 = $45,000
• Reduction: 30% × $45,000 = $13,500
• Your SALT cap: $40,400 − $13,500 = $26,900

So even well into the phaseout range, you still deduct far more than the old $10,000 limit. The cap only bottoms out at the $10,000 floor once MAGI passes roughly $606,333 — that's $505,000 plus the $101,333 of excess income it takes for the 30% haircut to erase the $30,400 difference between the cap and the floor.

Worked Example: A New Jersey Couple

Meet a married couple filing jointly in New Jersey with $450,000 of household income — comfortably below the $505,000 phaseout threshold, so they get the full cap. Their 2026 state and local taxes:

• New Jersey income tax withheld from paychecks: $25,000
• Property tax on their home: $15,000
• Total SALT paid: $40,000

Under the old $10,000 cap (2018–2025 rules), they could deduct only $10,000 of that $40,000 — the other $30,000 of real tax cost bought them zero federal benefit. For 2026, the entire $40,000 is deductible because it sits under the $40,400 cap. If they're in the 32% federal bracket, that extra $30,000 of deduction is worth roughly $9,600 in federal tax savings in a single year.

This is exactly who the OBBBA expansion was written for: upper-middle-income households in high-tax states whose SALT bills far exceeded $10,000 but whose incomes sit below the phaseout range.

The Marriage Penalty Is Still Here

Notice something odd in the table above? A married couple filing jointly gets one $40,400 cap — not $80,800. Two unmarried people living together could theoretically claim $40,400 each; marry, and you share a single cap. That's the SALT marriage penalty, and OBBBA kept it.

Filing separately doesn't dodge it either: married filing separately gets $20,200 per spouse — $40,400 combined, identical to joint filing — while forfeiting a long list of other tax benefits (Roth IRA contributions, student loan interest deduction, and several credits are reduced or eliminated for MFS filers). Run both scenarios in your tax software before assuming separate is better; for the SALT cap alone, it never is.

Should You Itemize? SALT vs. the Standard Deduction

The bigger SALT cap changes the itemizing math for millions of households. You should itemize only when your total itemized deductions exceed the standard deduction:

Under the old $10,000 SALT cap, a married couple needed $22,200 of other itemized deductions (mortgage interest, charity, medical) on top of maxed-out SALT just to beat the $32,200 standard deduction — a bar many couldn't clear. With a $40,400 SALT cap, that same couple's property and state taxes alone may sail past $32,200, and every additional dollar of mortgage interest or charitable giving becomes deductible too. If you stopped itemizing after 2018, re-run the comparison for 2026 — the answer may have flipped.

Conversely, if you rent in a low-tax state and your SALT totals $8,000 with little else to itemize, the standard deduction still wins and none of this matters. The SALT expansion rewards homeowners and high earners in high-tax states; it changes nothing for everyone else.

The PTET Workaround: Deducting Beyond the Cap

Frequently Asked Questions (FAQ)

Estimate Your 2026 Tax With SALT Included

Sources: Internal Revenue Service (irs.gov), One Big Beautiful Bill Act, Public Law 119-21. This article is for education only, not tax advice.