SALT Deduction

SALT covers three things: state income tax (or sales tax, if you pick that instead), local income tax, and property tax. Before the 2017 TCJA there was no ceiling at all. TCJA slapped on a $10,000 cap that hammered itemizers in California, New York, New Jersey, and Illinois, where a single property tax bill can blow past that number on its own.

The July 2025 One Big Beautiful Bill Act rewrote the cap. For 2026 you can deduct up to $40,400 ($20,200 married filing separately), and the limit ticks up 1% a year through 2029 before it drops back to $10,000 in 2030. So this is a five-year window, not a permanent fix. Plan around the cliff.

There's a catch for high earners. Once your modified AGI clears $505,000 in 2026, the $40,400 cap shrinks by 30 cents for every dollar over that line. The deduction never falls below $10,000, so the phasedown fully bottoms out around $606,000 of MAGI. If you're in that band, an extra dollar of income costs you 30 cents of deduction on top of the regular rate, which is a real planning problem worth modeling before year-end.

This is where the pass-through entity tax election earns its keep, and OBBBA left it untouched. Most states now let a partnership or S corp pay the owner's state tax at the entity level. That payment is an ordinary business expense on the federal return, so it sidesteps the personal SALT cap entirely. If you run an S corp in a PTET state and aren't electing it, you're likely leaving money on the table.

One thing the cap doesn't touch: state taxes tied to a trade or business or to producing rental income. Those already deduct on Schedule C or E as business expenses, no cap. The $40,400 ceiling only bites on the personal SALT you'd otherwise itemize on Schedule A.