SALT Cap
The annual limit on the federal deduction for state and local taxes. Pre-OBBBA (2018–2024): $10,000. OBBBA (2025+): $40,000 ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor.
The SALT cap is the annual limit on the federal itemized deduction for state and local taxes (income or sales tax plus property tax). It was introduced by the Tax Cuts and Jobs Act of 2017 at $10,000 ($5,000 for married filing separately), which applied from 2018 through 2024. Before the cap, taxpayers could deduct the full amount of state and local taxes on their federal return.
Under the One Big Beautiful Bill Act (OBBBA), signed July 2025, the cap was raised to $40,000 ($20,000 MFS) for tax year 2025 and beyond, but with a 30%-of-excess phaseout for MAGI above $500,000 ($250,000 MFS) that reverts the cap toward a $10,000 ($5,000 MFS) floor. The result: middle- and upper-middle-income itemizers in high-tax states benefit most, while ultra-high earners remain effectively capped near the pre-OBBBA level.
The cap most significantly affects homeowners in high-tax states like California, New York, New Jersey, Connecticut, and Illinois, where combined state income tax and property tax bills frequently exceed $40,000. Some states have implemented pass-through entity tax (PTET) elections as workarounds, allowing S corporations and partnerships to pay state tax at the entity level and claim the deduction outside the individual SALT cap.
How it works
The SALT cap limits how much state and local tax — income or sales tax, plus property tax — you can deduct on your federal itemized return. It began with the Tax Cuts and Jobs Act of 2017 at a flat $10,000 ($5,000 for married filing separately), applying from 2018 through 2024, before which there was no dollar limit on the deduction at all.
You apply the SALT cap on Schedule A when itemizing deductions, adding up state income or sales tax and local property tax and comparing the total against the applicable cap. Under OBBBA, signed July 2025, the cap rose to $40,000 ($20,000 MFS) for 2025 and beyond, but a 30%-of-excess phaseout kicks in for MAGI above $500,000 ($250,000 MFS), pulling the effective cap back down toward the old $10,000 ($5,000 MFS) floor for the highest earners.
The cap matters most in high-tax states — California, New York, New Jersey, Connecticut, and Illinois — where combined state income tax and property tax bills routinely exceed even the raised $40,000 limit, especially for homeowners. Some states created pass-through entity tax (PTET) elections as a workaround, letting S corporations and partnerships pay state tax at the entity level so the deduction is claimed outside the individual SALT cap entirely — a strategy that remains relevant even after the cap was raised, since ultra-high earners are pushed back toward the old effective limit by the phaseout.
Example: the OBBBA phaseout pulling the cap back down
A married couple filing jointly has $55,000 of combined state income and property tax for 2025, and their MAGI is $700,000 — $200,000 above the $500,000 phaseout threshold.
The phaseout removes 30% of the excess over the threshold: 30% of $200,000 is $60,000, far more than the $30,000 that separates the $40,000 cap from the $10,000 floor. The cap therefore lands on the floor, so despite paying $55,000 in state and local tax the couple deducts $10,000 — the same as they would have under the pre-OBBBA cap. A couple with the same tax bill but MAGI at or below $500,000 would deduct the full $40,000.
Frequently asked questions
What is the SALT cap for 2025?
How is the new SALT cap different from the old one?
Is there a way around the SALT cap for business owners?
Related Terms
SALT Deduction
An itemized deduction for state and local taxes paid, including income tax (or sales tax) and property tax. Under OBBBA (2025+), capped at $40,000 per return ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor. Pre-OBBBA (2018–2024) the cap was $10,000 flat.
Itemized Deduction
Specific expenses you can deduct instead of taking the standard deduction, including mortgage interest, state/local taxes (SALT cap: $40,000 for 2025+ under OBBBA, phased out for high earners), charitable donations, and medical expenses.
State Income Tax
Income tax levied by individual states, in addition to federal income tax. Rates and structures vary widely — some states have no income tax, while others have rates up to 13.3%.
Standard Deduction
A fixed dollar amount that reduces your taxable income, available to all filers who do not itemize. For 2025, it is $15,750 for single filers and $31,500 for married filing jointly (OBBBA-adjusted).