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.
The State and Local Tax (SALT) deduction allows you to deduct state and local income taxes (or general sales tax, but not both) plus property taxes as an itemized deduction on your federal return. Under the Tax Cuts and Jobs Act (2018–2024), the total SALT deduction was capped at $10,000 per tax return ($5,000 if married filing separately).
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the SALT cap to $40,000 ($20,000 MFS) starting tax year 2025, but added a phaseout for MAGI above $500,000 ($250,000 MFS) that reduces the cap by 30 cents for every dollar of MAGI over the threshold. The phaseout reverts the cap toward a $10,000 ($5,000 MFS) floor for very high earners, so the practical benefit of the higher cap concentrates in the $200K–$500K MAGI range.
Before the Tax Cuts and Jobs Act of 2017, there was no cap on SALT, which made it particularly valuable for taxpayers in high-tax states like California, New York, and New Jersey. Some states have implemented workarounds for pass-through business owners using entity-level SALT elections (PTET), which allow the business to deduct state taxes without being subject to the individual cap.
How it works
The SALT deduction lets itemizers deduct the state and local taxes they actually paid during the year — a combination of either state income tax or state general sales tax (you pick whichever is larger, not both) plus property tax on your home. Starting with tax year 2025, OBBBA raised the combined cap from the prior $10,000 flat limit to $40,000 ($20,000 if married filing separately), but layered in a phase-out for high earners that claws the benefit back down.
You report SALT amounts on Schedule A: state and local income (or sales) taxes on one line and real estate and property taxes on another, with the combined total capped before it flows into your itemized deduction total. Most W-2 employees see their state income tax withholding on their pay stub and W-2 Box 17 feeding this line directly, while property tax typically comes from a mortgage servicer's Form 1098 or your own municipal tax bill.
The OBBBA phase-out reduces the $40,000 cap by 30 cents for every dollar your MAGI exceeds $500,000 ($250,000 MFS), pushing the effective cap back down toward the old $10,000 floor for very high earners — so the biggest beneficiaries of the higher cap are taxpayers in the roughly $200,000 to $500,000 MAGI range, not the highest earners. Business owners in some states can route around the individual cap entirely using entity-level pass-through entity tax elections, which let the business itself deduct state tax without it touching the owner's personal SALT cap.
Example: SALT cap phase-out at high income
A married couple filing jointly in a high-tax state pays $18,000 in state income tax and $14,000 in property tax, for $32,000 in total SALT — comfortably under the $40,000 cap, so the full $32,000 is deductible if their MAGI is below the phase-out threshold.
If that same couple's MAGI is $600,000, they are $100,000 over the $500,000 phase-out threshold. At 30 cents of reduction per dollar over, their effective cap drops by $30,000, from $40,000 down toward the $10,000 floor — meaning most of their $32,000 in SALT payments is no longer deductible.
Frequently asked questions
What is the SALT deduction cap now?
Does the higher SALT cap benefit every taxpayer equally?
Can I deduct both state income tax and sales tax?
Related Terms
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%.
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.
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).