Understanding the SALT tax deduction (state and local tax deduction) can help you maximize your itemized deductions by reducing your federal tax liability. This tax break allows you to claim certain state and local taxes you’ve paid — including income tax, sales tax, and property taxes — up to an annual limit.
To help you understand if you can benefit from the state and local tax deduction in tax year 2025 and beyond, let’s break everything down. Below, we go over what the SALT deduction is, how it works, and its limitations. We’ll also cover the recent SALT cap increase under the Working Families Tax Cut Act (also known as the One Big Beautiful Bill).
At a glance:
- SALT stands for state and local taxes, including income, sales, and property taxes paid to state and local governments (NOT the federal government).
- The SALT tax deduction lets taxpayers who itemize subtract those taxes from their federal taxable income.
- To claim this deduction, you must itemize; you can’t take the SALT deduction if you claim the standard deduction.
- The SALT deduction cap imposes a limit on how much of your state and local taxes you are allowed to deduct.
- In 2025, the SALT cap rose from $10,000 to $40,000 for most filers (half that amount for married filing separately).
What is the SALT tax?
SALT stands for state and local taxes, including the income taxes, sales taxes, and property taxes you pay to state and local governments throughout the year. These taxes fund essential state and local services like schools, infrastructure, and public safety.
Here are a few examples of SALT taxes you might pay:
- State income taxes withheld from your paycheck or paid through quarterly estimated payments
- Local income taxes imposed by certain cities or counties
- Property taxes on your home, vacation property, or land
- Sales taxes on goods and services (you can choose to deduct these instead of income taxes)
Not every state has all of these taxes, but most taxpayers pay at least some type of state or local tax each year. This is where the SALT tax deduction comes in, which we’ll talk about next.
What is the SALT deduction?
The SALT tax deduction is a tax break that lets you subtract certain state and local tax payments from your federal taxable income. Doing so can reduce your overall tax liability, meaning you might owe less federal income tax or receive a larger refund.
Again, here are some common examples of what can count toward your SALT deduction:
- State income taxes OR sales taxes (you can only deduct one of these, not both)
- Local income taxes
- Property taxes paid on real estate you own
Basically, the SALT deduction helps prevent double taxation by ensuring you aren’t paying federal tax on income already taxed by your state or city.
How does the SALT deduction work?
When you itemize on Schedule A (Form 1040), you can include the total amount of eligible taxes paid (up to the annual limit, which we cover in the next section) to reduce your taxable income.
This, in turn, lowers your tax liability, meaning you might end up with a lower tax bill or get more money back as a tax refund.
Tax Tip: The SALT tax deduction only applies if you itemize deductions on your federal income tax return. If you choose to take the standard deduction, you won’t be able to deduct SALT.
Who benefits from the SALT deduction?
High-income taxpayers in high-tax states — like New York, New Jersey, Connecticut, or California — typically benefit the most from the SALT deduction. Essentially, if your combined property taxes and state income taxes (or sales tax) exceed the standard deduction, the SALT tax deduction will likely save you money.
Who qualifies to claim the SALT deduction?
You can claim the SALT deduction if you itemize deductions on your federal tax return and paid eligible state or local taxes during the same tax year.
If you’re self-employed or a business owner with a pass-through entity (like an S corporation or partnership), certain SALT workarounds may be available to help you deduct more. We talk more about this later on!
What is the SALT cap?
The SALT cap is the maximum amount of SALT taxes that you can deduct per year. Yep, there’s a limit to the SALT deduction.
The SALT deduction cap was first introduced by the Tax Cuts and Jobs Act (TCJA) in 2017 under Donald Trump, which limited the SALT tax deduction to $10,000 per year (or $5,000 for those married filing separately).
However, that changed recently with the passage of the Working Families Tax Cut Act.
Updated SALT deduction cap 2025 through 2029
Starting with tax year 2025, the SALT tax cap will increase by quite a bit. Here are the new numbers:
Tax yearSALT deduction capMarried filing separately capNotes2025$40,000$20,000New cap begins (previously $10,000)2026$40,400$20,200+1% increase2027$40,800$20,400+1% increase2028$41,200$20,600+1% increase2029$41,600$20,800+1% increase2030+$10,000$5,000Cap reverts to TCJA levels
The new $40,000 cap is obviously a major boost from the old $10,000 SALT tax cap. Now, let’s look more in-depth at how the cap works.
MAGI thresholds for the SALT deduction cap
The Working Families Tax Cut Act also introduced modified adjusted gross income (MAGI) thresholds that determine how much of the SALT deduction you can claim.
But first, how do you calculate your MAGI?
MAGI = AGI (your total income minus certain deductions) + certain types of income the IRS normally lets you exclude (i.e., foreign earned income or income from specific U.S. territories)
Don’t get too confused by MAGI, though — TaxAct crunches all those numbers for you when you file with us.
Now, let’s review how MAGI impacts your SALT deduction amount:
- Phaseout begins when your MAGI reaches $500,000 in 2025 (or $250,000 for those married filing separately), reducing the deduction by 30% of your excess MAGI.
- Example: A married couple’s MAGI is $540,000 in 2025. Since they are $40,000 over the MAGI limit, their SALT cap is reduced by $12,000 ($40,000 x 30%), resulting in a maximum SALT deduction of $28,000 ($40,000 – $12,000).
- The cap cannot go below $10,000, no matter how high your income. So, taxpayers who fully phase out will still be able to deduct up to $10,000, just like before.
- Just like the SALT cap, the MAGI phaseout threshold increases by 1% annually through tax year 2029. This means phaseout will begin at $505,000 MAGI in 2026, $510,050 MAGI in 2027, and so on.
In short, higher-income taxpayers may still face limits on how much of the expanded SALT deduction they can use due to the $500,000 MAGI threshold.
When does the SALT cap expire?
At this time, the higher SALT deduction cap will remain in place for tax years 2025 through 2029. Beginning in 2030, the cap will revert to the TCJA-era cap of $10,000 ($5,000 for married filing separately) unless Congress passes a new tax law before then.
SALT deduction pass-through workaround
Some states still offer SALT workarounds for pass-through entities, such as S corporations and partnerships. This workaround remains available even after the recent tax law changes.
These workaround programs enable the business to pay state income taxes directly, claiming the deduction as a business expense at the entity level rather than the individual level. Using this method, business owners and self-employed filers can bypass the SALT tax cap altogether.
If you operate a pass-through entity, check your state’s site for specific tax policy guidance.
How to claim the SALT deduction with TaxAct
When you use TaxAct, our software automatically walks you through entering your state income taxes, local taxes, sales taxes, and property taxes, then applies the correct SALT deduction cap based on your filing status, MAGI, and tax year.
We can also help you determine whether itemizing deductions or taking the standard deduction gives you the most tax savings so that you can make the most of your state and local tax deduction without any manual calculations on your part.
FAQs: SALT tax deduction 2025
What does SALT tax stand for?
SALT stands for state and local tax. It encompasses income, sales, and property taxes paid to state and local governments.
What is the new SALT cap for 2025?
Under new tax law, the SALT deduction cap increased to $40,000 for most filers ($20,000 for those married filing separately) beginning in tax year 2025. The cap will also see a 1% annual increase through tax year 2029.
Will the SALT tax cap expire after 2025?
Under the Working Families Tax Cut Act, the higher SALT cap stays in effect for tax years 2025 through 2029. It’s scheduled to revert to the previous $10,000 cap ($5,000 for married filing separately) starting in 2030, unless Congress passes another tax bill to extend or modify it.
Can I deduct my property taxes under the SALT cap?
Yes, you can still include property taxes as part of your state and local tax deduction. But your total deduction for property tax, income tax, or sales tax combined cannot exceed the applicable SALT cap (based on your filing status and MAGI).
How do I choose between deducting state income tax or sales tax?
When taking the SALT deduction, you must choose between deducting state and local income taxes or sales taxes, but not both. The right choice depends on your situation:
• If you live in a state with no income tax (like Florida, Texas, Washington, etc.), deducting sales taxes often gives you the biggest benefit.
• If your state taxes income and you earn a steady paycheck, deducting your state income taxes may result in a larger tax deduction.
• Likewise, if you made a big purchase this year (like a new car, boat, or home renovation) and your sales tax was unusually high, it may make sense to choose sales taxes instead, even if your state taxes income.
Still not sure? TaxAct can help you determine which option gives you the greater tax benefit.
Where do I claim the SALT deduction on my tax return?
You’ll claim it on Schedule A (Form 1040), under “Taxes You Paid.” If you file with TaxAct, we’ll fill out all the necessary tax forms and numbers for you by asking simple, step-by-step questions about what state and local taxes you paid during the year.
Does TaxAct automatically apply the SALT deduction limit?
Yes! TaxAct automatically applies the appropriate SALT cap, factoring in your MAGI and filing status. We can also help you choose between itemized deductions and the standard deduction based on which option gives you the biggest possible tax break.
The bottom line
If you live in a high-tax state, the expanded SALT deduction cap could make a noticeable difference in your next tax return. But even if you don’t, understanding how the SALT tax deduction fits into your overall tax planning is a smart move. The new rules around MAGI and deductibility might feel complicated, but TaxAct is here to keep things simple — we can help you navigate all the changes and claim every possible tax break that you qualify for under current law.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
The One Big Beautiful Bill (OBBB) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.
