State and Local Tax Deduction: 2026 SALT Guide

Understand the SALT deduction cap, qualifying taxes, and strategies to maximize your state and local tax benefits on your 2026 federal return.

What Is the SALT Deduction?

The State and Local Tax deduction, commonly known as the SALT deduction, allows taxpayers who itemize deductions to deduct certain taxes paid to state and local governments from their federal taxable income. Before the Tax Cuts and Jobs Act (TCJA) of 2017, there was no limit on the amount of state and local taxes that could be deducted. The TCJA imposed a $10,000 cap ($5,000 for married filing separately) on the SALT deduction, which significantly increased the federal tax burden for taxpayers in high-tax states such as California, New Jersey, and New York. For 2026, the $10,000 cap remains in effect, and there has been no legislative action to increase or eliminate it.

The SALT deduction is an itemized deduction, which means it is only beneficial to taxpayers whose total itemized deductions exceed the standard deduction. For 2026, the standard deduction is $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of household. Taxpayers who take the standard deduction cannot claim the SALT deduction, regardless of how much they paid in state and local taxes. This interaction between the SALT cap and the increased standard deduction has resulted in fewer taxpayers itemizing their deductions, which has reduced the overall benefit of the SALT deduction for many middle-income taxpayers.

What Taxes Qualify for the SALT Deduction in 2026?

The SALT deduction allows taxpayers to deduct state and local income taxes, state and local sales taxes, and state and local property taxes, subject to the $10,000 cap. Taxpayers can choose to deduct either state and local income taxes or state and local sales taxes, but not both. In general, taxpayers who live in states with no income tax, such as Texas, Florida, and Washington, benefit more from deducting sales taxes, while taxpayers in high-income-tax states benefit more from deducting income taxes. However, the $10,000 cap applies to the total of all state and local taxes combined, so the choice between income and sales taxes may not always result in a higher deduction.

Property taxes are also included in the SALT deduction, but they are subject to the same $10,000 cap. This means that taxpayers who pay significant property taxes may find that their total SALT deduction is quickly exhausted by property taxes alone, leaving little room for income or sales taxes. It is important to note that not all state and local taxes qualify for the deduction. Non-qualifying taxes include foreign taxes, taxes on business or rental property (which are deducted separately), estate and inheritance taxes, and taxes paid on behalf of others. Taxpayers should carefully review their state and local tax payments to determine which amounts are eligible for the SALT deduction.

The $10,000 SALT Cap: Impact and Controversy

The $10,000 cap on the SALT deduction has been one of the most controversial provisions of the TCJA. Critics argue that the cap disproportionately affects taxpayers in high-tax states, where state and local taxes are often significantly higher than $10,000. For example, a homeowner in New Jersey with a $500,000 home might pay $10,000 or more in property taxes alone, before considering state income taxes. The cap effectively increases the federal tax burden for these taxpayers, reducing the benefit of the SALT deduction and potentially making high-tax states less attractive places to live and work.

Proponents of the cap argue that it is necessary to prevent high-tax states from exporting their tax burdens to the federal government and to ensure that the federal tax code does not subsidize high state and local taxes. Several high-tax states have attempted to work around the cap by creating state charitable funds that allow taxpayers to make charitable contributions in exchange for state tax credits, which can be deducted on the federal return. However, the IRS has issued regulations limiting the effectiveness of these workarounds, and the future of such strategies remains uncertain. For 2026, the $10,000 cap remains firmly in place, and taxpayers in high-tax states should plan accordingly.

How to Claim the SALT Deduction in 2026

To claim the SALT deduction, taxpayers must itemize their deductions on Schedule A of Form 1040. The SALT deduction is reported on line 5a of Schedule A, along with other itemized deductions such as mortgage interest, charitable contributions, and medical expenses. Taxpayers should keep accurate records of all state and local taxes paid during the year, including property tax statements, state income tax withholding records, and sales tax receipts. For taxpayers who choose to deduct sales taxes instead of income taxes, the IRS provides a sales tax deduction calculator on its website that can help estimate the deductible amount based on income and state of residence.

It is important to note that the SALT deduction is subject to the overall limitation on itemized deductions for high-income taxpayers, known as the Pease limitation. For 2026, the Pease limitation reduces itemized deductions by 3 percent of the amount by which the taxpayer's adjusted gross income exceeds a threshold amount, up to a maximum reduction of 80 percent of total itemized deductions. The threshold amount is adjusted annually for inflation. Taxpayers with high incomes should be aware that their SALT deduction may be reduced by the Pease limitation, further decreasing the benefit of itemizing deductions.

Strategies to Maximize the SALT Deduction

While the $10,000 cap limits the SALT deduction for most taxpayers, there are several strategies that can help maximize the benefit. First, taxpayers should carefully consider whether to deduct income taxes or sales taxes. In some cases, deducting sales taxes may result in a higher deduction, particularly for taxpayers who made large purchases during the year, such as a car or boat. Second, taxpayers who own multiple properties should be aware that property taxes on all properties are combined for purposes of the SALT cap, so there is no benefit to owning multiple properties in terms of the deduction.

Third, taxpayers who are close to the $10,000 cap should consider the timing of their state and local tax payments. For example, paying property taxes early in the year may allow taxpayers to deduct them in the current tax year rather than the next. Fourth, taxpayers who are business owners should consider whether they can deduct state and local taxes as business expenses rather than as itemized deductions. Business taxes are not subject to the SALT cap, so this can be a valuable strategy for self-employed individuals and small business owners. Finally, taxpayers should consult a tax professional to explore state-specific workarounds and other strategies that may be available in their state.

State Responses to the SALT Cap

Several states have implemented or considered measures to mitigate the impact of the SALT cap on their residents. One common approach is the creation of state charitable funds that allow taxpayers to make contributions to the fund in exchange for state tax credits. These contributions are deductible as charitable contributions on the federal return, effectively bypassing the SALT cap. However, the IRS has issued regulations requiring that the charitable contribution be reduced by the value of the state tax credit received, which limits the effectiveness of this strategy. For example, if a taxpayer contributes $1,000 to a state charitable fund and receives a $900 state tax credit, only $100 is deductible as a charitable contribution on the federal return.

Other states have considered or implemented pass-through entity tax (PTET) elections, which allow partnerships and S corporations to pay state income tax at the entity level rather than passing the income through to individual owners. The entity-level tax is deductible on the federal return as a business expense, bypassing the SALT cap. The IRS has issued guidance confirming that this strategy is permissible, and many states have enacted PTET legislation in response. For 2026, taxpayers who own pass-through entities should consult their tax advisors to determine whether a PTET election would be beneficial in their state.

SALT Deduction and the Standard Deduction Interaction

The interaction between the SALT deduction and the standard deduction is an important consideration for taxpayers deciding whether to itemize. For 2026, the standard deduction is $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of household. Taxpayers whose total itemized deductions, including the SALT deduction, do not exceed the standard deduction are better off taking the standard deduction. This means that the SALT deduction is only beneficial to taxpayers who have significant other itemized deductions, such as mortgage interest or charitable contributions, that push their total itemized deductions above the standard deduction threshold.

For example, a married couple with $8,000 in state and local taxes, $10,000 in mortgage interest, and $5,000 in charitable contributions would have total itemized deductions of $23,000, which is below the $30,000 standard deduction for married couples filing jointly. In this case, the couple would be better off taking the standard deduction, and the SALT deduction would provide no additional benefit. However, if the couple had $15,000 in mortgage interest instead of $10,000, their total itemized deductions would be $28,000, still below the standard deduction. Only when total itemized deductions exceed the standard deduction does the SALT deduction provide a marginal benefit.

Future Outlook for the SALT Deduction

The future of the SALT deduction remains uncertain and is a subject of ongoing political debate. There have been periodic legislative proposals to increase or eliminate the $10,000 cap, particularly from representatives of high-tax states. However, any change to the SALT cap would have significant federal revenue implications, and there is no consensus on how to address the issue. For 2026, the $10,000 cap remains in effect, and taxpayers should plan accordingly. Looking ahead to 2027, any changes to the SALT deduction would depend on congressional action, and at this time the 2027 parameters are only projected and not yet finalized.

Taxpayers who are concerned about the impact of the SALT cap on their tax liability should stay informed about legislative developments and consider strategies to mitigate the cap's effects. This may include maximizing other deductions and credits, exploring state-specific workarounds, and consulting a tax professional who understands the complexities of the SALT deduction. While the cap may not be eliminated in the near future, there is always the possibility of legislative changes that could provide relief to taxpayers in high-tax states.

Sales Tax Deduction vs. Income Tax Deduction

One of the most important decisions taxpayers make when claiming the SALT deduction is whether to deduct state and local income taxes or state and local sales taxes. This choice can have a significant impact on the amount of the deduction, and the optimal choice varies depending on the taxpayer's state of residence and individual circumstances. In general, taxpayers who live in states with no income tax, such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, benefit more from deducting sales taxes. Taxpayers in high-income-tax states, such as California, New Jersey, and New York, generally benefit more from deducting income taxes.

However, the decision is not always straightforward. Taxpayers who made large purchases during the year, such as a car, boat, or home appliances, may have paid significant sales taxes that exceed their state income tax liability. In these cases, deducting sales taxes may result in a higher deduction. The IRS provides a sales tax deduction calculator on its website that allows taxpayers to estimate their deductible sales tax amount based on their income, state of residence, and filing status. Taxpayers can also keep receipts for all major purchases and add the sales tax from those purchases to the amount from the IRS calculator. For 2026, taxpayers should carefully compare both options before deciding which to claim.

Property Tax Deduction Strategies

Property taxes are often the largest component of the SALT deduction, and understanding how to maximize this portion of the deduction can be valuable for homeowners. For 2026, property taxes on all real property owned by the taxpayer are combined for purposes of the SALT cap, regardless of the number of properties or their location. This means that taxpayers who own multiple properties, such as a primary residence and a vacation home, must combine the property taxes on all properties when calculating the SALT deduction. In some cases, the total property taxes may exceed the $10,000 cap, leaving no room for income or sales tax deductions.

One strategy for maximizing the property tax deduction is to ensure that all property taxes paid during the year are properly documented. This includes taxes paid directly to the taxing authority, taxes paid through an escrow account as part of a mortgage payment, and any special assessments that are classified as property taxes. Taxpayers should review their property tax statements carefully to identify all deductible amounts. Additionally, taxpayers who are paying property taxes on a newly constructed home should be aware that certain costs, such as impact fees or developer assessments, may or may not be deductible as property taxes, depending on the specific nature of the charge and the local tax law.

Frequently Asked Questions