What Is the Salt Deduction?

The SALT deduction lets you deduct some kinds of state and local taxes (SALT, get it?) on your federal tax return if you itemize. But there’s a cap on how much you can deduct. Recent legislation increased the SALT deduction cap to $40,000 – but only for now, and not for the highest-income taxpayers.

This may provoke some questions as to how this could apply to you, so let’s take a look at how it all works.

WHAT TAXES ARE INCLUDED IN THE SALT DEDUCTION?

First, let’s start with the basic question of what’s included within that capped amount.

STATE AND LOCAL INCOME TAXES

You can deduct income taxes you pay to your state or local government – those withheld from your W-2 as well as any estimated taxes you pay quarterly or those owed with your annual return.

PROPERTY TAXES

If you own a home, you can deduct those property taxes as well – any tax paid to your state or local municipality based on the value of your home and used for general public welfare.

If you have a mortgage, property taxes are often paid by your lender on your behalf, from money in your escrow account. If so, they’ll be reported on the tax documents your lender sends you. (You can’t deduct property taxes paid on rental properties as part of your SALT deduction – but those taxes can potentially be separately deducted as an expense against the income you earn on that property.)

Some states and municipalities also assess annual personal property taxes that are based on the value of the item (for example, a boat or a car). If so, you can generally include those in your deduction as well.

SALES TAXES (OPTIONAL ALTERNATIVE)

It’s not as common, but if the state and local sales taxes you paid during the year are more than your state and local income taxes, you can deduct those instead. This would most likely be the case if you live in a state with no income tax.

If you want to claim the actual sales taxes you paid as part of the SALT deduction, you need to have receipts. Otherwise, there’s an IRS worksheet that will tell you the amount of sales taxes you can claim (based on government data on what someone in your income band would spend given typical purchasing patterns).

HOW THE SALT DEDUCTION CAP HISTORICALLY WORKED

Now that we’ve covered what’s considered “SALT,” let’s talk about what recently changed.

As part of the Tax Cuts and Jobs Act of 2017, there was a $10,000 cap placed on the amount of state and local taxes you can claim as part of the SALT deduction. (Prior to that, there was no limit.)

WHY THE $10,000 CAP WAS INTRODUCED

The TCJA made major changes to deductions across the board. In some cases, many people benefited – for example, the standard deductions greatly increased. Other changes helped to offset these beneficial increases – for example, the personal exemption was eliminated and the SALT deduction limit was introduced.

WHO WAS MOST AFFECTED BY THE SALT CAP

Obviously, people who pay a lot of taxes are most impacted by the SALT limit. This usually means people with high income and people who live in states with relatively high income and property taxes. Often, these scenarios coincide.

WHAT CHANGED WITH THE SALT CAP INCREASE

HIGHER SALT DEDUCTION LIMITS

In 2025, the One Big Beautiful Bill Act temporarily increased the SALT cap to $40,000. However, there are a few caveats:

• For very high-income taxpayers (over $500,000 in 2025), the additional limit is phased down. For taxpayers with income of $600,000 or more in 2025, it’s back down to $10,000.
• The increase is only for tax years 2025-2029.
• If you’re married filing separately, the deduction is limited to a maximum of $20,000 (with reductions down to $5,000 for incomes between $250,000 and $300,000).

Also note that these numbers will be increased by 1% every year until the legislation sunsets; for example, in 2026 the limit is $40,400 with phaseouts starting at $505,000.

TAKING ADVANTAGE OF THE TEMPORARY NATURE OF THE CHANGE

As with any temporary piece of tax legislation, there’s always the chance it will be extended or made permanent. But as we get closer to the planned sunset – reverting back to $10k in 2030 – you will need to consider last-minute strategies to take advantage of the higher limit in case that doesn’t happen.

INCOME-BASED PHASEOUTS TO BE AWARE OF

HOW INCOME THRESHOLDS AFFECT ELIGIBILITY

If your income is over $500,000 in 2025, your limit will be less than $40,000. To determine the amount of the reduction, take the amount of income you have over the limit and multiply by 30%. (But note that it will never be lower than $10,000.)

For an income of $600,000 or more, it remains $10,000 (a reduction of $30,000, or $100,000 x 30%).

HOW THE SALT DEDUCTION INTERACTS WITH OTHER ITEMIZED DEDUCTIONS

The TCJA’s expansion of the standard deduction and cap on the SALT deduction had a big impact on deduction strategies overall. With the limit temporarily increased, you may see some previously favored tax strategies come back into play for the next few years.

STANDARD DEDUCTION VS. ITEMIZING

First, every taxpayer makes a choice each year between taking the standard deduction and itemizing. The combined increase in the standard deduction and cap on the SALT deduction made it a lot less appealing to itemize for many people. The increase in the SALT limit could bring itemizing back into vogue.

COMMON ITEMIZED DEDUCTIONS USED ALONGSIDE SALT

If you do make the choice to itemize, there are other deductions you can include as well. Some of the most common items that might be deductible are:

• Mortgage interest and interest on a home equity loan or line of credit that’s used to improve the home
• Charitable giving
• Medical expenses

So, for example, you can see how the SALT cap increase could lead to itemizing, which could lead to strategically pulling forward things like charitable donations or medical procedures in order to take full advantage before it sunsets.

PLANNING CONSIDERATIONS DURING THE TEMPORARY SALT EXPANSION

TIMING OF TAX PAYMENTS

As we draw close to the sunset, you may want to consider prepaying property taxes if you can and if it makes sense in your situation (assuming the locality has assessed the tax and is accepting payment).

COORDINATING WITH BROADER TAX PLANNING

If you’re itemizing to take advantage of the higher SALT limit and plan to return to using the standard deduction after the sunset, you may also want to consider maximizing your deductions in other ways – for example, making several years’ worth of charitable contributions or scheduling expensive medical procedures before the sunset.

FINANCIAL ADVISORS CAN HELP EXPLAIN HOW SALT DEDUCTION CHANGES AFFECT YOUR FINANCIAL PLAN

CLARIFYING HOW THE RULES APPLY

If you have questions, our financial advisors can help you understand the changes and how they might affect your financial plan.

COORDINATING TAX AND FINANCIAL PLANNING

We recommend working with a qualified tax professional who can identify tax strategies that could help you make the most of the temporary limit increase. Our advisors can help ensure those strategies coordinate with your overall financial plan and long-term goals.

MAKE THE MOST OF THE SALT DEDUCTION

For most people who previously exceeded the $10,000 SALT limit, the new limit is good news – at least while it lasts. Not only can it allow you to increase your SALT deduction, it may also make it worth it to itemize again, opening the door to more deductions.

As you file your 2025 taxes, remember to verify with your tax professional whether itemizing could save you more money on taxes this year and to calculate your potential SALT deduction based on the new limit.

And consider whether 2026 might offer opportunities to take advantage of other deductions in concert with the SALT deduction. Our financial advisors are here to answer questions and help you optimize your tax planning strategies.