Data Notice: Tax deduction and credit information in “SALT Deduction Raised to $40,000: New Cap, Phaseouts, and 5-Year Sunset” reflects projected 2026 IRS figures. Eligibility criteria and dollar limits change with annual inflation adjustments. Confirm current thresholds at IRS.gov. [salt-deduction-40000-2026]

SALT Deduction Raised to $40,000: New Cap, Phaseouts, and 5-Year Sunset

The content in this salt deduction raised to $40,000: new cap, phaseouts, and 5-year sunset guide is educational and informational. It should not be relied upon as tax, legal, or financial advice. Individual tax situations require personalized analysis by a qualified professional. Consult a CPA or enrolled agent for your specific needs.

The SALT deduction cap increases from $10,000 to ~$40,000 starting in 2026 under the One Big Beautiful Bill Act (~$20,000 for married filing separately). The new cap phases out for taxpayers with MAGI above ~$500,000, adjusts for inflation at ~1% per year, and sunsets after five years. Taxpayers in high-tax states like New York, New Jersey, and California who itemize on Schedule A will see the largest benefit, potentially recovering up to $30,000 in previously capped deductions.

This guide explains exactly how the new cap works, includes phaseout calculations, and covers what happens when the provision expires.

What Is the SALT Deduction?

The SALT deduction allows taxpayers who itemize on Schedule A to deduct certain state and local taxes from their federal taxable income. The deductible taxes include:

State income taxes (or state and local sales taxes, if you choose)
Local income taxes (city or county)
Real property taxes (on your primary residence and other properties)
Personal property taxes (such as vehicle registration fees based on value)

Before 2018, there was no cap on the SALT deduction. The TCJA imposed a $10,000 cap ($5,000 for married filing separately), which disproportionately affected taxpayers in high-tax states like New York, New Jersey, California, Connecticut, and Illinois.

The New $40,000 Cap: Key Details

Feature	Details
New SALT cap	~$40,000
Previous cap (TCJA)	$10,000
Married filing separately	~$20,000
MAGI phaseout begins	~$500,000
Inflation adjustment	~1% per year
Effective date	2026 tax year
Sunset	Reverts to ~$10,000 after 5 years (approximately 2031)

How the $40,000 Cap Works

For the 2026 tax year, taxpayers who itemize can deduct up to ~$40,000 in combined state and local taxes. This is a fourfold increase from the $10,000 TCJA cap. The cap applies to the total of all qualifying SALT payments — state income tax, property tax, and other eligible taxes combined.

Example: If you paid ~$18,000 in state income tax and ~$15,000 in property tax, your total SALT is ~$33,000. Under the old $10,000 cap, you could only deduct $10,000. Under the new ~$40,000 cap, you can deduct the full ~$33,000.

Example: If you paid ~$30,000 in state income tax and ~$22,000 in property tax, your total SALT is ~$52,000. You can deduct ~$40,000 (the cap), leaving ~$12,000 that remains non-deductible.

Phaseout for High Earners

The ~$40,000 SALT cap is subject to a phaseout that begins at ~$500,000 of modified adjusted gross income (MAGI).

How the Phaseout Works

For taxpayers with MAGI above ~$500,000, the SALT cap is gradually reduced. The phaseout reduces the allowable SALT deduction until it reaches the floor (which is the pre-OBBB $10,000 cap).

MAGI Range	Approximate SALT Cap
Below ~$500,000	Full ~$40,000
~$500,000 - ~$600,000	~$37,000
~$600,000 - ~$700,000	~$34,000
~$700,000 - ~$800,000	~$31,000
~$800,000 - ~$900,000	~$28,000
~$900,000 - ~$1,000,000	~$25,000
Above ~$1,000,000	Approaches ~$10,000 floor

The exact phaseout formula will be specified in the IRS instructions. The effect is that very high earners see limited benefit from the increased cap, while middle- and upper-middle-income taxpayers in high-tax states receive the most relief.

Married Filing Separately

Taxpayers who file married filing separately (MFS) get half the cap: ~$20,000. The phaseout begins at ~$250,000 MAGI for MFS filers. This is consistent with the general principle that MFS thresholds are half of the joint thresholds.

1% Annual Inflation Adjustment

The ~$40,000 SALT cap is adjusted annually for inflation at a rate of ~1% per year. This is a fixed percentage, not tied to the Consumer Price Index (CPI). The projected caps for the five-year window:

Tax Year	Projected SALT Cap
2026	~$40,000
2027	~$40,400
2028	~$40,804
2029	~$41,212
2030	~$41,624

The inflation adjustment is modest — it adds approximately ~$400 per year. This means the real value of the cap may erode slightly if actual inflation exceeds 1%, but it provides a small annual increase nonetheless.

The 5-Year Sunset

Perhaps the most important detail of the new SALT cap is that it is temporary. After five years (approximately after the 2030 tax year), the ~$40,000 cap reverts to the previous ~$10,000 level unless Congress acts to extend or modify it.

What Happens in 2031?

If no new legislation is passed:

The SALT deduction cap returns to ~$10,000 ($5,000 MFS)
Taxpayers in high-tax states will once again face the much lower limit
Although the OBBB made individual income tax rates permanent, the SALT cap reversion would still create a significant shift for taxpayers in high-tax states

Will It Be Extended?

It is impossible to predict future congressional action. However, the political dynamics that led to raising the cap (pressure from representatives in high-tax states) are likely to persist. Many tax policy experts believe the higher cap will be extended or made permanent in future legislation, but there are no guarantees.

Impact by State

The new SALT cap disproportionately benefits taxpayers in states with high income taxes and/or high property taxes. Here is how the change affects typical taxpayers in the most impacted states:

New York

New York has a top state income tax rate of ~10.9% and high property taxes, especially in the New York City metropolitan area. A household earning ~$250,000 with ~$20,000 in property taxes might pay ~$16,000 in state income tax, for total SALT of ~$36,000.

Under the old $10,000 cap: Deduct $10,000 (losing ~$26,000)
Under the new ~$40,000 cap: Deduct the full ~$36,000 (losing $0)
Tax savings: approximately ~$6,500 to ~$9,600 depending on marginal federal rate

New Jersey

New Jersey has the highest property taxes in the nation (average effective rate of approximately ~2.2%) and a top state income tax rate of ~10.75%. A household with a ~$500,000 home might pay ~$11,000 in property taxes plus ~$12,000 in state income tax, for total SALT of ~$23,000.

Under the old $10,000 cap: Deduct $10,000 (losing ~$13,000)
Under the new ~$40,000 cap: Deduct the full ~$23,000 (losing $0)
Tax savings: approximately ~$3,000 to ~$4,800 depending on marginal federal rate

California

California has the highest top marginal state income tax rate at ~13.3%. A household earning ~$300,000 might pay ~$20,000 in state income tax plus ~$8,000 in property taxes, for total SALT of ~$28,000.

Under the old $10,000 cap: Deduct $10,000 (losing ~$18,000)
Under the new ~$40,000 cap: Deduct the full ~$28,000 (losing $0)
Tax savings: approximately ~$4,300 to ~$6,700 depending on marginal federal rate

Connecticut

Connecticut has both a state income tax (top rate ~6.99%) and relatively high property taxes. A household earning ~$200,000 might pay ~$10,000 in state income tax plus ~$9,000 in property taxes, for total SALT of ~$19,000.

Under the old $10,000 cap: Deduct $10,000 (losing ~$9,000)
Under the new ~$40,000 cap: Deduct the full ~$19,000 (losing $0)
Tax savings: approximately ~$2,000 to ~$3,300 depending on marginal federal rate

Illinois

Illinois has a flat state income tax of ~4.95% but high property taxes (average effective rate of approximately ~2.1%). A household earning ~$150,000 with ~$10,000 in property taxes might pay ~$7,400 in state income tax, for total SALT of ~$17,400.

Under the old $10,000 cap: Deduct $10,000 (losing ~$7,400)
Under the new ~$40,000 cap: Deduct the full ~$17,400 (losing $0)
Tax savings: approximately ~$1,600 to ~$2,700 depending on marginal federal rate

Standard Deduction vs. Itemizing with the New SALT Cap

The higher SALT cap may push some taxpayers back into itemizing who had switched to the standard deduction after 2018. Here is how to evaluate:

For 2026, the standard deduction is projected at:

Single: ~$16,100
Married filing jointly: ~$32,200
Head of household: ~$24,200

To benefit from the increased SALT cap, your total itemized deductions (SALT + mortgage interest + charitable contributions + other) must exceed the standard deduction.

Breakeven analysis for married filing jointly (~$32,200 standard deduction):

SALT Amount	Mortgage Interest	Charitable	Total Itemized	Benefit vs. Standard
~$20,000	~$10,000	~$5,000	~$35,000	~$2,800 above standard
~$30,000	~$8,000	~$3,000	~$41,000	~$8,800 above standard
~$40,000	~$12,000	~$5,000	~$57,000	~$24,800 above standard

If your SALT alone exceeds ~$20,000 and you have meaningful mortgage interest or charitable deductions, itemizing will likely produce a larger deduction than the standard deduction.

Planning Strategies

Timing of Payments

If you have discretion over when to make state tax payments (such as estimated state tax payments), consider timing them to maximize the SALT deduction during the five-year window. Making larger payments in years when you can deduct them fully under the ~$40,000 cap is more beneficial than spreading them into years after the sunset.

Bunching Strategy

If your total itemized deductions are close to the standard deduction threshold, consider “bunching” deductions — concentrating deductible expenses (including SALT, charitable contributions, and mortgage interest) into alternating years. In “on” years, you itemize with a high SALT deduction. In “off” years, you take the standard deduction.

Monitor the Phaseout

If your MAGI is near ~$500,000, consider strategies to reduce MAGI (such as maximizing retirement contributions or timing capital gains) to avoid the SALT cap phaseout. Even a small reduction in MAGI can preserve thousands of dollars in SALT deductions.

Review Your Tax Brackets

The value of any deduction depends on your marginal tax rate. A ~$30,000 increase in SALT deduction saves:

~$6,600 at the 22% bracket
~$7,200 at the 24% bracket
~$9,600 at the 32% bracket
~$10,500 at the 35% bracket

Higher-bracket taxpayers benefit more from the same deduction amount.

Frequently Asked Questions

Does the $40,000 cap apply to both state income tax and property tax combined?

Yes. The ~$40,000 cap applies to the total of all qualifying SALT payments: state income tax (or sales tax), property tax, and local income taxes combined.

What if I pay more than $40,000 in SALT?

The excess above ~$40,000 is not deductible. If your total SALT is ~$55,000, you deduct ~$40,000 and absorb the remaining ~$15,000 without any tax benefit.

Can I choose to deduct sales tax instead of state income tax?

Yes. As under current law, you can choose to deduct either state and local income taxes or state and local sales taxes (but not both). Most taxpayers in states with income taxes benefit more from deducting income taxes. The ~$40,000 cap applies regardless of which you choose.

I live in a state with no income tax (Florida, Texas, etc.). Does this help me?

Potentially, but less dramatically. If your only SALT is property tax, you may not reach the ~$40,000 cap. However, if you have very high property taxes, the increased cap still provides benefit compared to the $10,000 cap. You also have the option to deduct sales tax instead of income tax.

How does this affect my state tax return?

The SALT deduction is a federal deduction only. It does not affect your state tax liability. Some states have their own limitations on deducting federal taxes or other states’ taxes. Check your state-specific rules.

What happens if Congress does not extend the $40,000 cap after 5 years?

The cap reverts to ~$10,000 (the TCJA level). This would be a significant reduction for taxpayers who have been benefiting from the higher cap. Financial planning should account for the possibility that the higher cap may not be permanent. See IRS payment plans for options if you face a larger tax bill after the sunset.

Can I deduct SALT if I take the standard deduction?

No. The SALT deduction is only available if you itemize deductions on Schedule A. If you take the standard deduction, you cannot claim any SALT deduction. Review the complete list of tax deductions to see which approach produces the better result for you.

Does the SALT cap apply to businesses?

The ~$40,000 cap applies to individual taxpayers filing Form 1040. Pass-through entities (S corporations, partnerships, LLCs) may have separate state-level workarounds (such as pass-through entity tax elections) that are not subject to the individual SALT cap. Consult a tax professional or see our self-employment tax guide for business-related considerations.

Key Takeaways

The SALT cap quadruples from $10,000 to ~$40,000 starting in 2026
A phaseout begins at ~$500,000 MAGI, gradually reducing the cap for high earners
Married filing separately filers get half: ~$20,000
The cap adjusts ~1% annually for inflation
The higher cap sunsets after 5 years (approximately 2031), reverting to ~$10,000
Taxpayers in high-tax states (NY, NJ, CA, CT, IL) benefit the most
The increase may push some taxpayers back into itemizing from the standard deduction
For a full overview of all OBBB changes, see the One Big Beautiful Bill tax changes guide

Tax Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified tax professional or visit IRS.gov for official guidance on the SALT deduction.