If you’ve ever wondered, “what is SALT tax deduction?” you’re not alone. The State and Local Tax (SALT) deduction is one of the most debated provisions in the U.S. tax code. It allows taxpayers to deduct certain state and local taxes from their federal taxable income, but the rules and limitations have changed over time. This article explains how the SALT deduction works, who benefits, and what future changes could mean for your finances.
Understanding the SALT Tax Deduction
The SALT deduction lets taxpayers deduct payments for:
- State and local income taxes (or sales taxes, but not both)
- Property taxes on homes and land
- Certain personal property taxes
Currently, under the One Big Beautiful Bill Act (OBBBA) signed in July 2025, the deduction cap has been raised to $40,000 ($20,000 if married filing separately), indexed for inflation. This expanded cap replaces the previous $10,000 limit set by the Tax Cuts and Jobs Act (TCJA) of 2017 and will remain in effect through 2029. The cap begins to phase out for taxpayers with Modified Adjusted Gross Income (MAGI) over $500,000 ($250,000 for married filing separately), reducing the deduction by 30 cents for every dollar above the threshold—but never below the original $10,000 cap.
This change continues to disproportionately affect taxpayers in high-tax states such as New York, California, and New Jersey, though the impact is now softened for many.
How the SALT Deduction Works Under Current U.S. Tax Law
Before 2018, there was no cap on SALT deductions. The TCJA introduced a $10,000 limit, which remained in place until 2024. The new 2025 legislation significantly expands the deduction, especially for households in high-income, high-tax regions.
Key Stats:
- About 11 million households claimed the SALT deduction in 2019 (IRS data).
- The original cap generated an estimated $21 billion annually in federal revenue.
- Households with incomes over $200,000 are most likely to claim the maximum deduction.
- For middle-income taxpayers, the effect of the cap is less significant, but for wealthier households in high-tax states, it can mean thousands of dollars in additional taxable income.
Who Benefits Most from the SALT Deduction?
- High-income earners in states like California, New Jersey, New York, and Illinois
- Homeowners with large property tax bills
- Dual-income families filing jointly in states with high state taxes
- Taxpayers in states with low or no income tax (like Florida or Texas) generally benefit less since they cannot deduct as much
Additionally, business owners using Pass-Through Entity Tax (PTET) strategies may bypass the SALT cap entirely, as affirmed by IRS Notice 2020-75.
Common Questions About SALT Tax Deduction
- Can I deduct both state income tax and sales tax? No. You must choose one or the other. Most taxpayers in income-tax states deduct income tax.
- Does the $40,000 cap apply per person? No. It’s per return: $40,000 for joint filers, $20,000 for married filing separately. The deduction phases out for high earners but never drops below $10,000.
- Will the SALT deduction cap expire? Yes. The current expanded cap is set to expire after 2029, reverting to the original $10,000 limit unless Congress acts again.
- Can renters claim the SALT deduction? Yes, but only if they pay state income or sales taxes. Renters without property tax payments may claim less.
Possible Future Changes to the SALT Deduction
There has been ongoing debate in Congress about further reform to the SALT deduction. Proposals include:
- Making the $40,000 cap permanent
- Adjusting phase-out thresholds for high earners
- Repealing the cap entirely in high-tax states
- Reverting to the $10,000 cap to maintain federal revenue
Taxpayers should monitor legislation closely since any change could impact tax liability.
Conclusion
Now that you know what is SALT tax deduction, it’s clear that this rule plays a major role in how millions of Americans calculate their taxes. While the original $10,000 cap limited savings for many, the expanded $40,000 cap through 2029 offers new opportunities—especially for residents of high-tax states.
👉 If you live in a high-tax state, consult a tax professional to ensure you’re maximizing your deductions and staying ahead of future changes.