Recent tax legislation called for a temporary quadrupling of the state and local taxes (SALT) deduction. Because this tax change alone could determine whether you itemize deductions or claim the standard deduction, it's crucial to know what counts as part of the SALT deduction.
What is the SALT deduction?
The SALT deduction is a tax deduction that allows you to help reduce your federally taxable income based on certain taxes you paid to state and local governments.
How does the SALT deduction work?
The SALT deduction reduces eligible taxpayers' federal taxable income, so they are taxed on a lower income and therefore owe less in federal taxes. To calculate your SALT deduction, add your eligible state and local taxes.
In order to claim the SALT deduction, a taxpayer must itemize deductions on their tax return. That's when you reduce your income by the sum of various tax deductions you're able to claim to arrive at a custom amount. It's the alternative to taking the standard deduction, a deduction amount the IRS sets each year for each filing status.
Related: Tax credits vs. deductions
What's included in the SALT deduction?
There are a few broad categories of taxes that could count toward your SALT deduction, but you're not able to include all of them. Here's what qualifies, plus caveats.
State and local income tax
Most US states and some municipalities charge taxes on earned income, though 9 states do not levy earned income tax.
Sales tax
If you deduct income tax, you can't deduct sales tax, and vice versa. If you live in one of the 9 states with no income tax above, you could deduct sales tax instead. If you live in a state that taxes income, you might deduct sales tax if you made expensive purchases (think: vehicles, major appliances) and paid sales tax that exceeded what you paid in state and local income tax. Before you claim the SALT deduction, to ensure you're reducing your taxable income by the most amount possible, determine whether you paid more in income tax or sales tax, since you can't factor in both.
Property tax
Also known as real estate tax, homeowners pay this to help foot local government bills for needs like police and fire departments, schools, roads, and parks. New Jersey, Illinois, and Connecticut have the highest effective property tax rates in the country, according to the Tax Foundation,1 so property owners there may especially want to consider itemizing and taking the SALT deduction.
Personal property tax
Unlike real estate tax, personal property taxes, sometimes known as excise taxes, apply to items like boats and cars—but only in states that charge tax on them every year. If you own these items, you may be able to deduct any taxes based on their value. (The one-time tax you may pay on the purchase of a boat or car is sales tax and different from personal property tax.)
What is the SALT deduction cap?
The SALT deduction cap is the highest amount you can deduct in state and local taxes from your taxable income, even if your eligible SALT expenses exceed that amount. Because of recent tax legislation, the SALT deduction cap for tax year 2025 is $40,000 for single and joint filers. Previously, the SALT deduction cap had been $10,000. For those who are married filing separately, the SALT cap is $20,000 for tax year 2025. For tax years 2026 through 2029, the SALT deduction cap will be increased 1% a year.
When does the increased SALT deduction cap expire?
The increased SALT deduction cap is set to expire after tax year 2029. At that point, it's set to return to $10,000 for single and joint filers and $5,000 for those married filing separately.
Who benefits from the SALT deduction?
Taxpayers who may benefit from the SALT deduction tend to be high earners in high-tax states with a lot to itemize, such as property taxes, mortgage interest, and charitable contributions.
Who is eligible for the SALT deduction?
Taxpayers who itemize their federal tax returns are eligible to claim the SALT deduction. Not all taxpayers are eligible for the full deduction amount.
The deduction phases out by 30 cents for every dollar above a modified adjusted gross income (MAGI) of $500,000 ($250,000 for a married individual filing separately) in tax year 2025, dropping to a minimum of $10,000 (or $5,000 for those married filing separately) for single and joint filers with a MAGI of $600,000 or above ($300,000 for those married filing separately) in tax year 2025. The deduction and the phase-out levels will increase by 1% a year through tax year 2029.
SALT deduction example
Let's say you are a single filer who paid $15,000 in state and local income tax (which appears on employees' W-2 form) and $18,000 in property tax. Prior to the recent tax legislation, you could deduct only the maximum SALT deduction of $10,000. Under the new legislation, you may reduce your federal taxable income by $33,000 ($15,000 + $18,000) in state and local taxes if you itemize.
If instead you paid $8,000 in state and local income tax and $6,000 in property tax and have no other itemized deductions, it may benefit you more to claim the standard deduction than itemize. That's because the sum of your state and local taxes ($14,000) falls below the single filer's 2025 standard deduction of $15,750. You pay less in taxes the more you reduce your taxable income, though you could trigger the AMT (alternative minimum tax).
Let's look now at a hypothetical married couple filing jointly whose 2025 MAGI is $575,000, which is $75,000 over the $500,000 limit to claim the full $40,000 deduction. To determine their maximum SALT deduction, multiply that $75,000 overage by 30% (the phase-out amount) to get $22,500. Then subtract $22,500 from the full $40,000 deduction to get $17,500, the maximum the couple can deduct for SALT. If they don't have other itemizable deductions, they'd owe less in tax by claiming the standard deduction of $31,500 for joint filers rather than itemizing and claiming the SALT deduction.
When does it make sense to take the SALT deduction vs. the standard deduction?
In general, it may make sense to take the SALT deduction versus the standard deduction if your itemized deductions add up to more than the standard deduction of $15,750 (for single filers) or $31,500 (for married filing jointly) for tax year 2025. For tax year 2026, the standard deduction is $16,100 (single filers) or $32,200 (for joint filers), and the SALT deduction cap will increase to $40,400. Check that your total itemized deductions, SALT plus things like charitable contributions and mortgage interest, add up to more than your standard deduction, before you decide to itemize. In tax year 2026, the deduction begins to phase out by 30 cents for every dollar above MAGI of $505,000 ($252,500 for a married individual filing separately).
Another 2026 consideration: The value of itemized deductions for those in the 37% tax bracket for that tax year will be capped at 35%, or approximately 35 cents for every dollar deducted. Consult a tax professional for your personal situation.
Related: The bigger SALT deduction and you
How to claim the SALT deduction
Once you're sure itemizing is the best move for you, here are the steps to claim the SALT deduction. (If you hire a tax preparer, they'll take care of this.)
- Itemize deductions on Schedule A (Form 1040) starting on line 5
- Enter either income taxes or general sales taxes on line 5a, but not both
- Enter state and local real estate taxes (aka property taxes) on line 5b
- Enter state and local personal property taxes (annual taxes charged in some states on boats and cars, for instance) on line 5c
- Add lines 5a through 5c to come up with the number to enter on line 5d
- Enter the smaller of line 5d or $40,000 (or $20,000 if married filing separately) on line 5e
This will be the amount of your SALT deduction.
Why the SALT deduction matters
The SALT deduction matters because it could be the difference between taxpayers taking the standard deduction and itemizing. The more money saved on taxes, the more taxpayers have to invest, which could potentially deliver gains and compound.