For 2026, you can deduct up to $40,400 of state and local taxes on your federal return. The cap starts shrinking once your modified adjusted gross income passes $505,000, falling 30 cents for every extra dollar until it hits a $10,000 floor. Business owners can sidestep the cap entirely with a pass-through entity tax election.

What is the SALT deduction cap in 2026?

SALT stands for state and local taxes. On your federal return, you can itemize a deduction for your state and local income taxes (or sales taxes, if you elect those instead) plus your real estate and personal property taxes, all combined. The SALT cap puts a ceiling on that combined total.

The cap only matters if you itemize on Schedule A. If your itemized deductions do not beat the standard deduction, you take the standard deduction and get no additional federal benefit from the SALT deduction. (IRS: About Schedule A)

Congress raised the cap sharply in the One Big Beautiful Bill Act. Here is the schedule:

Cap figures: Congressional Research Service analysis of P.L. 119-21; 2026 amounts apply the law's 1% annual escalator to the 2025 base.

The key detail: the enhanced cap is temporary. It covers 2025 through 2029, then snaps back to $10,000 in 2030 unless Congress acts again.

How does the SALT phaseout work for high earners?

Once your modified adjusted gross income (MAGI) crosses $505,000 in 2026 ($252,500 if married filing separately), your cap starts shrinking. The formula is simple:

Your cap = $40,400 minus 30% of every dollar of MAGI above $505,000.

The cap cannot fall below $10,000 ($5,000 if filing separately).

Here is a worked example. Say your 2026 MAGI is $550,000:

• Excess over threshold: $550,000 - $505,000 = $45,000

• Reduction: 30% x $45,000 = $13,500

• Your SALT cap: $40,400 - $13,500 = $26,900

At roughly $606,333 of MAGI, the math bottoms out and you are back to the old $10,000 limit. Earners between $505,000 and about $606,000 sit in the phaseout band, where each extra dollar of income quietly costs you 30 cents of SALT deduction on top of your marginal rate.

Note that the test uses MAGI, not plain AGI. MAGI adds back excluded Puerto Rico-source income, the foreign earned income exclusion (Form 2555, line 45), the foreign housing exclusion or deduction (Form 2555, line 50), and Form 4563, line 15 (IRS 2025 Schedule A instructions), so expats and overseas earners should run the real number before assuming they are under the threshold.

Who gets hit hardest by the SALT cap?

Two groups feel it most:

1. High-tax-state W-2 earners. If you live in California, New York, or New Jersey and earn well into six figures, your state income tax alone can blow past the cap, before property tax enters the picture. As a pure W-2 employee you also have the fewest workarounds available, which is why planning matters more for you, not less.

2. Pass-through owners with big state bills. S corp and partnership owners face the same cap on their individual returns, but they have the best workaround in the tax code (see below).

What are the legal workarounds high earners use?

1. The PTET election (for business owners). This is the big one. Most states let your S corporation or partnership elect to pay state income tax at the entity level. That payment is deductible as an ordinary business expense, so it never touches your individual SALT cap at all. The One Big Beautiful Bill Act, as enacted, left PTET elections intact (IRS Notice 2020-75 remains the operative federal guidance). The timing trap: the entity must actually make the payment within the tax year for the deduction to count that year. Miss the deadline and the benefit slips a full year.

2. Keep your MAGI under the phaseout threshold. Maxing pre-tax 401(k) contributions, HSA contributions, and timing when bonuses or equity income land can keep you under $505,000 in a given year. This is year-by-year planning, not a one-time fix.

3. Bunch your itemized deductions. If you are on the fence about itemizing, bunching two years of charitable giving into one year (often through a donor-advised fund) can push you over the standard deduction line so the SALT deduction actually pays off.

4. Time your property tax payments. Paying a property tax installment in December versus January shifts which tax year claims the deduction. The rules on prepayment are strict, so confirm the payment counts for the year you want before you move money.

5. Relocation, the blunt instrument. Moving from a high-tax state to a no-income-tax state eliminates the state income tax portion of the problem permanently. It is a lifestyle decision first and a tax decision second, and part-year resident rules mean the savings do not start the day the moving truck leaves.

One thing that rarely helps: filing separately. Married filing separately halves both the cap and the phaseout threshold, so it usually does not improve the outcome. The exception is lopsided incomes: if one spouse sits well under the phaseout threshold, two separate caps can beat one phased-down joint cap, so run it both ways before deciding.

Does the SALT cap go away after 2029?

The enhanced $40,400 cap expires after 2029. In 2030 the cap reverts to $10,000 unless Congress extends or replaces it. That sunset creates a planning window: strategies that shift deductions into 2025 through 2029 capture the bigger cap, while income you can defer past 2029 may face a much smaller one.

Pending review by Brian Thomas, EA. Updated September 25, 2026.

This article is free educational content, not tax advice for your specific situation. If you want a plan built around your actual numbers, that is what our paid tax planning engagements do.