What is the SALT deduction cap for 2026?

By Claud Cornetti, CPA · Licensed in New Jersey and New York

Published 19 October 2026 · Updated 19 October 2026

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Short answer

For 2026, you can deduct up to $40,400 of state and local taxes on your federal return if you itemize, or $20,200 if you're married filing separately. Once your modified AGI passes $505,000, the cap shrinks by 30% of the excess until it hits a $10,000 floor, which happens at about $606,333. The cap grows 1% a year through 2029 and drops back to $10,000 in 2030.

What changed and when

The 2017 tax law capped the state and local tax deduction at $10,000 ($5,000 married filing separately) starting in 2018, and that cap was set to end after 2025. The One Big Beautiful Bill Act, signed on July 4, 2025, kept a cap but raised it for tax years beginning after December 31, 2024. Your 2025 return already uses the $40,000 cap.

The deduction covers state and local income taxes (or sales taxes, if you choose them instead), real estate taxes and personal property taxes. The same dollar cap applies to a single filer and to a married couple filing jointly, so two unmarried homeowners get twice the room a married couple gets. Property taxes on a rental or business property are a separate matter: you deduct them against that income, and they don't count toward the cap.

Tax year	SALT cap	Phase-down starts at MAGI of
2025	$40,000	$500,000
2026	$40,400	$505,000
2027	$40,804	$510,050
2028	about $41,212	about $515,151
2029	about $41,624	about $520,302
2030 and later	$10,000	no phase-down

The law sets each year from 2027 through 2029 at 101% of the year before; the IRS will confirm the exact amounts. If you're married filing separately, halve both the cap and the threshold.

How the cap shrinks above $505,000

The phase-down runs on modified adjusted gross income. For most people that's simply AGI; the law adds back excluded foreign earned income and a couple of similar exclusions. For every dollar of MAGI above $505,000, your cap drops by 30 cents. It can't fall below $10,000 ($5,000 married filing separately), and starting from $40,400, that floor arrives at about $606,333 of MAGI.

In the band between $505,000 and roughly $606,000, the haircut works like a hidden rate increase. If the state and local taxes you pay already exceed the cap, each extra dollar of income costs you 30 cents of deduction on top of the tax on the dollar itself. In the 35% bracket that adds 10.5 cents, so income in that band is taxed federally at about 45.5%, or about 41.6% in the 32% bracket, where many joint filers in this band sit. If you pay less SALT than the cap, the phase-down only starts to hurt once the shrinking cap drops below what you actually paid.

That's why AGI planning matters more than usual for households near $505,000: pre-tax retirement contributions, an HSA, the timing of a bonus or a capital gain and, for business owners, the BAIT election covered below.

Who comes out ahead in New Jersey

In many New Jersey towns, property tax by itself runs past $10,000 a year, before a single dollar of state income tax. From 2018 through 2024, everything those households paid above $10,000 bought them no federal deduction at all.

The clearest winners are homeowners with MAGI under $505,000 whose property tax plus New Jersey income tax lands between $10,000 and $40,400. Between $505,000 and about $606,000 the benefit fades. Above that, a household is back where it was under the old law, unless part of its income runs through a business that can elect BAIT.

Is itemizing worth it again?

For many New Jersey households, yes. The SALT deduction only helps if your total itemized deductions beat the standard deduction, which for 2026 is $32,200 for married couples filing jointly, $16,100 for single filers and $24,150 for heads of household. Under a $10,000 cap, a married couple needed more than $22,200 of mortgage interest and charity on top of SALT before itemizing paid off. Under a $40,400 cap, property tax and state income tax alone can beat the standard deduction, and the mortgage interest and charitable gifts on top become real deductions again.

Three charitable and itemized rules change in 2026. If you itemize, charitable gifts count only to the extent they exceed 0.5% of your AGI. If you're in the 37% bracket, itemized deductions save you tax as if you were in the 35% bracket. And if you take the standard deduction, you can now also deduct up to $1,000 of cash gifts to charity ($2,000 for married couples filing jointly). All three belong in the comparison.

Does BAIT still make sense?

New Jersey's Business Alternative Income Tax (N.J.S.A. 54A:12-1 and following) lets a partnership, S corporation or multi-member LLC taxed as either pay New Jersey income tax at the entity level, as long as at least one owner is subject to New Jersey income tax. The owners get a refundable credit against their own New Jersey income tax, and the entity deducts the tax as a business expense, outside the individual SALT cap. IRS Notice 2020-75 is the federal basis for that deduction. Earlier drafts of the 2025 bill would have limited these entity-level taxes for service businesses such as law, medical and consulting firms, but the final law dropped those limits.

BAIT still makes sense for owners whose MAGI is above about $606,000, because they're back at a $10,000 cap. It makes sense for owners whose total state and local taxes exceed $40,400, even below the threshold. And it can help owners in the $505,000 to $606,000 band: the BAIT deduction lowers AGI, which lowers MAGI and gives back part of the cap.

For an owner well under $505,000 whose SALT already fits under $40,400, the case is weaker. The election moves a deduction the owner would have taken anyway, and because it reduces qualified business income, it also trims the 20% QBI deduction. Run the numbers both ways before electing.

Timing matters this year. The entity has to elect every year, and New Jersey won't accept BAIT payments, estimated payments included, until the election is in place. The entity deducts the tax in the year it pays it, so an owner who wants the deduction on the 2026 return generally needs the entity to elect and pay before December 31, 2026. The election itself stays open until the original PTE-100 due date, March 15 for calendar-year entities.

What happens in 2030

Under current law, the cap returns to $10,000 ($5,000 married filing separately) for tax years starting in 2030, with no phase-down. Unlike the 2017 cap, this one has no end date. It stays at $10,000 until Congress changes it.

That makes 2025 through 2029 a five-year window. Income you control, such as a large Roth conversion or the sale of a property, is worth placing in a year where it doesn't push you into the phase-down band. For business owners, BAIT will matter more once the cap is back at $10,000.

An example, with made-up numbers: two New Jersey couples.

Couple A lives in Montclair, files jointly and has MAGI of $560,000. They pay $30,000 of New Jersey income tax and $18,000 of property tax, so $48,000 of SALT, and they have $23,000 of other itemized deductions (mortgage interest, plus charity above the 0.5% floor). Their MAGI is $55,000 over the threshold, and 30% of that is $16,500, so their cap is $40,400 minus $16,500, or $23,900. Their itemized deductions come to $46,900, compared with $33,000 under the $10,000 cap that applied from 2018 through 2024. The extra $13,900 is deducted entirely in the 35% bracket, which saves them about $4,865 in federal tax.

Couple B lives in Hoboken, files jointly and has AGI of $320,000. They pay about $16,000 of New Jersey income tax and $14,000 of property tax, and all $30,000 of that SALT is deductible. They also have $15,000 of mortgage interest and $4,000 of cash gifts to charity, of which $2,400 counts after the 0.5% floor ($1,600). Their itemized deductions total $47,400. If they took the standard deduction instead, they'd get $32,200 plus the new $2,000 deduction for cash gifts, or $34,200. Itemizing wins by $13,200, worth about $3,168 in the 24% bracket. Under the 2024 rules, the same couple would have itemized $29,000, just under that year's $29,200 standard deduction, and taken the standard deduction instead.

Want this run against your own numbers?

Every answer above depends on the details of your return. Tell us what your year looks like and we will tell you whether this applies to you.

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Sources

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