What the SALT cap increase may mean for your taxes
- Tax Planning
- Estate & Giving
- Article
Higher limits may translate into a major change in your tax strategy.
The One Big Beautiful Bill Act (OBBBA) set in motion a sweeping set of tax, retirement, education and estate planning reforms. Part of the tax legislation called for a temporary quadrupling of the state and local taxes (SALT) deduction. It’s important to understand how you’re affected by this change, because it can help you determine whether to claim the standard deduction or to itemize.
What is the SALT deduction?
The SALT deduction reduces the scope of your federally taxable income based on certain earnings, sales and property taxes you’ve already paid to state and local governments.
The following taxes can count toward your SALT deduction:
- State and local income taxes: 41 states and some municipalities charge taxes on earned income. States that do not charge these taxes include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
- Sales tax: Keep in mind that sales tax can add up quickly on high-value purchases such as vehicles, furniture or jewelry. If you deduct the income taxes described in the bullet above, you cannot also deduct sales tax. So, you’ll want to determine whether you paid more in income tax (if applicable in your state) or sales tax, and choose the deduction that works for your situation.
- Real property tax: These taxes are levied to those who own real estate to help cover community needs, like fire departments, police, parks and schools. If you pay a significant property tax bill, you may want to use this toward your SALT deduction. Homeowners in states with the highest effective property rates in the country, including Illinois, New Jersey, Connecticut, Vermont and New Hampshire, should take careful note.
- Personal property tax: Sometimes known as excise taxes, personal property taxes are levied annually by some state or local governments on tangible assets that are not permanently attached to land or buildings (like boats or aircraft, for example). Keep in mind this is different than a one-time sales tax at the time of purchase; rather, it’s an annual tax that’s paid based on the value of the asset.
SALT deduction changes
The SALT deduction cap is the highest amount you can deduct in state and local taxes from your federally taxable income. Passed in 2025, the OBBBA temporarily increased this deduction from $10,000 to $40,000 for single and joint filers. For those married filing separately, the deduction cap has increased from $5,000 to $20,000. For tax years 2026 through 2029, the cap will increase by 1% annually, then revert back to $10,000 and $5,000, respectively, in 2030.
Individuals or those married filing jointly with a modified adjusted gross income (MAGI) of over $505,000 (for 2026) will be subject to a phaseout of the deduction. The phaseout is reduced by 30 cents for every dollar above the threshold limit. For 2026, the SALT deduction is reduced to $10,000 for MAGI of $606,300 or greater.
Who benefits?
It’s best to consult your financial and tax advisors to determine the best approach; it may make sense to take the SALT deduction over the standard deduction if your itemized deductions add up to more than the standard deduction. Work with your tax professional to check your total itemized deductions, including SALT, plus things like charitable contributions and mortgage interest.
In particular, high earners and those living in high-tax states and municipalities may benefit from the increased SALT deduction cap. If you’re already itemizing, the higher SALT deduction may mean more tax savings. If you usually take the standard deduction, this new legislation should prompt a second look to see if itemizing will be worthwhile.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
