The OBBBA raised the SALT cap from $10,000 to $40,400 in 2026. Homeowners in high-tax states who were stuck at $10,000 now have room to itemize again — but only if their total deductions clear the standard deduction floor.
The One Big Beautiful Bill Act raised the state and local tax (SALT) deduction cap from $10,000 to $40,000 for 2025, indexed to $40,400 for 2026. Filers in high-tax states who were previously capped at $10,000 now have room to deduct significantly more in property and state income taxes — if they itemize and their total deductions exceed the standard deduction. The cap phases out above $500,000 AGI and reverts to $10,000 in 2030.
The Tax Cuts and Jobs Act of 2017 capped the state and local tax (SALT) deduction at $10,000 for all filers — regardless of how much they actually paid in property taxes, state income taxes, or local taxes. The same $10,000 ceiling applied whether you were single with modest property taxes or a married homeowner in New Jersey paying $18,000 in property tax alone.
The practical effect: homeowners in high-tax states — California, New York, New Jersey, Connecticut, Illinois, Massachusetts — were largely locked out of a deduction they had claimed for decades. A married couple paying $12,000 in property taxes and $9,000 in state income taxes had $21,000 in SALT, but could deduct only $10,000. The other $11,000 disappeared.
The One Big Beautiful Bill Act (H.R. 1, 119th Congress), signed into law on July 4, 2025, raised the SALT cap effective January 1, 2025. Per the IRS OBBBA provisions summary, the new cap amounts by tax year are:
| Tax Year | Single / MFJ / HoH | Married Filing Separately | |---|---|---| | 2025 | $40,000 | $20,000 | | 2026 | $40,400 | $20,200 | | 2027 | $40,804 | $20,402 | | 2028 | $41,212 | $20,606 | | 2029 | $41,624 | $20,812 | | 2030 | $10,000 (reverts) | $5,000 (reverts) |
The cap indexes at 1% annually through 2029. In 2030, without further Congressional action, it snaps back to $10,000.
For most filers, the 2025 return — filed in spring 2026 — is the first return where the new $40,000 cap applies. The 2026 tax year (returns filed in 2027) uses the $40,400 indexed amount.
The higher cap is most valuable for homeowners in high-tax states who pay meaningful state income or property taxes and whose total itemized deductions can now clear the standard deduction floor.
States where the change matters most: California, New York, New Jersey, Connecticut, Massachusetts, and Illinois — states with both high income tax rates (5–13%) and high property values driving large property tax bills.
Three groups benefit least:
1. Filers who take the standard deduction. The SALT cap only matters if your total itemized deductions exceed the standard deduction. If they don't, the higher cap changes nothing.
2. Filers with AGI above $500,000. The increased cap phases out at higher incomes. By approximately $600,000 AGI, the effective cap has returned to $10,000.
3. Filers in low-tax states. If your combined SALT is already under $10,000, the new cap doesn't change what you can deduct.
The SALT cap increase phases out for higher-income filers. Per IRS OBBBA guidance, the mechanics are:
Worked example (2026, married filing jointly):
| AGI | Excess Over $500K | Phase-Down (30%) | Effective SALT Cap | |---|---|---|---| | $480,000 | $0 | $0 | $40,400 | | $540,000 | $40,000 | $12,000 | $28,400 | | $570,000 | $70,000 | $21,000 | $19,400 | | $600,000 | $100,000 | $30,000 | $10,400 |
The phase-out thresholds also index at 1% per year alongside the cap. Check the IRS OBBBA provisions page for the exact 2026 inflation-adjusted figures when you file.
A higher SALT cap is only useful if you itemize — and itemizing only wins when your total Schedule A deductions exceed the standard deduction for your filing status.
Projected 2026 standard deduction amounts (per IRS Tax Topic 551 — Standard Deduction): - Married filing jointly: approximately $31,500 - Single / Married filing separately: approximately $15,750
To determine whether you should itemize: add your SALT (capped at $40,400 in 2026) + mortgage interest + charitable contributions + other Schedule A deductions. If the total exceeds your standard deduction, itemizing reduces your taxable income more. IRS Tax Topic 503 covers which state and local taxes are deductible in detail.
Example: A married couple in New Jersey
Under the prior $10,000 SALT cap, this couple's SALT was stuck at $10,000, making their total itemized $25,000 — well below the standard deduction. The OBBBA change flipped the math for millions of households in this situation.
For how mortgage interest fits into the itemizing calculation, see Closing Costs Explained: What Homebuyers Pay at the Table in 2026. For how charitable giving interacts with itemizing strategy, see Charitable Contribution Deductions: How to Maximize the Write-Off in 2026.
Before the OBBBA, many owners of S-corps, partnerships, and LLCs used pass-through entity tax (PTET) strategies to work around the $10,000 SALT cap. The idea: the entity pays state income taxes at the entity level — deductible as a business expense before income passes through to the owner — instead of letting those taxes flow through to the owner's personal return where the SALT cap would block most of the deduction.
With the personal SALT cap now at $40,400, that workaround is less necessary for owners whose personal SALT was previously blocked by the $10,000 ceiling. For owners whose total personal SALT (property tax plus state income tax) is under $40,400 and who are below the $500,000 phase-out threshold, the personal deduction may now be sufficient without PTET.
For owners whose SALT exposure exceeds $40,400, PTET for the overage may still be valuable — but the calculation depends on your state's specific PTET rules. For background on how entity structure affects federal tax treatment, see How to Form an S-Corp: Funding Implications.
The OBBBA's SALT cap increase is temporary. Per IRS OBBBA guidance, the higher cap applies to tax years 2025 through 2029 only. On January 1, 2030, absent Congressional extension, the cap reverts to $10,000.
What this means for planning:
For quarterly estimated tax planning context for self-employed owners, see How to Pay Quarterly Estimated Taxes in 2026. For the full breakdown of all OBBBA individual changes, see One Big Beautiful Bill: Key Tax Changes for Individual Filers in 2026.
*This article is educational and does not constitute tax advice. Consult a licensed tax professional for guidance specific to your situation.*
No. The OBBBA's higher SALT cap takes effect starting with tax year 2025 — returns filed in spring 2026. The 2024 cap was $10,000 and remains $10,000 for 2024 returns already filed.
No. The $40,400 is the federal ceiling for 2026. If your combined property taxes, state income taxes, and local taxes exceed $40,400, you can only deduct $40,400. The remainder is not deductible on your federal return.
Yes. Schedule A lets you deduct state and local income taxes or general sales taxes (you choose one), plus property taxes. The $40,400 cap is the combined ceiling for whichever election applies to your situation.
Yes, if your actual SALT exceeds $10,000. Add your actual SALT (up to $40,400) plus mortgage interest, charitable contributions, and other Schedule A deductions. If the total now exceeds your standard deduction — $31,500 for MFJ or $15,750 for single filers in 2026 — itemizing may now save more.
No. The SALT deduction only affects your federal income tax liability. Your state tax obligations are set by your state's own tax law — the federal SALT cap doesn't change what your state charges you.