Personal Finance & Estate › Income, gift, estate & real-estate taxes › Income tax (federal & California)
SALT deduction cap (raised to $40,000 in 2025)
$10k 2018; ~$40k 2025–29· Tax rule
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
A limit on how much state and local income, sales and property tax an itemizer can deduct on the federal return.
See it on the Personal Finance & Estate map →How it works
The 2017 TCJA capped the deduction at $10,000 from 2018. The 2025 OBBBA raised it to $40,000 for 2025 and $40,400 for 2026, rising 1% a year through 2029, then back to $10,000 in 2030. Above $505,000 of modified AGI (2026), the cap shrinks by 30% of the excess, never below $10,000. It matters only to itemizers. Property taxes on rental or business property are business expenses, deducted on Schedule E or the entity's return, and are not capped.
Why it matters for you
California's high income tax made the $10,000 cap costly for many residents, and it spawned the state's PTE elective tax workaround.
Rules, limits and sources (2026)
IRC Sec. 164(b), as amended in 2025; IRS Schedule A instructions. New York and other high-tax states sued over the original cap and lost (New York v. Yellen, 2nd Cir. 2022).
Watch out for
Whether Congress lets the cap fall back to $10,000 in 2030 or extends the higher limit is an open question.
Connections (4)
▸SALT deduction cap (raised to $40,000 in 2025) limits a key deduction in Income tax (federal & California)Law or rule (2026)
How they connect
Before 2018, itemizers could deduct all state and local income and property taxes. The SALT cap limits that deduction on the federal return, raising federal tax for many in high-tax states like California, where state income tax alone often exceeded the original $10,000 cap.
When it applies
Created by the 2017 TCJA at $10,000 for 2018–2025; raised to $40,000 by the 2025 law, with a return to $10,000 scheduled for 2030.
The rule
IRC Sec. 164(b); IRS Statistics of Income data show itemized SALT deductions dropped sharply after 2018.
Watch out for
How much federal relief state taxes deserve is a political fight between high- and low-tax states; the 2030 snapback may be revisited.
▸One Big Beautiful Bill Act (2025 tax law) temporarily raised SALT deduction cap (raised to $40,000 in 2025)Law or rule (2026)
How they connect
The 2025 law raised the SALT cap from $10,000 to $40,000 for 2025, increasing 1% yearly to about $41,600 in 2029, before reverting to $10,000 in 2030. Higher earners lose the increase gradually above about $500,000 of income, a threshold that also rises 1% a year.
When it applies
Signed July 4, 2025, after pressure from House Republicans representing high-tax states such as New York and California.
The rule
IRC Sec. 164(b)(7) as amended; IRS Schedule A instructions for 2025 and 2026.
Watch out for
Whether Congress extends the higher cap past 2029 or lets it snap back is an open political question.
▸California pass-through entity (PTE) elective tax works around SALT deduction cap (raised to $40,000 in 2025)Depends on you
How they connect
The SALT cap limits individuals, not businesses. The PTE tax moves state income tax on business income from the owner's return, where it is capped, to the entity's return, where it is an ordinary business deduction. The raised cap made it less vital for some owners, but not for high earners.
When it applies
Connecticut created the first entity-level tax in 2018; the IRS approved the approach in Notice 2020-75; more than 30 states now offer one.
How sure?
IRS Notice 2020-75; the final 2025 law dropped House proposals that would have limited these workarounds.
Watch out for
Whether Congress or the IRS will curb these workarounds in the future remains open.
▸SALT deduction cap (raised to $40,000 in 2025) limits Standard vs. itemized deductions (incl. mortgage interest)Law or rule (2026)
How they connect
SALT is often the largest itemized deduction. Capped at $10,000, it pushed most households to the standard deduction; at $40,400 in 2026, more California homeowners again beat the $32,200 joint standard deduction by adding mortgage interest and charity. California's own return has no cap on property-tax deductions.
When it applies
After 2018 the share of federal filers who itemize fell from about 31% to about 11%, according to IRS data.
The rule
IRS Statistics of Income data on itemized deductions; Schedule A instructions.
Watch out for
How many filers return to itemizing under the higher cap will not be clear until 2025 and 2026 return data arrive.