For more than a century, the federal deduction for state and local taxes under IRC §164 had no dollar limit. The Tax Cuts and Jobs Act of 2017 changed that overnight, capping the SALT deduction at $10,000 ($5,000 for married filing separately) effective January 1, 2018. That cap — unchanged for seven years — disproportionately hit residents of high-tax states: California, New York, New Jersey, and Connecticut. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raises the cap to $40,400 for 2026, but the benefit phases out sharply for higher earners, and a 2030 sunset looms over every planning decision.
What Is the SALT Deduction Cap for 2026?
Under IRC §164(b)(6) as amended by the OBBBA (Public Law 119-21), the SALT deduction cap for tax year 2026 is $40,400 for single, married filing jointly, and head of household filers. Married filing separately filers are capped at $20,200. Both amounts increase by 1% annually through 2029 and revert to $10,000 on January 1, 2030.
The deduction covers state and local income taxes, real property taxes, and personal property taxes, all claimed on Schedule A (Form 1040), Lines 5a–5e. Taxpayers must elect to deduct either state/local income taxes or sales taxes under IRC §164(b)(5) — not both — but both choices count against the same $40,400 cap. Texas residents with no state income tax may deduct actual sales taxes plus property taxes, subject to the same limit.
SALT Cap Schedule: 2025–2030
Year by Year- 2025: $40,000 cap / $500,000 phase-out threshold
- 2026: $40,400 cap / $505,000 phase-out threshold
- 2027: $40,804 cap / $510,050 phase-out threshold
- 2028: $41,212 cap / $515,151 phase-out threshold
- 2029: $41,624 cap / $520,302 phase-out threshold
- 2030+: $10,000 (TCJA cap restored, all filers)
Source: Rev. Proc. 2025-32; IRC §164(b)(6) as amended by OBBBA (P.L. 119-21).
Who Actually Benefits from the Higher SALT Cap?
The primary beneficiaries are upper-middle-income filers in high-tax states with MAGI between roughly $150,000 and $505,000. For these taxpayers, actual SALT liability — combined property taxes plus state income taxes — often ranges between $15,000 and $40,000, far above the old $10,000 cap. The increased cap also pulls more filers over the itemization threshold: the 2026 standard deduction is $32,200 (MFJ), $16,100 (single), and $24,150 (HOH).
Low-income filers rarely have SALT bills approaching the old $10,000 cap. Very high-income filers above $606,333 MAGI hit the phase-out floor and receive the same $10,000 cap as under TCJA — no benefit from the OBBBA change. Pre-TCJA (2017), California filers accounted for 21% of all national SALT deductions; New York accounted for 13%. The Tax Foundation estimates that approximately 9.5% of all filers itemized in 2022 under the TCJA cap; the OBBBA increase is projected to lift that rate to 12–13%.
How Does the SALT Phase-Out Work?
For filers with MAGI above $505,000 (2026), the $40,400 cap phases down at a rate of 30 cents per dollar of excess MAGI, until it reaches the $10,000 floor. The phase-out reduces the allowable cap, not the actual taxes paid — meaning filers in the phase-out zone should still calculate their full SALT liability before applying the reduction.
Example: A married couple in New York with $560,000 MAGI pays $50,000 in combined property and state income taxes. Their MAGI exceeds the threshold by $55,000. The phase-out reduces their cap by $16,500 ($55,000 × 30%), yielding an allowable SALT deduction of $23,900 — not $40,400, and not the full $50,000 paid.
For married filing separately filers, the cap is $20,200 and the phase-out begins at $252,500 MAGI, reaching the $5,000 floor at approximately $303,167. Filing MFS to split SALT between spouses is almost never advantageous: MFS filers lose eligibility for multiple credits (earned income credit, child and dependent care credit, American Opportunity Credit), are forced to itemize if the other spouse itemizes, and face compressed marginal rate brackets. H.R. 232 — the SALT Fairness and Marriage Penalty Elimination Act — would equalize the MFS cap with the joint cap but has not been enacted as of April 2026.
Does the Larger SALT Deduction Trigger AMT?
Yes — and this is the most common blind spot in 2026 SALT planning. Under IRC §56(b)(1)(A)(ii), state and local taxes are not deductible for Alternative Minimum Tax purposes. Any SALT amount claimed on Schedule A is added back in full when computing Alternative Minimum Taxable Income (AMTI). A $40,000 SALT deduction on the regular return produces $40,000 of additional AMTI.
The OBBBA simultaneously tightened AMT parameters for 2026, lowering phase-out thresholds and doubling the phase-out rate:
2026 AMT Parameters (Post-OBBBA)
Critical WarningThe AMT exemption is $140,200 (MFJ) and $90,100 (single) for 2026. For joint filers, the exemption phases out starting at $1,000,000 MAGI at a 50% rate — double the prior 25% rate — and is fully eliminated at $1,280,400. Single filers' exemption phases out starting at $500,000, eliminated at $680,200.
Filers in the $505,000–$606,333 SALT phase-out zone face compounding risk: they receive only a partial SALT deduction on their regular return, but must still add back the full SALT amount paid to compute AMTI — potentially triggering an AMT liability that erases the partial regular-tax benefit. Before claiming a large SALT deduction, run a parallel AMT calculation using Form 8801.
ISO (incentive stock option) holders face particular exposure: ISO spreads at exercise generate AMT preference items independently of SALT, and the SALT add-back stacks on top. Consider the full AMT picture before exercising ISOs in a year with significant SALT deductions. For help navigating both, see our individual tax services.
What Is the PTET Strategy for Business Owners?
The pass-through entity tax (PTET) election remains the most powerful SALT workaround available, regardless of the higher personal cap. State entity-level taxes paid by S-corporations, partnerships, and multi-member LLCs are deductible under IRC §162 as ordinary and necessary business expenses — not IRC §164 — and are therefore not subject to the personal SALT cap at any income level. The IRS confirmed this treatment in Notice 2020-75, explicitly ruling that the §164(b)(6) cap does not apply to entity-level state tax payments.
Over 30 states now have active PTET programs. The mechanism: the entity pays state income tax at the entity level; the owner receives a corresponding state tax credit on their personal return; the federal deduction flows through the owner's Schedule K-1, bypassing the SALT cap entirely.
PTET Election Decision Framework for 2026
MAGI under $505,000: Model whether your personal SALT deduction (property taxes + state income taxes) already approaches $40,400 before electing PTET. If personal SALT is below the cap, a PTET election may add entity-level complexity without incremental federal tax benefit. Calculate both scenarios.
MAGI $505,000–$606,333 (phase-out zone): PTET elections provide value here by moving deductible state taxes below the personal SALT phase-out — preserving the entity-level deduction while your personal cap is being reduced. Model the precise phase-out reduction before deciding.
MAGI above $606,333: PTET elections are essential. The personal SALT deduction is locked at $10,000. PTET is the only mechanism to deduct state business income taxes federally. California PTET (SB 132) requires a June 15 prepayment to secure the 2026 deduction. New York PTET under Tax Law §861 requires quarterly estimated payments. Minnesota's PTET program expired December 31, 2025 — no longer available for 2026.
Pass-through entity owners should revisit the PTET decision annually with a business tax advisor, since the optimal choice shifts with income, MAGI, and the specific state programs available.
Is the $40,400 SALT Cap Permanent?
No. Under current law, the OBBBA SALT provisions sunset after December 31, 2029. For tax year 2030 and beyond, the cap reverts to $10,000 ($5,000 MFS) — the original TCJA level — with no inflation adjustment and no phase-out structure. The reversion is a flat $10,000 cap for all filers.
The 2030 cliff creates meaningful planning pressure for taxpayers with timing discretion over SALT payments. Property tax prepayments, multi-year PTET elections, and the sequencing of entity-level state tax payments relative to personal deductions should all be modeled in the 2026–2029 window. Accelerating SALT into years when the cap is $40,000+ — rather than waiting until the $10,000 cap is restored — can produce significant cumulative tax savings.
For a multi-year tax planning analysis that accounts for the 2030 SALT sunset alongside other expiring OBBBA provisions, it is worth running scenarios now rather than reacting when the law changes again.
Have questions about the SALT deduction or whether itemizing makes sense for you in 2026? Contact TS CPA for a free consultation. We respond within the same day.