SALT Deduction (State and Local Tax)
The federal itemized deduction for state and local income, sales, and property taxes, capped at $10,000 ($5,000 for married filing separately) under TCJA, with the cap raised under OBBBA.
Detailed Explanation
The Tax Cuts and Jobs Act (TCJA) imposed the $10,000 SALT cap starting in 2018, eliminating deductibility for high-tax-state residents who exceed the cap. OBBBA raised the cap to $40,000 ($20,000 MFS) with phase-down for very high earners, providing relief for upper-middle-income filers in California, New York, New Jersey, and similar high-tax states. Pass-Through Entity Tax (PTET) elections are widely used to circumvent the SALT cap by paying state tax at the entity level (federally deductible) and crediting it on the personal state return.
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Learn about Tax Planning & StrategyRelated Terms
Itemized Deductions
Specific deductions claimed on Schedule A in lieu of the standard deduction, including state and local tax, mortgage interest, charitable contributions, and medical expenses.
Standard Deduction
A fixed dollar amount that reduces taxable income, available to taxpayers who do not itemize deductions on Schedule A.
Pass-Through Entity Tax (PTET) Election
A state-level tax elected at the entity level to allow pass-through owners to circumvent the federal SALT deduction cap.
Pass-Through Entity
A business entity that does not pay federal income tax at the entity level; instead, profits and losses pass through to owners who report them on their individual returns.
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