The SALT deduction limit for 2026 is $40,400, not $10,000. The One Big Beautiful Bill Act (OBBBA) of 2025 quadrupled the cap to $40,000 for tax year 2025 and $40,400 for tax year 2026, with 1% increases each year through 2029. The higher cap phases down for high earners: above $505,000 of modified adjusted gross income (MAGI) in 2026, the cap shrinks by 30 cents per dollar of excess income until it reaches the $10,000 floor at roughly $606,333 MAGI. Married filing separately gets half of every number.
Key takeaways:
| Factor | Details |
|---|---|
| SALT cap (MFJ/Single) | $40,400 |
| SALT cap (MFS) | $20,200 |
| Phaseout MAGI threshold (MFJ/Single) | $505,000 |
| Phaseout MAGI threshold (MFS) | $252,500 |
| Phaseout rate | 30 cents per $1 of MAGI over threshold |
| Minimum cap (floor) | $10,000 ($5,000 MFS) |
| Business taxes on Schedule C | Not subject to SALT cap |
| PTE tax workaround | Available in 36 states + NYC |
| Sunset date | Reverts to $10,000 cap after 2029 |
Key point: The $40,400 cap only applies to taxes reported on Schedule A (itemized deductions). Business taxes deducted on Schedule C, Form 1065, or Form 1120-S are separate from the SALT cap and fully deductible.
Legal basis: IRC Section 164 (taxes deductible by individuals), IRC Section 164(b)(6) (SALT cap), OBBBA 2025, IRS Notice 2020-75 (PTE tax safe harbor)
SALT stands for State and Local Taxes. The SALT deduction allows you to deduct certain state and local taxes on your federal income tax return when you itemize deductions on Schedule A.
You can deduct three categories of state and local taxes:
1. State and local income taxes Any income tax you pay to your state or local government. This includes withholding on W-2 wages, estimated tax payments, and amounts paid with your state return.
2. State and local sales taxes (alternative to income tax) Instead of deducting income taxes, you can choose to deduct general sales taxes. This benefits residents of states with no income tax (Texas, Florida, Washington, etc.) who pay high sales taxes. You cannot deduct both — it's one or the other.
3. State and local real property taxes Property taxes on your home, land, or other real estate. This does not include taxes on personal property like vehicles (those are deductible separately if based on value).
Legal citation: IRC Section 164(a) lists the taxes deductible as itemized deductions.
No. The $10,000 cap applied to tax years 2018 through 2024, and it still governs 2024 and earlier returns, including amended ones. For tax years 2025 through 2029, OBBBA raised the cap to $40,000 and above. The $10,000 figure now survives in two places: as the floor the income phaseout cannot cut below, and as the level the cap reverts to in 2030.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a $10,000 cap ($5,000 for married filing separately) on the total SALT deduction. Before 2018, there was no cap — you could deduct all your state and local taxes without limit.
The $10,000 cap hit hardest in high-tax states like New York, California, New Jersey, Connecticut, and Illinois, where combined state income taxes and property taxes frequently exceeded $10,000. When I moved to the US from the UK to build Jupid, the SALT cap was my first American tax surprise: a federal limit on deducting taxes I had already paid to the state.
The One Big Beautiful Bill Act of 2025 (OBBBA) significantly increased the SALT cap:
| Tax Year | SALT Cap (MFJ/Single) | SALT Cap (MFS) | MAGI Phaseout Threshold |
|---|---|---|---|
| 2024 and prior | $10,000 | $5,000 | None |
| 2025 | $40,000 | $20,000 | $500,000 |
| 2026 | $40,400 | $20,200 | $505,000 |
| 2027 | $40,804 | $20,402 | $510,050 |
| 2028 | $41,212 | $20,606 | $515,151 |
| 2029 | $41,624 | $20,812 | $520,302 |
| 2030+ | $10,000 | $5,000 | None |
Both the cap and the MAGI threshold increase by 1% each year from 2026 through 2029. The $40,400 cap for 2026 is fixed directly in IRC Section 164(b)(6) as amended by OBBBA; it is a statutory amount, not one of the IRS's annual inflation adjustments. After 2029, the cap reverts to the original $10,000 level unless Congress extends it again.
The new higher SALT cap comes with a catch: it phases out for higher-income taxpayers.
For 2026, if your modified adjusted gross income (MAGI) exceeds $505,000 (single or MFJ) or $252,500 (MFS):
Reduction = 30% x (MAGI - $505,000)
Your SALT cap is reduced by 30 cents for every dollar of MAGI above the threshold. However, the cap cannot drop below $10,000 ($5,000 MFS) — the original TCJA floor.
| MAGI | Phaseout Reduction | Effective SALT Cap |
|---|---|---|
| $505,000 or less | $0 | $40,400 |
| $550,000 | $13,500 | $26,900 |
| $600,000 | $28,500 | $11,900 |
| $606,334 | $30,400 | $10,000 (floor) |
| $700,000+ | $58,500 (capped) | $10,000 (floor) |
At what income does the cap fully phase out?
The cap reaches the $10,000 floor when the phaseout reduction equals $30,400 ($40,400 - $10,000):
$30,400 / 0.30 = $101,333 above the threshold
$505,000 + $101,333 = $606,333 MAGI
If your MAGI is above approximately $606,333 in 2026, your effective SALT cap is $10,000 — the same as under the old TCJA rules.
The increased SALT cap is most valuable for taxpayers who:
Here's where things get important for business owners: the SALT cap only applies to personal taxes on Schedule A. Business taxes are a separate deduction.
If you're self-employed or own a business, these taxes are deducted on your business return — not Schedule A — and are not subject to the $10,000 or $40,400 cap:
Example: Sarah, a freelance designer in California
Sarah earns $150,000 on Schedule C. She pays:
Schedule C deductions (not subject to SALT cap):
Schedule A deductions (subject to SALT cap):
Before the OBBBA, Sarah would have been capped at $10,000 on Schedule A. Under the new rules, she deducts the full $21,500.
Legal citation: The OBBBA did not impose a SALT cap on partnerships and S corporations. Business taxes are deductible under IRC Section 162 (ordinary and necessary business expenses), not IRC Section 164(b)(6) (the SALT cap provision).
The pass-through entity tax (PTE tax or PTET) is a state-level tax paid by partnerships and S Corporations at the entity level rather than by individual owners. Because it's paid by the business entity, it's deducted as a business expense — which is not subject to the SALT cap.
Net effect: The state tax that would have been subject to the $40,400 SALT cap on your personal Schedule A is instead deducted as a business expense with no cap.
Marcus owns an S Corp in New York with $400,000 of pass-through income.
Without PTE election:
With PTE election:
The PTE route produces the same total deduction, but becomes valuable when total SALT exceeds $40,400 or when the phaseout reduces the cap.
Yes, for several reasons:
As of 2026, 36 states plus New York City offer PTE tax elections. Only five states with a personal income tax on pass-through income have not adopted a PTE tax: Delaware, Maine, North Dakota, Pennsylvania, and Vermont.
Major states with PTE elections:
| State | PTE Tax Available | Key Notes |
|---|---|---|
| California | Yes (through 2030) | SB 132 (2025) extended through 2030; from 2026, a June 15 prepayment shortfall trims the credit by 12.5% |
| New York | Yes | Annual election required by March 15 |
| New Jersey | Yes | Mandatory for some entities |
| Connecticut | Yes | Mandatory for pass-through entities |
| Illinois | Yes | Optional election |
| Massachusetts | Yes | Optional election |
| Georgia | Yes | Optional election |
| Ohio | Yes | Optional election |
| Virginia | Yes | Optional election |
| Colorado | Yes | Optional election |
Election deadlines vary by state. Some require the election before the tax year begins, others allow it with the return. Check your state's deadline — missing it means losing the deduction for the entire year.
No. PTE tax elections are limited to partnerships and S corporations. A sole proprietorship or a single-member LLC taxed as a disregarded entity has no separate entity to pay the tax, so it cannot elect. Illinois spells this out: its 4.95% PTE tax covers only partnerships (other than publicly traded partnerships) and S corporations, per Illinois Department of Revenue Pub-129. A Schedule C filer's state income tax stays on Schedule A, subject to the $40,400 cap and its phaseout.
If you file on Schedule C and your SALT regularly exceeds the cap, the fix is structural: an S corporation election would make the business PTE-eligible in most states. That move adds payroll and filing costs of its own, so run both sets of numbers before switching.
One important consideration: PTE taxes paid at the entity level reduce the pass-through income that flows to your K-1. This means your Qualified Business Income (QBI) for the 20% QBI deduction is also reduced.
Example: If your S Corp earns $400,000 and pays $25,000 in PTE tax, your K-1 shows $375,000 of QBI. Your QBI deduction is 20% of $375,000 = $75,000, not 20% of $400,000 = $80,000.
In most cases, the benefit of bypassing the SALT cap outweighs the reduction in QBI deduction. But run the numbers for your specific situation — or ask your tax professional.
The SALT deduction is an itemized deduction on Schedule A. You only benefit from it if your total itemized deductions exceed the standard deduction.
| Filing Status | Standard Deduction (2026) |
|---|---|
| Single | $16,100 |
| Married Filing Jointly | $32,200 |
| Married Filing Separately | $16,100 |
| Head of Household | $24,150 |
Source: Rev. Proc. 2025-32, reflecting the permanent standard deduction increase under OBBBA.
Even with a $40,400 cap available, many filers still come out ahead with the standard deduction. The higher cap only matters once your total itemized deductions clear these amounts.
You should itemize if your total Schedule A deductions — including SALT, mortgage interest, charitable contributions, and medical expenses (above 7.5% of AGI) — exceed your standard deduction.
Example decision:
| Deduction | Amount |
|---|---|
| SALT (state income tax + property tax) | $25,000 |
| Mortgage interest | $12,000 |
| Charitable contributions | $3,000 |
| Total itemized | $40,000 |
| Standard deduction (MFJ) | $32,200 |
| Benefit of itemizing | $7,800 |
Use the standard vs. itemized calculator to compare your options.
The SALT cap applies to taxes on Schedule A. If you pay state taxes through your Schedule C business, those are business deductions — not subject to the cap. Many sole proprietors incorrectly lump all state taxes into the $40,400 limit and miss out on additional deductions. Review which taxes are business expenses and which are personal.
PTE elections have specific deadlines that vary by state. New York requires the election by March 15 of the tax year. California allows it with the return. Missing the election deadline means you're stuck with the personal SALT cap for the entire year, with no way to go back.
The $40,400 cap sounds generous, but if your MAGI exceeds $505,000, it starts shrinking. Above $606,333, you're back to the old $10,000 cap. High earners who assume they get the full $40,400 may underestimate their tax bill.
You can deduct state and local income tax OR state and local sales tax — not both. Most taxpayers in states with income taxes benefit more from deducting income tax. But if you're in a no-income-tax state (Texas, Florida, Washington, Nevada, etc.), the sales tax deduction may be your only option.
The $40,400 cap (adjusted for inflation) expires after 2029. On January 1, 2030, the cap drops back to $10,000 unless Congress passes new legislation. If you're making long-term financial decisions — like buying property in a high-tax state — factor in the possibility that the higher cap may not last.
Tracking which taxes are deductible — and whether they go on Schedule A or Schedule C — requires accurate categorization of every payment you make throughout the year.
Jupid connects to your bank accounts and automatically categorizes your transactions with 95.9% accuracy. When you pay state estimated taxes, property tax installments, or business-related state fees, Jupid tags them in the right IRS category.
Here's what Jupid does for SALT tracking:
For business owners in high-tax states, getting the SALT deduction right can save thousands. That starts with knowing your numbers.
Connect your bank and start tracking your deductions at Jupid
The SALT deduction got significantly more generous under the OBBBA, but the income phaseout and 2029 sunset mean it's not a permanent fix. For business owners, the PTE tax election remains the most powerful tool to get around the cap — regardless of income level. Know your numbers, make the PTE election on time, and separate your business taxes from your personal SALT.
Last updated: July 11, 2026
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. The SALT cap, phaseout thresholds, and PTE tax rules are subject to change. Consult a qualified tax professional for advice specific to your situation. Jupid provides AI-powered transaction categorization and tax estimates but is not a substitute for professional tax counsel.
CEO & Co-Founder
Fintech CEO with 10+ years building accounting and financial technology products. Previously co-founded and scaled an AI-powered accounting platform to $30M revenue and 100K+ business users, achieving 30,000 customers per accountant through automation — recognized by CNBC as a top fintech company. Holds a Master's in Management Information Systems. At Jupid, he leads the development of AI-native bookkeeping, tax, and compliance tools designed for freelancers and small business owners.
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