The SALT Deduction Is Back — Bigger (Temporarily) in 2026

As the 2026 tax filing season arrives, one of the most talked-about changes in the U.S.

tax code is the revamped State and Local Tax (SALT) deduction. After years of

frustration for taxpayers in high-tax states, the deduction has been dramatically expanded — but with important caveats.

What Changed? The Basics of the 2026 SALT Rules

For tax years beginning in 2025 and continuing through 2029, Congress dramatically

expanded the SALT deduction cap:

• Old limit (pre-2025 / TCJA): $10,000 maximum SALT deduction ($5,000 married

  filing separately).

• New limit for 2025: $40,000 for most filers ($20,000 for married filing separately).

• New limit for 2026: $40,400, increasing roughly 1% each year through 2029.

• 2027–2029: Indexed upward at ~1% annually.

• 2030 and later: Reverts back to $10,000 and no indexing unless Congress acts again.

In practical terms, you can deduct up to $40,400 of your state and local income,

property, and general sales taxes on your federal income tax return beginning in tax

year 2026 (filed in 2027).

Yes — But Not Everyone Gets the Full Amount

To balance the broader benefit with budget concerns, the law includes a phase-out for

higher-income taxpayers:

• The expanded SALT cap begins to shrink when a filer’s modified adjusted

  gross income (MAGI) exceeds $505,000 (for married filing separately, roughly

  half that amount).

• For every dollar over the threshold, the SALT cap is reduced by 30% of the

  excess income.

• The deduction cannot drop below the original $10,000 floor, even for very

  high earners.

This means that while middle-income taxpayers in high-tax states can benefit

significantly, the richest taxpayers get far more limited additional relief.

Why This Matters: 2026 in Context

The SALT deduction cap was first imposed under the 2017 Tax Cuts and Jobs Act

(TCJA), limiting deductions to $10,000. That cap was widely unpopular in states with

high property and income taxes, like New York, California, and New Jersey, because

many homeowners paid far more than $10,000 in state and local taxes each year.

Under the new law — sometimes called the One Big Beautiful Bill Act — the SALT

cap increase is designed to provide temporary relief, helping taxpayers itemize more

often and deduct more of what they actually pay in state taxes.

In 2026, many filers who previously had no incentive to itemize may now find full

itemization worthwhile — especially homeowners with big property tax bills.

Who Benefits Most?

Here’s how different groups are affected:

Homeowners in high-tax states

If you live in a state with high property or income taxes (like New Jersey, New York,

California), the jump from a $10,000 cap to over $40,000 is huge. For many

households, this means thousands of dollars more in federal tax deductions.

High earners

If your MAGI is well above $505,000, your expanded SALT benefit will slowly phase

down. High earners pay more federal tax and get less deduction relief under the phase-

out rules.

Middle-income filers

Middle-income households with significant state and local taxes may now prefer

itemizing over taking the standard deduction — in contrast to the last few years when

the standard deduction often “won” because SALT was capped at just $10,000.

Planning Tips for 2026

Here are some practical ideas for maximizing your tax situation:

Prepay or time your taxes: Because SALT is deductible in the year it’s paid, some

taxpayers consider timing payments (e.g., paying property taxes before year-end) to

maximize deductions in a given year.

Itemize carefully

The new SALT cap only helps itemizers. If your total itemized

deductions (including SALT) don’t exceed the standard deduction, you may still be

better off claiming the standard deduction.

Work with a tax professional: Especially if you’re near the phase-out thresholds, small

income changes can significantly affect your SALT benefit.

Big Picture

Temporary Fix, Long-Term Uncertainty

Despite its benefits, the expanded SALT deduction is temporary, set to expire or shrink

after 2029 unless Congress acts again. This reflects political compromise:

constitutionally challenging full repeals of the cap was not achievable, but policymakers

agreed to significant, short-term relief.

Many taxpayers and state governments continue advocating for a permanent repeal or

reform of the SALT cap, and additional legislation could emerge in the coming years.

Bottom Line

The 2026 SALT deduction changes are a major development — offering a

temporary but meaningful increase in how much state and local taxes you can deduct

on your federal return. Whether you benefit depends on your income level, financial

situation, and how high your state and local taxes are. As always, good planning and

professional advice can help you make the most of the updated rules.