If you're wondering whether you'll get a $10,000 or $40,000 SALT deduction cap in 2026, here's the straightforward answer: the cap is set at $40,400 for 2026. This isn't actually a choice you need to make: current tax law has already determined this for you.
But let's dive deeper into what this means for your tax situation and how it compares to the previous $10,000 limit.
What Exactly Is the 2026 SALT Deduction?
The State and Local Tax (SALT) deduction allows you to deduct certain taxes you pay to state and local governments from your federal taxable income. For 2026, you can deduct up to $40,400 in combined:
- State income taxes
- Local income taxes
- Property taxes on your home
- Sales taxes (if you choose this instead of state income tax)
This represents a 1% increase from the 2025 cap of $40,000, and it's available only if you itemize deductions rather than taking the standard deduction.
How We Got Here: From $10K to $40K+
Before 2018, there was no cap on SALT deductions: you could deduct everything you paid in state and local taxes. The Tax Cuts and Jobs Act introduced the $10,000 cap, which stayed in place through 2024.
Starting in 2025, new legislation increased the cap to $40,000, with annual 1% increases through 2029. So the progression looks like this:
- 2018-2024: $10,000 cap
- 2025: $40,000 cap
- 2026: $40,400 cap
- 2027: $40,804 cap
- 2028: $41,212 cap
- 2029: $41,624 cap
- 2030 and beyond: Back to $10,000 (unless Congress extends it)
Who Really Benefits from the Higher Cap?
The $40,400 cap doesn't help everyone equally. Here's who sees the biggest advantage:
High-Tax State Residents: If you live in states like California, New York, New Jersey, Connecticut, or Illinois, where combined state income and property taxes often exceed $10,000, this change can be significant.
Upper-Middle-Income Homeowners: Families earning between $100,000-$500,000 who own homes in expensive areas typically see the most benefit. They're likely to have SALT payments between $10,000-$40,000.
Married Filing Separately: The cap is $20,200 for married couples filing separately, which can be strategic in certain situations.
The Income Phase-Out Rules You Need to Know
Here's where it gets tricky: not everyone gets the full $40,400 deduction. The benefit phases out based on your Modified Adjusted Gross Income (MAGI):
Full Benefit: MAGI up to $505,000 (joint filers) or $250,000 (married filing separately)
Phase-Out Zone: For every dollar your MAGI exceeds these thresholds, your SALT deduction decreases by 30 cents.
Minimum Floor: No matter how high your income, you can still deduct at least $10,000 in SALT.
Real-World Example
Let's say you're married filing jointly with a MAGI of $600,000 and $35,000 in SALT payments:
- Your income exceeds the $505,000 threshold by $95,000
- Your deduction reduces by 30% of $95,000 = $28,500
- Your maximum SALT deduction becomes $40,400 – $28,500 = $11,900
- Since this is above the $10,000 minimum, you can deduct $11,900
Comparing Your Options: Itemizing vs. Standard Deduction
Remember, you can only claim the SALT deduction if you itemize. For 2026, the standard deduction is expected to be around:
- Single filers: $15,000+
- Married filing jointly: $30,000+
You should itemize only if your total itemized deductions (including SALT, mortgage interest, charitable contributions, and medical expenses) exceed the standard deduction.
State-by-State Impact
The benefit varies dramatically by location:
Highest Impact States:
- California: Average property tax + state income tax often $15,000-$50,000+
- New York: High property taxes plus state income tax
- New Jersey: Some of the highest property taxes nationally
- Connecticut: High property and income taxes
Lower Impact States:
- Florida: No state income tax, moderate property taxes
- Texas: No state income tax, but property taxes can be high
- Wyoming: Low overall tax burden
Planning Strategies for 2026
Timing Your Payments: If you're near the phase-out threshold, consider timing when you pay property taxes or make estimated state tax payments.
Bunching Strategy: In some cases, it makes sense to alternate between itemizing and taking the standard deduction by "bunching" deductions into alternating years.
Consider State Tax Planning: High earners might benefit from relocating to lower-tax states, though this involves many non-tax considerations.
What Happens After 2029?
Unless Congress acts, the SALT deduction cap drops back to $10,000 starting in 2030. This creates planning opportunities:
- Consider accelerating certain deductible expenses into 2029
- Evaluate whether major financial decisions should happen before or after the reversion
- Stay informed about potential legislative changes
Making the Most of Your SALT Deduction
To maximize your benefit:
- Keep detailed records of all state and local tax payments
- Consider the timing of property tax payments
- Track estimated tax payments to your state
- Compare itemizing vs. standard deduction each year
- Plan around the phase-out thresholds if your income is close
The Bottom Line
For 2026, you're looking at a $40,400 SALT deduction cap: not a choice between $10,000 and $40,000. Whether this helps your specific situation depends on:
- Where you live
- How much you pay in state and local taxes
- Your total income level
- Whether itemizing beats the standard deduction
The increased cap provides meaningful tax relief for many middle and upper-middle-income families, particularly those in high-tax states. However, the income phase-out rules mean the benefit isn't available to everyone.
Need Help Navigating Your SALT Deduction?
Tax planning around the SALT deduction can get complex, especially with income phase-outs and the interaction with other deductions. If you're wondering whether the higher SALT cap benefits your specific situation, or if you need help with tax planning strategies, our team at Brick Taxes is here to help.
We specialize in helping individuals and families optimize their tax strategies, including making the most of deductions like SALT. Contact us today to discuss your 2026 tax planning and ensure you're not leaving money on the table.
Leave a Reply