A married couple in New Jersey pays $18,000 in property tax and $34,000 in New Jersey income tax in 2025 — $52,000 of state and local tax in a single year. For eight years, the federal return let them deduct only $10,000 of it. For 2025, the same couple deducts $40,000. That is the whole story of the SALT cap change in one household: a $30,000 larger deduction, worth $7,200 a year at a 24 percent marginal rate, delivered by a single section of the One Big Beautiful Bill Act. But the cap is not flat: it phases down above $500,000 of modified adjusted gross income, reverts to $10,000 in 2030, and is worth nothing to a taxpayer who takes the standard deduction or pays the alternative minimum tax. This guide runs the statute, the phase-down math, the itemized-versus-standard decision, and the pass-through-entity workaround.
What the SALT cap is, in one paragraph
The state and local tax deduction lives on Schedule A of Form 1040, lines 5a through 5c: state and local income taxes (or general sales taxes, if you elect them instead), real property taxes, and personal property taxes. Section 164(b)(6) of the Internal Revenue Code caps the combined total an individual may deduct. The Tax Cuts and Jobs Act set that cap at $10,000 for tax years 2018 through 2025. Section 70120 of the One Big Beautiful Bill Act, Public Law 119-21, replaced the flat $10,000 with an applicable limitation amount defined in new section 164(b)(7): $40,000 for 2025, $40,400 for 2026, rising 1 percent a year through 2029, then $10,000 again from 2030. Married filing separately gets half of each figure. The IRS confirmed the $40,000 figure in Topic No. 503, updated September 24, 2026: a combined total deduction of $40,000, $20,000 if married filing separately, subject to a modified adjusted gross income limitation but not reduced below $10,000.
> [!KEY TAKEAWAY]
> The SALT cap is $40,000 for 2025 and $40,400 for 2026 — but only if your modified adjusted gross income stays under $500,000 ($505,000 in 2026). Above that line the cap shrinks by 30 cents per dollar of income, and it never falls below $10,000. The deduction is worth real money only when your itemized total beats the standard deduction.
Why it matters
The cap decides whether itemizing is worth the paperwork. For 2025 the standard deduction is $31,500 for a married couple filing jointly and $15,750 for a single filer; for 2026 it is $32,200 and $16,100 under Revenue Procedure 2025-32. A household whose only itemized deductions are state and local taxes needs SALT above those lines before itemizing pays at all. Under the old $10,000 cap, almost nobody in a high-tax state cleared the bar on SALT alone. Under the $40,000 cap, a couple with $40,000 of SALT and $12,000 of mortgage interest itemizes $52,000 against a $31,500 standard deduction — a $20,500 advantage worth $4,920 at a 24 percent marginal rate. The same couple under the old cap itemized $22,000 and took the standard deduction instead. The cap change does not merely raise a deduction; it moves millions of households across the itemize-or-standard line, and the move is worth thousands of dollars a year to each of them.
> [!FOUNDER]
> "The $10,000 cap was a tax on living in a state that funds its own schools and roads. The $40,000 cap is relief with a timer on it — five years, then the cliff. Plan like the cliff is real, because Congress has to act for it not to be." — Enow A. Jovial, Founder & Chief Executive Officer
The cap, year by year
Section 164(b)(7) writes the schedule into the statute. The cap rises 1 percent a year, the phase-down threshold rises 1 percent a year, and both die at the end of 2029:
| Tax year | Cap (MFJ / single) | Cap (MFS) | Phase-down threshold (MAGI) |
| :--- | :--- | :--- | :--- |
| 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 |
| Authority | 26 U.S.C. section 164(b)(7)(A) | 26 U.S.C. section 164(b)(6) | 26 U.S.C. section 164(b)(7)(B) |
The 2027 through 2029 figures are the statute's own arithmetic at 101 percent of the prior year: the 2028 cap is $41,212.04 and the 2029 cap is $41,624.16; the table rounds to whole dollars.
The phase-down: 30 cents per dollar over the threshold
Above the threshold, the cap falls by 30 percent of the excess of modified adjusted gross income over the threshold, and the reduction can never take the cap below $10,000 ($5,000 for married filing separately). The formula, straight from section 164(b)(7)(B):
$
\text{Cap} = \max(\$10,000, \text{Applicable amount} - 0.30 \times (\text{MAGI} - \text{Threshold}))
$
Three worked cases for 2025, all married filing jointly:
| MAGI | Excess over $500,000 | Reduction (30 percent) | Cap |
| :--- | :--- | :--- | :--- |
| $420,000 | $0 | $0 | $40,000 |
| $550,000 | $50,000 | $15,000 | $25,000 |
| $600,000 | $100,000 | $30,000 | $10,000 (floor) |
| Authority | 26 U.S.C. section 164(b)(7)(B)(ii) | 26 U.S.C. section 164(b)(7)(B)(i) | 26 U.S.C. section 164(b)(7)(B)(iii) |
The floor is reached when the excess equals the cap minus $10,000, divided by 0.30. For 2025 that is $500,000 plus $100,000 — a MAGI of $600,000. For 2026 it is $505,000 plus $30,400 divided by 0.30, which is $101,333.33 — a MAGI of $606,333.33. Every dollar of MAGI between the threshold and the floor costs 30 cents of cap, so a taxpayer at $550,000 in 2026 keeps a $26,900 cap ($40,400 minus 30 percent of $45,000), and at $600,000 keeps $11,900 ($40,400 minus 30 percent of $95,000). The phase-down is the single most expensive planning mistake in this guide: a $10,000 year-end bonus that pushes MAGI $10,000 further past the threshold costs $3,000 of SALT deduction.
The worked return: a New Jersey couple
Take the couple from the opening paragraph. Married filing jointly, 2025, MAGI $420,000, New Jersey property tax $18,000, New Jersey income tax $34,000, mortgage interest $9,000, charitable gifts $3,000:
$
\text{SALT paid} = \$18,000 + \$34,000 = \$52,000
$
$
\text{SALT deductible} = \min(\$52,000, \$40,000) = \$40,000
$
$
\text{Itemized total} = \$40,000 + \$9,000 + \$3,000 = \$52,000
$
$
\text{Advantage over standard} = \$52,000 - \$31,500 = \$20,500
$
$
\text{Tax value at 24 percent} = \$20,500 \times 0.24 = \$4,920
$
Against the old $10,000 cap, the same $30,000 of extra deduction is $7,200 a year at 24 percent, and $9,600 at 32 percent.
Under the old cap the same couple itemized $22,000 and took the standard deduction instead. The change moves millions of households across the itemize-or-standard line.
A single filer, 2025, MAGI $180,000, SALT paid $22,000, mortgage interest $6,000: deductible SALT is $22,000, under the cap. Itemized total is $28,000 against a $15,750 standard deduction — a $12,250 advantage worth $2,695 at a 22 percent marginal rate. Under the old cap the same filer itemized $16,000 and took the standard deduction.
The pass-through-entity workaround still beats the cap
The $40,000 cap applies to individuals. It does not apply to a partnership or an S corporation that pays state income tax at the entity level. IRS Notice 2020-75 announced that specified income tax payments made by a partnership or S corporation are deductible in computing the entity's income and are not subject to the individual SALT cap. As of May 2023, 36 states and New York City had adopted pass-through-entity tax regimes, and more have followed. The mechanics: the entity elects into the state regime, pays the state tax itself, deducts the payment as a business expense on the federal return, and the owners receive a credit on their personal state returns so the income is not taxed twice at the state level.
The worked case: an S corporation with $300,000 of pass-through income in a state with a 5 percent income tax. The entity pays $15,000 of state tax at the entity level. Federal taxable income falls $15,000, and at a 24 percent marginal rate the owner saves $3,600 of federal tax. If the same owner paid the $15,000 personally, and already had $25,000 of property tax, total personal SALT would be $40,000 — exactly at the cap — and the $15,000 of income tax would buy zero additional federal deduction. The workaround is worth $3,600 a year on these facts, every year, and the OBBBA cap increase did not change it: Notice 2020-75 is untouched by section 70120, and the cap increase only narrows the gap for owners whose personal SALT already fits under $40,000. The boundary: the election adds a state return and estimated payments, and it reduces qualified business income for the section 199A deduction, so the net benefit needs a CPA. The section 199A QBI deduction playbook runs the QBI side of that trade-off, and the Schedule C profit and loss playbook shows how the entity's income reaches the owner's return in the first place.
The traps: prepayment, AMT, and the 2030 cliff
> [!WARNING]
> Three traps erase the benefit. First, prepaying next year's property tax only works if the tax was already assessed in the year you pay it — paying an unassessed 2026 levy in December 2025 buys no 2025 deduction. Second, state and local taxes are added back for the alternative minimum tax under section 56(b)(1)(A), so a taxpayer who pays AMT can watch the extra $30,000 of deduction vanish. Third, the whole $40,000 regime sunsets: from 2030 the cap is $10,000 again unless Congress acts, so a five-year plan that assumes $40,000 forever is a plan built on a cliff.
A taxpayer in the 28 percent AMT bracket with $40,000 of SALT gets no federal benefit from any of it — the AMT computation adds the full amount back. Bunching works when the tax is assessed and the payment is made in the same year, and fails when the payment runs ahead of the assessment. And any multi-year decision that prices in $40,000 of SALT relief in 2031 is pricing in a law that does not exist yet.
The decision table
| Operator shape | SALT paid | MAGI | Best move | Authority |
| :--- | :--- | :--- | :--- | :--- |
| MFJ, high-tax state, itemizes | $52,000 | $420,000 | Itemize; full $40,000 cap | 26 U.S.C. section 164(b)(7) |
| MFJ, high-tax state, high income | $52,000 | $550,000 | Itemize; cap is $25,000 | 26 U.S.C. section 164(b)(7)(B) |
| MFJ, MAGI above $600,000 | Any | $600,000+ | Cap is $10,000; PTET is the lever | Notice 2020-75 |
| Single, moderate SALT | $22,000 | $180,000 | Itemize; SALT under cap | Rev. Proc. 2025-32 |
| Standard-deduction filer | Any | Any | No benefit; cap is irrelevant | 26 U.S.C. section 63(c) |
| AMT payer | $40,000 | Any | No benefit; SALT added back | 26 U.S.C. section 56(b)(1)(A) |
| S-corp / partnership owner | $15,000 state tax | Any | Elect PTET; deduct at entity level | Notice 2020-75 |
Who should NOT chase the cap
Not everyone benefits, and chasing it costs time and fees. Do not build a plan around the $40,000 cap if your modified adjusted gross income is above $606,333 in 2026 — you are at the $10,000 floor and the cap is already gone. Do not itemize if your total itemized deductions stay below the standard deduction: $32,200 for a married couple in 2026, $16,100 single. Do not prepay property tax that has not been assessed yet. Do not assume the cap survives 2029. And do not elect a pass-through-entity tax without a CPA running the QBI interaction — the federal saving can be smaller than the compliance cost on a small entity. The 1099-NEC contractor reporting playbook covers the reporting side for owners who pay contractors through the same entity, and the tax estimator runs the itemized-versus-standard comparison on your own numbers before you commit to a strategy.
The execution checklist
> [!TIP]
> Bunching still works under the higher cap: pay two years of property tax in the year your MAGI dips under the threshold — a sabbatical year, a retirement year, a low-income year — and take the standard deduction in the other year. The cap is annual, so the year you bunch is the year the $40,000 matters most.
The estate tax exemption $15 million playbook runs the other side of the same household balance sheet: the $15,000,000 exclusion, the portability election, and the Form 706 deadline.