State and local tax deduction under the 2026 cap
Updated October 2026
The cap in section 164(b)(6) covers the state and local taxes you deduct on Schedule A: state and local income taxes, or general sales taxes instead if you elect them (never both); real estate taxes on your home and land; and personal property taxes charged yearly on the value of something, such as the value-based part of a car registration. Foreign real estate taxes are not deductible at all. Taxes on rental property or a business go on Schedule E or C and are not limited by the cap. Fees for services (trash pickup, HOA dues, water) are not taxes.
Married couple, $250,000 of income, $14,000 of state income tax withheld and $9,500 of property tax: SALT paid is $23,500, under their $40,400 cap, so all of it counts. Add $15,000 of mortgage interest and charitable gifts for $38,500 of itemized deductions, against the $32,200 standard deduction. Itemizing removes another $6,300 from taxable income, which falls from $217,800 to $211,500. All of that $6,300 is in the 24% bracket (it starts at $211,400 for joint returns), so federal tax drops by $1,512. Under the old $10,000 cap their itemized total would have been $25,000, so they would have taken the standard deduction and saved nothing.
Count taxes paid during the calendar year. State income tax: Form W-2 box 17 (and box 19 for local), plus estimated payments made in the year and any balance due for a prior year paid this year. Property tax: your bill or the escrow line on Form 1098 (box 10 often shows it). If you elect sales tax instead, the IRS Sales Tax Deduction Calculator gives a table amount plus big purchases such as a car. Use expected AGI (Form 1040 line 11) for modified AGI; it differs only for people with foreign earned income or certain territory income.
| Household | SALT paid | Cap | Deductible SALT | Best choice | Tax saved vs standard | Gain vs the old cap |
|---|---|---|---|---|---|---|
| Single renter, $90,000 | $3,500 | $40,400 | $3,500 | Standard $16,100 | $0 | $0 |
| Single homeowner, $120,000 | $13,000 | $40,400 | $13,000 | Itemize $21,000 | $1,078 | $660 |
| Married, $250,000 (calculator default) | $23,500 | $40,400 | $23,500 | Itemize $38,500 | $1,512 | $1,512 |
| Married, $550,000 | $54,000 | $26,900 | $26,900 | Itemize $56,900 | $8,064 | $5,408 |
| Married, $700,000 | $72,000 | $10,000 | $10,000 | Itemize $50,000 | $6,230 | $0 |
The two high-income couples show the phase-down: at $550,000 the cap is $26,900, and at $700,000 it is back to the $10,000 floor, so the new law gives them nothing extra.
The cap is $40,400 for 2026 ($20,200 if married filing separately). It falls by 30 cents for each dollar of modified AGI above $505,000 ($252,500 separately) and stops at $10,000 ($5,000).
| Modified AGI | SALT cap (all other filers) | Married filing separately, at half that income |
|---|---|---|
| $400,000 | $40,400 | $20,200 |
| $505,000 | $40,400 | $20,200 |
| $550,000 | $26,900 | $13,450 |
| $600,000 | $11,900 | $5,950 |
| $650,000 | $10,000 | $5,000 |
| $700,000 | $10,000 | $5,000 |
Between $505,000 and about $606,333 of income, each extra dollar of income also removes 30 cents of deduction for anyone whose SALT exceeds the shrinking cap, so the effective marginal rate is about 1.3 times the bracket rate (for example 32% becomes about 41.6%).
By statute the cap and the phase-down threshold each rise 1% a year through 2029: for 2027 that is 101% of $40,400 = $40,804 and 101% of $505,000 = $510,050 (the IRS had not published 2027 figures as of October 2026). For tax years beginning in 2030 the cap returns to $10,000 with no phase-down. The $10,000 floor never changes.
It does not model the alternative minimum tax, which disallows state and local taxes entirely and can claw back part of the benefit for high earners; the limit on itemized deductions for people in the 37% bracket; pass-through entity taxes that some states let S corporations and partnerships pay at the entity level; or the tax on a state refund in a year you itemized. It treats all income as ordinary and uses the standard 2026 brackets. If you own a pass-through business, are near the AMT, or are in the $505,000-$606,333 phase-down range, a tax professional can test timing options such as when to pay property tax.
Adding sales tax and income tax. It is one or the other. Prepaying next year’s property tax. Only tax assessed and paid in the year counts. Forgetting last year’s refund. A state refund you deducted last year may be taxable income this year. Counting fees. Flat registration fees and HOA dues are not deductible taxes. Assuming the cap is per person. It is per return, and half on a separate return.