How the SALT Cap Increase Affects Your Tax Bill
If you run a business in a high-tax state like California, New York, New Jersey, or Illinois, the SALT cap has been a sore spot since 2018. The Tax Cuts and Jobs Act capped your state and local tax deduction at $10,000. Which meant if you paid $30K in state income tax and property tax, you could only deduct a third of it on your federal return.
That just changed. The One Big Beautiful Bill Act (OBBBA) raised the cap to $40,000 starting in 2025, and it ticks up to $40,400 for 2026. But there are catches: income phaseouts, a temporary window, and the question of whether it even matters if you're taking the standard deduction.
What Changed
| Year | SALT Deduction Cap |
|---|---|
| 2018–2024 | $10,000 |
| 2025 | $40,000 |
| 2026 | $40,400 |
| 2027 | ~$40,804 (1% increase) |
| 2028–2029 | Continues at 1%/year |
| 2030 onward | Reverts to $10,000 |
This is a five-year window. If Congress doesn't act again, the cap drops back to $10,000 in 2030. For married filing separately, the cap is $20,200 in 2026.
The Income Phaseout
The full $40,400 deduction is only available if your modified adjusted gross income is $505,000 or less in 2026 ($252,500 for married filing separately). Above that, the deduction shrinks by 30 cents for every dollar over the threshold. At $605,000+ in MAGI, you're back to the old $10,000 cap. The floor never drops below $10,000 regardless of income.
Example: a business owner with $550,000 MAGI exceeds the threshold by $45,000. The phaseout reduces their cap by $13,500 (30% × $45,000), leaving an allowable SALT deduction of $26,900 instead of $40,400.
Does This Actually Help You?
It depends on three things.
First, do you itemize? About 90% of taxpayers take the standard deduction ($16,100 single / $32,200 MFJ in 2026). The SALT cap only matters if you itemize.
Second, how much SALT do you actually pay? If your combined state income tax and property tax is under $10,000, the cap increase is irrelevant. The biggest beneficiaries pay $20,000–$40,000+ in state and local taxes.
Third, is your income under the phaseout? Above $505,000, the benefit shrinks quickly. Above $605,000, you're back at $10,000.
Who Benefits Most
The sweet spot is a business owner or high-earning professional in a high-tax state with MAGI between roughly $150,000 and $500,000 who pays significant state income and property taxes.
Example: you and your spouse earn $400,000 combined, pay $22,000 in state income tax and $16,000 in property tax. Under the old cap, you deducted $10,000. Under the 2026 rules, you deduct the full $38,000, an additional $28,000 in deductions. At a 24% marginal rate, that's about $6,700 in federal tax savings.
What About Pass-Through Business Owners?
Good news: the OBBBA did not restrict pass-through entity tax (PTET) elections. If your state offers a PTET workaround, your business can deduct state taxes at the entity level. bypassing the SALT cap entirely.
If you're an S-corp or partnership owner in a PTET state, the SALT cap increase may be less relevant to you since you're already getting the full deduction through the entity.
Planning Moves for 2026
Review whether itemizing now makes sense. Run the numbers with the $40,400 cap. Prepay property taxes if you're close to the cap. Check your PTET election status. And remember this is temporary: the cap reverts to $10,000 in 2030.
Frequently Asked Questions
Does the SALT cap apply to businesses?
The $40,400 cap applies to individual returns. C-corporations deduct state taxes as business expenses with no cap. Pass-through entities can use PTET elections in most states.
Can I deduct both state income tax and property tax?
Yes, the combined total is subject to the cap.
Is the $40,400 cap per person or per return?
Per return. Married filing jointly shares the cap. Married filing separately gets $20,200 each.