For federal tax years beginning in 2025, the SALT deduction cap is no longer just the old $10,000 limit. This guide explains the new higher caps, how the income phaseout works, which taxes count on Schedule A, and what individual taxpayers should watch for on 2025 returns filed in 2026.
Quick takeaways
- For tax year 2025, the federal state and local tax (SALT) deduction cap increased to $40,000, or $20,000 if you file married filing separately.
- The 2025 cap begins to phase down if your modified adjusted gross income (MAGI) is over $500,000, or $250,000 for married filing separately, but it does not fall below $10,000 or $5,000, respectively.
- The higher SALT cap is temporary. IRS courseware says it applies for calendar tax years beginning in 2025 and ending before January 1, 2030, and that the limitation is adjusted for tax years beginning after 2025.
- You only get a federal SALT deduction if you itemize on Schedule A. If you take the standard deduction, you do not separately deduct SALT on Schedule A.
- You can deduct state and local income taxes or general sales taxes, plus certain real property taxes and personal property taxes, but not everything charged by a state or local government counts.
Who this applies to
This article applies mainly to individual taxpayers who may itemize deductions on Schedule A (Form 1040) for tax year 2025. It is a federal article, with only general state notes. It does not cover every rule for businesses, pass-through entity tax elections, or entity-level filings. The SALT cap discussed here is the individual Schedule A cap, not a complete guide to all state and local tax deductions in business returns.
Introduction
The SALT deduction has been one of the most watched federal itemized deductions for years. For many taxpayers in higher-tax states, the old $10,000 federal cap sharply limited the value of state income taxes and property taxes. For 2025, that federal cap is higher, but it is not unlimited, and high-income taxpayers still have to deal with a phaseout formula.
This article focuses on 2025 federal returns filed in 2026. For most calendar-year filers, the due date is April 15, 2026. If you request an extension on time, you generally get until October 15, 2026 to file, but not to pay.
What the SALT deduction is
SALT stands for state and local taxes. On a federal individual return, it is part of your itemized deductions on Schedule A. The main categories are:
- State and local income taxes or state and local general sales taxes instead of income taxes
- State and local real property taxes
- State and local personal property taxes.
A key rule for beginners: you can deduct state income taxes or state general sales taxes, but not both on the same return. If you choose sales tax, you generally make that election on Schedule A, line 5a.
What changed for 2025
The IRS says the overall limit on the deduction for state and local income, sales, and property taxes increased to $40,000 for 2025, or $20,000 if you file married filing separately. That is the headline change most taxpayers care about.
The IRS also says this increase is temporary. IRS courseware explains that the higher SALT limitation is effective for calendar years beginning in 2025 and ending before January 1, 2030, and that the applicable limitation amount is adjusted for tax years beginning after 2025.
So, for a practical reader, the takeaway is:
- 2025 has a published cap of $40,000 or $20,000 MFS
- 2026 has a published inflation-adjusted cap of $40,400 or $20,200 MFS
- 2027 through 2029 should also be adjusted under the law, but the IRS has not yet published those exact amounts as of May 15, 2026. That is an inference from the IRS’s published 2025 and 2026 guidance plus its statement that later years are adjusted after 2025.
How the 2025 cap works
For 2025, the basic federal rule is straightforward:
- If your Schedule A state and local taxes are $40,000 or less, you can generally deduct the full amount, assuming you itemize and no special rule changes the result.
- If they are over $40,000, the most you can generally deduct is $40,000.
- If you are married filing separately, the comparable cap is $20,000.
But the cap is not the full story. Once your income gets high enough, the IRS requires you to apply a MAGI-based phaseout worksheet.
2025 phaseout rules
For 2025, the IRS says the higher SALT cap is reduced if your modified adjusted gross income is more than:
- $500,000 for most filers
- $250,000 for married filing separately.
The Schedule A State and Local Tax Deduction Worksheet then reduces the cap by 30% of the excess over that threshold. The worksheet starts with $40,000, subtracts 30% of the amount over the threshold, and then applies a floor so the deduction does not drop below $10,000. For married filing separately, the worksheet effectively halves the result and preserves a $5,000 floor.
In plain English:
- The higher cap shrinks as income rises above the threshold.
- It does not go below $10,000 for most filers.
- It does not go below $5,000 for married filing separately.
From the worksheet formula, that means the 2025 higher cap phases all the way down to the floor once excess MAGI reaches $100,000 above the threshold. So, as an inference from the IRS worksheet:
- Most filers hit the floor at about $600,000 MAGI
- Married filing separately filers hit the floor at about $350,000 MAGI.
That is not a separate table the IRS printed in the Schedule A instructions. It is simply the result of the worksheet’s math.
What counts toward the SALT cap
The cap applies to the combined total of the taxes on Schedule A lines 5a, 5b, and 5c. Those are the core individual SALT lines.
That generally includes:
- State and local income taxes withheld from wages
- Estimated state and local income tax payments
- Prior-year state and local income taxes paid in 2025
- General sales taxes, if you elect that instead of income taxes
- Real estate taxes
- Personal property taxes based only on value and charged on a yearly basis.
A few important details:
- If you choose sales tax instead of income tax, you can generally use actual expenses or the IRS optional sales tax tables.
- Real property tax must generally be a tax imposed for the general public welfare and charged uniformly at a like rate.
- Personal property tax must be based only on value and imposed on a yearly basis.
What does not count
Not every state or local payment helps on Schedule A. The IRS lists several items that are not deductible on Schedule A, including:
- Federal income taxes
- Social Security taxes
- Transfer taxes on a sale
- Stamp taxes
- Homeowner association fees
- Estate and inheritance taxes
- Water, sewer, and trash service charges
- Taxes for local benefits, unless they are for maintenance, repair, or related interest.
This is a common source of confusion, especially for homeowners. A city bill may feel like a “tax,” but that does not make it deductible on Schedule A.
If you do not itemize, the higher SALT cap does not help you
This is one of the biggest misunderstandings. A higher SALT cap matters only if you itemize deductions. The IRS says Schedule A is used to figure itemized deductions, and in most cases your federal tax will be lower if you take whichever is larger: your itemized deductions or your standard deduction.
So if your total itemized deductions do not beat your standard deduction, the larger SALT cap may not change your federal tax at all. That is especially true for taxpayers with moderate property taxes, low or no state income tax, or high standard deductions due to filing status or age.
Myth vs. fact
Myth: The SALT cap rising to $40,000 means every homeowner can deduct $40,000 of taxes. Fact: No. You must itemize, you must have enough qualifying taxes, and high income can reduce the cap through the MAGI phaseout.
How this differs for businesses
This article is about the individual Schedule A SALT cap. That is different from taxes deducted in a trade or business or on certain entity returns.
The Schedule A instructions specifically tell taxpayers not to include state or local taxes already deducted on other forms, such as Schedule C, Schedule E, or Schedule F. They also say not to include sales taxes paid on items used in your trade or business in the Schedule A sales tax deduction.
That means:
- An employee looking at personal property tax and state withholding is generally dealing with the Schedule A SALT cap
- A self-employed sole proprietor may have some taxes on Schedule C and some personal taxes on Schedule A
- Partnerships, S corporations, and C corporations are not using Schedule A in the same way an individual does. Their tax treatment depends on entity-level rules and is outside this article’s scope. This is an inference from the IRS forms structure and Schedule A instructions.
If you own a business or rental property, it often matters whether a tax belongs on the business side or the personal itemized deduction side. That is a good place to get help from a tax professional.
Special cases that can change the result
For 2025, the Schedule A instructions tell you to use the worksheet not only when income is above the threshold, but also if you completed Form 2555, Form 4563, or excluded income from Puerto Rico. In those situations, the basic shortcut rule does not apply.
There is also a separate issue for taxpayers dealing with the alternative minimum tax (AMT). The 2025 Form 6251 instructions say that if you file Schedule A, the taxes from Schedule A, line 7 are entered for AMT purposes. That can change how much tax benefit you actually get from itemizing.
If you are in a high-income bracket, have foreign exclusions, own a business, or are navigating a state pass-through entity tax election, this is where a CPA, EA, or tax attorney can be worth it.
What we know about 2026 and later years
The IRS has already published the 2026 inflation-adjusted SALT numbers. For 2026, the limit is $40,400, or $20,200 if married filing separately. The income threshold is $505,000, or $252,500 if married filing separately, and the floor remains $10,000 or $5,000.
For 2027 through 2029, the law is temporary and the IRS says the limitation is adjusted after 2025, but the exact future annual amounts were not yet published as of May 15, 2026. So if you are planning beyond 2026, the safe answer is: the framework is known, but the exact annual inflation-adjusted dollar figures are not yet final.
Deadlines, records, and what to keep
For a 2025 federal return, most calendar-year taxpayers file by April 15, 2026, with an extension deadline of October 15, 2026 if properly requested.
Good records matter for SALT deductions. Depending on what you claim, keep:
- Forms W-2 and other income forms showing state withholding
- Proof of estimated tax payments
- Property tax bills and proof of payment
- Sales tax receipts if you use the actual expense method
- Prior-year state return payment records if paid in 2025.
State treatment may differ. A federal SALT cap change does not automatically mean your state return uses the same rule. Check your state’s 2025 instructions if your state allows itemized deductions or has separate conformity rules.
Bottom line
For 2025, the federal SALT cap is much higher than the old $10,000 limit: it is generally $40,000, or $20,000 for married filing separately. But the higher cap phases down once MAGI goes above $500,000 or $250,000 MFS, and it never drops below $10,000 or $5,000. You only benefit if you itemize, and only qualifying taxes on Schedule A count.
What to do next
- Check whether you are likely to itemize for 2025 before assuming the higher SALT cap will help.
- Separate personal Schedule A taxes from taxes already deducted on Schedule C, E, or F.
- If your income is high, run the Schedule A SALT worksheet instead of relying on the headline cap alone.
- If you are married, confirm whether joint or separate filing changes the result materially.
- If you have business ownership, foreign income exclusions, AMT concerns, or state-specific planning questions, consider talking with a CPA, EA, or tax attorney.
Source note: Sources consulted: IRS Schedule A instructions, IRS tax topics, IRS publications, official IRS corrections and updates, and related federal filing guidance. (irs.gov)
