The State and Local Tax (SALT) deduction is one of the most widely used itemized deductions available to U.S. taxpayers. It allows individuals to deduct certain taxes paid to state and local governments, reducing their federal taxable income. However, with recent legislative changes such as the Tax Cuts and Jobs Act (TCJA), understanding how to properly claim this deduction—and when it’s limited—is more important than ever. In this detailed blog, we will break down what the SALT deduction is, what taxes qualify, how the deduction limit works, and strategies for maximizing your benefit.
What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize deductions to deduct specific taxes paid to state and local governments from their federal income. These include:
- State and local income taxes or state and local general sales taxes (you must choose one, not both)
- State and local real estate taxes
- State and local personal property taxes
By claiming these deductions, you effectively reduce your federal taxable income, which can lower your overall federal income tax liability.
Types of State and Local Taxes That Qualify
1. Income Taxes
If you choose to deduct state and local income taxes, this includes any withholding from wages, estimated tax payments made during the year, and payments for prior-year taxes. Most taxpayers living in states with income tax—such as California, New York, or Illinois—choose this option.
2. Sales Taxes
Alternatively, taxpayers in states with no income tax (like Florida or Texas) can choose to deduct state and local general sales taxes. You can use actual receipts or rely on the IRS’s optional sales tax tables, adjusted for local tax rates and major purchases such as vehicles or boats.
3. Real Estate Taxes
Real estate taxes paid on personal residences and other non-business properties are deductible under SALT, provided they are based on assessed value and levied for the general public welfare. Special assessments (like for sidewalks or sewers) are not deductible.
4. Personal Property Taxes
These include taxes on items like automobiles or boats that are assessed based on value and charged annually. License fees not based on value are generally not deductible.
The SALT Deduction Cap: TCJA Limitations
Before the Tax Cuts and Jobs Act (TCJA) took effect in 2018, there was no federal limit on the amount of SALT deductions a taxpayer could claim. However, the TCJA imposed a cap on SALT deductions that remains in effect through at least 2025:
- Maximum deduction allowed: $10,000 per year ($5,000 if married filing separately).
- This cap applies to the total combined amount of income or sales taxes, real estate taxes, and personal property taxes.
This cap has significantly affected taxpayers in high-tax states, where total state and local taxes often exceed $10,000.
Who Is Affected Most by the SALT Deduction Cap?
The cap disproportionately impacts taxpayers who:
- Live in high-tax states like California, New York, New Jersey, and Connecticut
- Own expensive properties with high real estate taxes
- Have high incomes and pay substantial state income taxes
These taxpayers may lose the ability to deduct a significant portion of their state and local tax payments.
Can You Still Benefit from SALT Deduction If You Take the Standard Deduction?
No. The SALT deduction is only available to taxpayers who itemize deductions on Schedule A of their federal Form 1040. If you claim the standard deduction, you cannot take advantage of any itemized deductions, including SALT. The TCJA also nearly doubled the standard deduction, making it more attractive for many filers:
- Single: $13,850 (for 2025, subject to inflation)
- Married Filing Jointly: $27,700
- Head of Household: $20,800
You should calculate whether your total itemized deductions (including SALT, mortgage interest, charitable contributions, and medical expenses) exceed the standard deduction to determine which is more beneficial.
How to Claim the SALT Deduction
To claim the SALT deduction, complete Schedule A (Form 1040). Here’s how to report each tax type:
- State and local income or sales taxes go on Line 5a or 5b (you must choose one).
- Real estate taxes are reported on Line 5c.
- Personal property taxes are reported on Line 5d.
- Ensure the total on Line 5e does not exceed $10,000 ($5,000 if MFS).
Retain records such as W-2s (for withholding), tax bills, canceled checks, and purchase receipts for audit protection.
Strategies to Maximize Your SALT Deduction
1. Bunching Deductions
If your itemized deductions hover near the standard deduction amount, consider bunching deductible expenses into alternating years. For example, you might prepay property taxes due in January before the end of December.
2. Choosing Sales Tax Over Income Tax
In no-income-tax states, selecting the sales tax deduction may yield better results. Use IRS tables and add receipts for major purchases like vehicles and home construction materials.
3. Evaluate Your Filing Status
For married couples, filing separately may allow each spouse to claim a $5,000 SALT deduction, but it could result in other tax drawbacks. Analyze the total impact before changing filing status.
State Workarounds to the SALT Cap
Some states have introduced workaround strategies to mitigate the impact of the SALT deduction cap for business owners. One popular method is the Pass-Through Entity (PTE) Tax. In this arrangement, business income is taxed at the entity level instead of being passed to the owner, allowing the entity to deduct the tax paid and reducing the owner’s federal taxable income.
Eligibility and Availability
PTE tax regimes are currently available in over 30 states and are typically limited to partnerships, LLCs, and S corporations. If you’re a business owner, consult your tax advisor to see if your state has adopted such a program and whether it benefits your situation.
Common Mistakes to Avoid
- Attempting to deduct taxes not based on value or levied for public welfare (e.g., trash fees, water bills)
- Double-counting payments across multiple years
- Failing to choose between income and sales tax deductions
- Exceeding the $10,000 deduction limit
Recent Legislative Updates and Outlook
As of 2025, the SALT cap remains in effect, though several proposals have been made to repeal or adjust it. The outcome may depend on future Congressional action. Taxpayers in high-tax states continue to advocate for relief, while others argue the cap ensures fairness among states. Keep an eye on tax legislation, especially as the TCJA provisions are set to expire after 2025 unless extended or modified.
Conclusion
The SALT deduction remains a valuable tax benefit for many taxpayers, particularly those who itemize deductions and live in states with high tax burdens. However, the $10,000 cap has changed the dynamics of who benefits most. Understanding how the deduction works, what taxes qualify, and how to file correctly can help you minimize your federal tax liability and make the most of your eligible state and local tax payments. If your tax situation is complex or you’re unsure how to proceed, consult with a qualified tax professional to optimize your deductions and ensure compliance with current IRS rules.
