The State and Local Tax (SALT) deduction cap continues to stir debate among taxpayers and lawmakers alike. As of 2025, the IRS still enforces a $10,000 cap on deductions for state income, property, and local taxes combined. This impacts millions of taxpayers—particularly homeowners in high-tax states—looking to deduct property taxes on their federal returns.
This guide explains how the SALT cap affects your property tax deduction, outlines current planning strategies, and explores ongoing reform proposals that may shape the future of this controversial limitation.
🏡 What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize to deduct certain state and local taxes paid during the tax year, including:
- State and local income taxes, or alternatively, sales taxes
- Real estate (property) taxes
- Personal property taxes (e.g., vehicle registration based on value)
Before 2018, these taxes were fully deductible. However, the Tax Cuts and Jobs Act (TCJA) of 2017 introduced a $10,000 cap on total SALT deductions, significantly limiting benefits for taxpayers in states like California, New York, New Jersey, and Illinois.
📉 How the $10,000 SALT Cap Affects Property Tax Deductions
Under the current law, the total deduction for all combined SALT taxes is limited to:
- $10,000 for single or married filing jointly
- $5,000 for married filing separately
So, if you pay $12,000 in state income taxes and $8,000 in property taxes, you can only deduct $10,000 total—the rest is nondeductible on your federal return.
💡 Example: SALT Cap in Action
Alex and Jordan live in New Jersey and pay:
- $9,500 in NJ state income tax
- $11,000 in local property taxes
Although they paid $20,500 in total SALT taxes, they can only deduct $10,000 on their Schedule A for 2025.
🏦 Workaround Strategies for the SALT Cap
1. Electing Pass-Through Entity (PTE) Taxes
Over 30 states have adopted PTE tax workarounds, allowing partnerships and S corporations to pay state taxes at the entity level—thus bypassing the SALT cap for owners.
This strategy benefits business owners and may require filing elections at the state level.
2. Shifting to States with No Income Tax
Some taxpayers in high-SALT states consider relocating to states with no income tax (e.g., Florida, Texas, Nevada) to minimize the cap’s impact, though property taxes may still be high in some of these areas.
3. Maximizing Other Deductions
If you hit the SALT cap, look to maximize other deductions on Schedule A:
- Mortgage interest (subject to loan limits)
- Charitable contributions
- Medical expenses above 7.5% of AGI
4. Bunching Strategies
Some homeowners time the payment of property taxes across tax years or “bunch” charitable giving to alternate between itemizing and claiming the standard deduction every other year.
⚖️ Legal and Political Debate Around the SALT Cap
Many lawmakers—especially from high-tax states—oppose the SALT cap, calling it a form of double taxation. Some proposals to eliminate or increase the cap have surfaced, but as of 2025, Congress has not passed any permanent repeal.
Recent updates:
- The Build Back Better Act attempted to raise the cap to $80,000, but stalled in Congress.
- Several states and advocacy groups have filed lawsuits against the cap, but courts have upheld its legality.
- The cap is scheduled to expire after 2025, when the TCJA sunsets—unless Congress extends it.
📌 Planning Tips for 2025 and 2026
- Check your state’s PTE election rules if you own a pass-through business
- Use a tax professional to calculate whether itemizing still makes sense
- Don’t pay more than $10,000 combined in SALT taxes expecting a federal benefit
- Track lobbying efforts and IRS updates in case the cap is modified or removed in future years
✅ Final Thoughts
While the SALT cap limits property tax deductions for many taxpayers, especially in high-tax states, strategies like pass-through entity workarounds, careful deduction planning, and relocation can help mitigate its impact. For now, the cap remains in place for 2025—but it could change as political and legal pressure mounts ahead of the TCJA’s sunset in 2026.
Pro Tip: Talk to a tax advisor to evaluate whether itemizing—including property taxes under the SALT limit—is better than claiming the standard deduction in your situation.
