The federal deduction limit for state and local taxes, or SALT, has been temporarily expanded under recent legislation. The cap was raised to $40,000 in 2025, compared to the previous $10,000 threshold, and increased further to $40,400 for 2026. The limit will continue rising by 1% annually through 2029 before returning to $10,000 in 2030.
The SALT deduction applies to taxpayers who itemize deductions rather than claiming the standard deduction. It encompasses property taxes combined with either state and local income taxes or sales taxes, though not both simultaneously. For 2026, the standard deduction stands at $16,100 for single filers and $32,200 for married couples. According to recent IRS data, approximately 90% of filers opt for the standard deduction. Preliminary indications suggest that residents of high-tax states such as California and New Jersey have received larger refunds during the current filing season, potentially reflecting benefits from the expanded SALT deduction.
Taxpayers considering strategies to maximize the deduction might explore bunching itemized deductions into a single tax year to exceed the standard deduction threshold. One approach involves making accelerated property tax payments by year-end if assessments are available. Similarly, self-employed individuals or those with investment income could accelerate state quarterly estimated tax payments to increase deductible amounts for 2026.
The expanded deduction creates complications for higher-income earners through a phase-out structure. Beginning at a modified adjusted gross income of $505,000, the full $40,400 deduction begins to diminish, eventually dropping to $10,000 for incomes exceeding approximately $606,333. This phase-out generates what experts term a “SALT torpedo,” producing an artificially elevated effective tax rate as taxpayers lose 30% of each deduction dollar within the phase-out range. Specialists recommend detailed income projections for those approaching these thresholds, particularly when considering moves such as Roth conversions or managing capital gains realizations.
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