The SALT Deduction Cap Just Quadrupled — What Actually Changed

Since 2018, the deduction for state and local taxes — income tax, sales tax, and property tax combined — was capped at $10,000 regardless of filing status. For anyone in a high-tax state, or any property owner paying real estate tax on top of state income tax, that cap was usually the single biggest reason itemizing stopped being worth it: the standard deduction was simply larger than what remained after SALT got clipped at $10K plus whatever else there was to itemize.

That cap is gone. The 2025 tax law raised it to $40,000 for the 2025 tax year, and it rises again to $40,400 for 2026, indexed to increase roughly 1% a year through 2029. For a business owner or property investor paying meaningful state income tax and property tax, that's not a marginal change — it's the difference between a deduction that was almost always maxed out at $10,000 and one that, for most people below the phase-down threshold, now covers the actual amount paid.

The increase isn't unlimited. Above $500,000 of income, the cap phases down 30 cents for every dollar over that threshold, until it settles back at the original $10,000 floor — it never drops below that regardless of income. For 2026 specifically, that phase-down begins at $505,000 of modified AGI. Below that level, the new $40,400 cap applies in full.

The practical effect shows up in the itemize-vs-standard decision, not just the SALT line itself. Someone who gave up itemizing after 2017 because the standard deduction beat a SALT-capped-at-$10,000 itemized total may find that math has flipped — state income tax plus property tax plus mortgage interest and charitable giving, added up against a SALT figure that's no longer artificially clipped, can push well past the standard deduction again. That's worth recalculating, not assuming, since it depends on the specific mix of state tax rate, property tax, and other itemized items for each filer.

One more detail worth planning around: this isn't permanent. The higher cap is scheduled to revert to the original $10,000 limit in 2030 under current law. For anyone whose income or state tax situation makes the next few years unusually favorable for itemizing, that's a real, time-limited window — not a fact to file away and forget until the standard deduction comparison changes again on its own.

This is exactly the kind of change that's easy to miss if a return gets prepared the same way it was the year before — the old $10,000 cap has been assumed for so long that recalculating whether itemizing makes sense again isn't automatic. That recalculation, run against actual numbers rather than last year's assumption, is part of what we check every quarter, not just once a year in April.