SALT cap 2026: the $40,400 limit and how the phase-down works

SALT cap by year

The cap on the state and local tax deduction was $10,000 from 2018 through 2024. Section 70120 of the One Big Beautiful Bill Act (Public Law 119-21) raised it starting with 2025 and added an income-based phase-down. The limit is written into section 164(b)(7) of the tax code.

Applying the 1% rule, the 2027 cap works out to $40,804 and the threshold to $510,050. The IRS has not yet published official 2027 figures, so treat these as the statutory formula, not a released amount.

Who gets the full $40,400 SALT deduction

You can use the full 2026 cap only if three things are true: you itemize on Schedule A, your modified AGI is $505,000 or less ($252,500 if married filing separately), and you actually paid at least $40,400 of qualifying state and local taxes.

Modified AGI for this purpose is your AGI plus any foreign earned income or housing amounts you excluded, and income excluded as a resident of Puerto Rico or certain US territories. For most people it is simply AGI from Form 1040.

How the SALT phase-down above $505,000 works

For every dollar of modified AGI above $505,000, the cap falls by 30 cents. The reduction stops when the cap reaches $10,000. For 2026 that floor is hit at modified AGI of about $606,333, since $30,400 divided by 30% is $101,333.

1. Start with the cap: $40,400 ($20,200 if married filing separately).
2. Subtract $505,000 ($252,500) from your modified AGI. If the result is zero or less, stop; you keep the full cap.
3. Multiply the excess by 30%.
4. Subtract that from the cap. If the answer is below $10,000 ($5,000), use $10,000 ($5,000).
5. Your SALT deduction is the smaller of that limit or the taxes you actually paid.

Because each extra dollar in this range also removes 30 cents of deduction, income between $505,000 and roughly $606,000 faces a higher effective marginal rate than the bracket alone shows. Taxpayers with taxable income above $768,700 on a joint return may also see the separate 5.4% cut explained in itemized deduction limit for high income.

Which state and local taxes count

The state and local tax deduction covers three kinds of tax, all added together before the cap applies:

• Income or sales tax, not both. State and local income tax withheld (W-2 box 17 and box 19), estimated payments you made during the year and any balance paid with last year's state return. Or, if you check box 5a on Schedule A, general sales tax instead, which usually helps only in states with no income tax.
• Real estate tax on property you own, whether paid directly or through a mortgage escrow account.
• Personal property tax charged yearly based on value, such as the value-based part of some vehicle registration fees.

Not deductible here: federal income tax, Social Security and Medicare tax, transfer and stamp taxes on a home sale, homeowner association fees, estate and inheritance taxes and utility service charges. See our state income tax rates page to estimate what you pay to your state.

Worked examples: SALT deduction limit 2026

Joint filers under the threshold

A couple has modified AGI of $310,000. They paid $14,000 of property tax and $19,000 of state income tax, for $33,000 in total. Their income is under $505,000, so the cap stays at $40,400 and they deduct all $33,000. Under the old $10,000 limit, $23,000 of that would have been lost.

Joint filers inside the phase-down

Another couple has modified AGI of $540,000 and paid $18,000 of property tax plus $32,000 of state income tax, $50,000 in total. The excess over $505,000 is $35,000, and 30% of that is $10,500. Their cap is $40,400 minus $10,500, or $29,900, so they deduct $29,900 and lose the other $20,100.

Single filer above the phase-down

A single filer with modified AGI of $700,000 paid $45,000 of state and local taxes. The reduction would be 30% of $195,000, or $58,500, which would push the cap below zero, so the $10,000 floor applies. The deduction is $10,000.

What to do with the higher SALT cap

A cap four times larger than before can make itemizing worthwhile again for homeowners in high-tax states. Rerun the comparison each year with itemize or standard deduction, adding your mortgage interest to the SALT figure.

1. Add up state withholding from every W-2, state estimated payments made during 2026 and property tax paid in 2026.
2. Check your expected modified AGI against $505,000 before year end, since a bonus or capital gain can move you into the phase-down.
3. If you are near the threshold, ask whether timing of income such as a stock sale changes the cap.
4. If you received a state refund in 2026 for a year you itemized, look for Form 1099-G; part of it may be taxable.

The standard deduction hub has every 2026 amount for comparison.