2026 SALT Deduction: Higher Cap and Income Phaseout
The federal deduction for state and local taxes, commonly known as the SALT deduction, is significantly higher than it was under the previous $10,000 limitation.
For 2026, taxpayers who itemize deductions may generally deduct up to $40,400 of qualifying state and local taxes. The limit is $20,200 for married taxpayers filing separately.
However, higher-income taxpayers may not receive the full benefit because the increased deduction is subject to an income-based phaseout.
What Taxes Count Toward the SALT Deduction?
The SALT deduction generally includes:
State and local income taxes or sales taxes
Real estate property taxes
Certain personal property taxes
These taxes share one overall deduction limit.
The higher SALT cap can therefore be particularly valuable for taxpayers with significant property taxes or who live in states with higher income taxes.
Watch the Income Phaseout
For 2026, the higher SALT deduction begins to phase down when modified adjusted gross income exceeds:
$505,000 for most filing statuses
$252,500 for married taxpayers filing separately
Above the applicable threshold, the maximum SALT deduction is reduced by 30% of the excess MAGI.
However, the deduction limit cannot be reduced below:
$10,000 for most filing statuses
$5,000 for married taxpayers filing separately
For most taxpayers, the increased portion of the deduction is therefore fully phased down once MAGI reaches approximately $606,333. For married taxpayers filing separately, the corresponding amount is approximately $303,167.
This creates a relatively narrow phaseout range in which additional income can reduce the available SALT deduction fairly quickly.
For taxpayers whose income falls within or near this range, tax projections can be particularly useful.
Why Income Timing Can Matter
For taxpayers near the SALT phaseout range, the timing of significant income can affect the amount of the deduction available.
Potentially relevant items may include:
Large capital gains
Roth conversions
Business income
Bonuses
Equity compensation
Retirement distributions
Other significant transactions
For example, recognizing additional income may not only increase taxable income directly but may also reduce the maximum SALT deduction available because of the phaseout.
Conversely, certain deductions or income-planning strategies may reduce MAGI enough to preserve more of the increased SALT cap.
The appropriate strategy depends on the taxpayer's entire tax picture, not the SALT deduction alone.
Another Limitation for Higher-Income Taxpayers
Beginning in 2026, a separate limitation can also reduce itemized deductions for taxpayers whose taxable income reaches the 37% federal income tax bracket.
For 2026, the limitation generally reduces itemized deductions by 5.4% of the lesser of total itemized deductions or the amount by which taxable income exceeds the applicable threshold.
The 2026 taxable-income thresholds are:
$768,700 for married taxpayers filing jointly
$640,600 for single taxpayers and heads of household
$384,350 for married taxpayers filing separately
This limitation applies after other applicable limitations on itemized deductions.
As a result, the stated SALT deduction does not necessarily equal the ultimate federal tax benefit for a high-income taxpayer. The SALT phaseout, overall itemized-deduction limitation, marginal tax rate, and other deductions may all affect the final result.
Business Owners and PTET Elections
Business owners may also have access to pass-through entity tax, or PTET, elections in certain states.
These state-level regimes generally allow qualifying partnerships and S corporations to pay certain state income taxes at the entity level rather than having the owners pay the entire tax personally.
Federal guidance generally permits qualifying state income taxes paid by partnerships and S corporations at the entity level to be deducted when computing the entity's federal taxable income and pass-through income. These payments generally do not count against the individual owner's SALT deduction limitation.
PTET rules vary significantly by state, including:
Whether the election is optional or mandatory
Election deadlines
Tax rates
Owner eligibility
Credit or deduction mechanics
Estimated-payment requirements
For business owners operating in multiple states, the analysis can become considerably more complicated.
A PTET election should therefore be evaluated based on the specific state rules and the owner's broader federal and state tax situation.
The Higher Cap Is Temporary
The increased SALT deduction is temporary.
The cap is scheduled to increase modestly through 2029, with both the deduction limit and the income threshold generally increasing by 1% annually after 2026.
Under current law, the SALT cap is scheduled to return to $10,000 beginning in 2030.
That temporary window makes SALT planning particularly relevant over the next several years, especially for taxpayers whose income may fluctuate significantly from year to year.
Don't Evaluate SALT in Isolation
A larger SALT deduction does not necessarily mean that a transaction should be accelerated or deferred solely to preserve the deduction.
Taxpayers should also consider how a planning decision may affect:
Federal marginal tax rates
Capital gains
Net Investment Income Tax
Medicare-related taxes
The Qualified Business Income deduction
Charitable deductions
Retirement planning
Alternative Minimum Tax
State income taxes
Other itemized deductions
The objective should be to minimize overall tax liability, not maximize a single deduction.
Final Thoughts
The higher SALT deduction can provide meaningful federal tax savings in 2026, but the benefit depends on income, filing status, state and local taxes, and other deductions.
For higher-income taxpayers, the $505,000 to approximately $606,333 phaseout range can create an especially important planning window.
Evaluating projected income before a major capital gain, Roth conversion, bonus, equity-compensation event, or business transaction can help identify opportunities while there is still time to act.
Could the Higher SALT Deduction Affect Your Tax Plan?
If your income is near the SALT phaseout range or you pay significant state and local taxes, proactive planning can help determine how the deduction fits into your overall tax strategy.
Weissgarber CPA works with individuals and business owners on proactive tax planning designed around their broader financial circumstances.
This article is for general informational purposes only and does not constitute tax or legal advice. Tax outcomes depend on individual circumstances and applicable law.