Background: why the SALT deduction changed

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, made multiple changes to individual and corporate taxation. One of the most visible changes for individual filers was the cap on state and local tax (SALT) deductions. Before the TCJA, taxpayers who itemized could generally deduct the full amount of state and local income, property, and certain sales taxes paid during the year. The TCJA limited that combined deduction to $10,000 per return ($5,000 if married filing separately) for tax years 2018 through 2025 (P.L. 115-97) (Congress.gov).

That change matters because many taxpayers in high-tax states—New York, California, New Jersey, Illinois and others—had been able to deduct much larger SALT bills, lowering their federal taxable income. The cap, combined with the TCJA’s substantially larger standard deduction, shifted the choice calculus between taking the standard deduction and itemizing deductions.

Authoritative sources

How the SALT cap works in practice

Short answer: when you itemize on Schedule A, the total of state and local income taxes (or sales taxes, if elected instead of income taxes) plus property taxes is limited to $10,000 on your federal return ($5,000 if married filing separately).

Key mechanics to keep in mind:

  • The limit is applied at the federal return level, not per taxpayer. A married couple filing jointly shares one $10,000 cap.
  • The SALT cap applies only if you itemize deductions on Schedule A. Many taxpayers now take the larger standard deduction; the TCJA nearly doubled it, which reduced the number of itemizers.
  • The cap includes state income tax OR state sales tax (taxpayers may elect which to deduct), plus local income tax and property tax. It does not apply to federal tax.

Examples:

  • Single filer pays $12,000 state income tax + $4,000 property tax = $16,000 SALT. Deduction limited to $10,000 on federal return.
  • Married filing jointly pays $18,000 state income tax + $6,000 property tax = $24,000 SALT. Deduction limited to $10,000 for the couple.

(IRS guidance on itemized deductions and the TCJA provides detailed examples: https://www.irs.gov/tax-reform)

Who is most affected

  • Homeowners in high-tax states who previously itemized deductions (because their total itemized deductions exceeded the standard deduction).
  • Taxpayers with large property tax bills or large state income tax payments.
  • Pass-through owners whose state taxes were historically deductible on their individual returns.

Many taxpayers in lower-tax states or renters with smaller property or state tax bills are unaffected because their SALT liability was already below $10,000 or because they take the standard deduction.

State responses and legal workarounds

Several states adopted or considered policies to reduce the federal impact of the SALT cap on their residents. Common responses include:

  • Elective entity-level taxes for partnerships and S corporations. Some states allow pass-through entities to pay a state-level tax at the entity level. Because that tax is paid by the entity, it may be deductible at the federal level as a business expense rather than being counted toward the individual SALT cap. In turn, owners receive a credit or offset against their state tax liability. The structure and effectiveness vary by state and depend on federal Treasury and IRS guidance.

  • State tax credits or deductions targeted to offset the increased federal tax burden. These are usually designed as credits to individual taxpayers or credits to entities that approximate the burden shift.

  • Legislative and litigation efforts. Some states and taxpayer groups have challenged aspects of the cap or pursued federal relief; results vary and are evolving.

Important note: federal Treasury and IRS rules have constrained some of these workarounds. The tax analysis is technical and state-specific; if considering one of these options, consult a tax advisor familiar with your state’s enacted laws and the latest IRS guidance (see IRS guidance and commentary from tax policy organizations such as the Tax Foundation).

For a deeper discussion of state-level response strategies, see our linked resources on SALT Workarounds and State Tax Planning for High Earners and practical state-level tactics in State and Local Tax (SALT) Cap Workarounds: Practical Options.

Practical planning strategies (what I do with clients)

In my tax planning work I focus on minimizing total tax (federal plus state) and on cash-flow and compliance risks. Here are strategies commonly used, with pros and cons:

1) Bunching deductions

  • Move deductible expenses (charitable gifts, medical payments, some unreimbursed business expenses if eligible) into a single year so itemized deductions exceed the standard deduction and make better use of the SALT allowance in that year.
  • Pros: No legislative risk; keeps control at the taxpayer level. Cons: May require timing discipline and larger one-year outlays.

2) Maximize tax-advantaged retirement contributions and HSAs

  • Defined contributions lower taxable income at the federal level and can help offset the lost SALT deduction by reducing adjusted gross income (AGI).
  • Pros: Also advances long-term savings objectives. Cons: Contribution limits apply.

3) Consider entity-level solutions if you are a business owner

  • S corporations, partnerships, and LLC owners should evaluate whether their state offers an elective entity-level tax and whether it is effective after federal guidance. Implementation requires careful modeling and legal documentation.
  • Pros: Can materially reduce federal taxable income for owners in many cases. Cons: Complex; requires up-front administration and careful coordination with state credit mechanisms.

4) Charitable strategies (donor-advised funds, qualified charitable distributions for retirees)

  • Charitable contributions can provide federal deductions (subject to limits) and are not subject to the SALT cap. Donor-advised funds allow you to bunch charitable giving in one year and claim itemized deductions when beneficial.

5) Reassess withholding and estimated taxes

  • Adjusting withholding doesn’t change federal taxable income, but it can prevent underpayment penalties and smooth cash flow if you face higher federal bills due to the SALT cap.

6) Consider state-specific steps (appeal property tax assessments)

  • Lowering property tax bills through appeals reduces the underlying SALT amount and can be a long-term way to reduce combined state and local tax spending.

7) Residency planning (move to a lower-tax state)

  • Some high-net-worth taxpayers consider domicile changes. This is effective but typically involves lifestyle, family, and logistical considerations and a strict facts-and-circumstances test for domicile.

Common mistakes and misconceptions

  • Mistake: “Just change my withholding and everything’s fixed.” Withholding changes the timing of tax payments, not taxable income or the SALT cap’s effect.
  • Mistake: Treating elective state-level solutions as uniform. Each state’s approach, paperwork, and timing differ; the federal tax treatment is influenced by IRS/Treasury rules and recent guidance.
  • Misconception: The cap is permanent. The SALT cap is a statutory provision tied to the TCJA and is set to expire after 2025 unless Congress acts. That schedule creates policy uncertainty.

Frequently asked questions (brief)

  • Can I still deduct property taxes? Yes — but property taxes count toward the $10,000 SALT cap when combined with state and local income or sales taxes.
  • Does the cap apply per person? No. It applies per federal return: married filing jointly filers share one $10,000 cap; married filing separately get $5,000 each.
  • Are there safe, guaranteed workarounds? No. While several states implemented elective entity-level taxes, the treatment depends on the details of the law and on federal guidance. Consult a tax advisor before relying on any workaround.

What to monitor through 2025 and beyond

  • Legislation: Congress can change or repeal the SALT cap. Follow developments in tax legislation each year.
  • State law changes: States continue to adjust their responses and may refine elective taxes or credits.
  • IRS/Treasury guidance: Federal guidance affects how state workarounds are treated on federal returns.

Conclusion and professional recommendation

The SALT cap introduced by the TCJA meaningfully changed federal-tax planning for many taxpayers, particularly in high-tax states. In practice, I review each client’s total tax picture (federal plus state) and model a range of options before recommending actions like bunching, entity-level changes, or domicile planning. Because state-level fixes are complex and federal guidance can change, coordinate state planning with your federal tax advisor.

Professional disclaimer
This article is educational and does not replace personalized tax advice. Tax outcomes depend on individual facts and current law. Consult a qualified tax professional before implementing tax strategies.

Further reading on FinHelp

Authoritative sources cited

(Prepared by a tax professional with years of client experience; information current through 2025.)