The State and Local Tax (SALT) deduction is a federal tax benefit that allows taxpayers to lower their taxable income by deducting specific state and local taxes paid during the tax year. This deduction is claimed on Schedule A (Itemized Deductions) of IRS Form 1040, reducing the amount of income subject to federal tax.
SALT Deduction Basics
SALT deductions include state and local income taxes, property taxes, and certain personal property taxes based on value. Taxpayers in states with high tax burdens often find this deduction valuable. However, eligibility requires itemizing deductions rather than taking the standard deduction. For 2024 tax returns filed in 2025, the standard deduction amounts are $14,600 for single filers and $29,200 for married filing jointly. If itemized deductions, including SALT, do not exceed these amounts, the standard deduction typically provides a better tax benefit. More on itemizing deductions can be found in our article on Schedule A (Itemized Deductions).
The $10,000 Cap
The Tax Cuts and Jobs Act of 2017 introduced a $10,000 cap on the total SALT deduction, effective from 2018 through at least 2025 unless Congress changes it. This cap applies to the combined sum of state and local income taxes, property taxes, and personal property taxes. For example, a taxpayer who pays $8,000 in state income tax and $12,000 in property taxes can only deduct $10,000 total for SALT on their federal return, not $20,000. This cap significantly limits deductions for taxpayers in high-tax states like California, New York, and New Jersey.
Eligible Taxes Under SALT
- State and Local Income Taxes: Including amounts withheld from paychecks or paid as estimated taxes to state, city, or county governments.
- Real Estate Taxes: Property taxes on owned real estate, such as a primary home or other real property.
- Personal Property Taxes: Taxes assessed annually based on the value of personal assets, such as vehicles or boats.
Taxpayers may elect to deduct state and local general sales taxes instead of income taxes if more advantageous, but not both. This might benefit those in states without income tax, like Texas or Florida. IRS Tax Topic 503 offers guidance on this choice (IRS.gov).
What Is Not Deductible
Federal taxes—including federal income tax, Social Security, and Medicare taxes—are not deductible. Similarly, most fees such as car registration (unless value-based), hunting and fishing licenses, and service-specific local taxes are excluded.
Who Benefits Most
The SALT deduction primarily benefits homeowners and individuals in high-tax states who itemize deductions. However, due to the cap and increased standard deductions, many taxpayers find itemizing less advantageous now. Those in states with lower taxes or renters may not receive much benefit.
SALT Cap Workarounds
Some states have enacted “Pass-Through Entity (PTE) taxes” allowing business owners to pay state taxes at the entity level, which can be deducted on the business return and bypass the individual SALT cap. These complex strategies vary by state and often require advice from a tax professional. See also our article on Pass-Through Entity Taxes.
Planning Tips
- Keep thorough records of all state and local taxes paid to support itemized deductions.
- Compare the total of your itemized deductions (SALT, mortgage interest, charitable donations, etc.) with the standard deduction to determine the best tax outcome.
- Consider timing of payments, especially for estimated state taxes, to optimize deductions within the $10,000 cap.
Frequently Asked Questions
Q: When does the SALT cap expire?
A: The $10,000 cap is in effect through the 2025 tax year and may be revised by Congress afterward.
Q: Can I deduct both state income taxes and sales taxes?
A: No. Taxpayers must choose either state and local income taxes or state and local general sales taxes for their deduction.
Q: Does the SALT deduction apply to businesses?
A: The cap applies to individual taxpayers. Business structures like C corporations deduct state taxes as business expenses, unaffected by the SALT cap. Pass-through entities may use special elections to bypass the cap.
For more detailed guidance, visit IRS Publication 17 or consult a tax professional.
References:
- IRS Tax Topic 503: Deductible Taxes (IRS.gov)
- IRS Schedule A Instructions (IRS.gov)
- Tax Foundation: Understanding the SALT Deduction (taxfoundation.org)
This entry includes related FinHelp glossary articles on Schedule A (Itemized Deductions) and Pass-Through Entity Taxes to support further learning.