The SALT deduction just jumped to $40,000 — should you itemize now?
For seven years, the $10,000 cap pushed almost everyone onto the standard deduction. That just changed. But the new cap has a hidden phase-down, a brutal marginal-rate trap, and an expiry date — and whether itemizing pays comes down to your own numbers. Run them below.
The state and local tax (SALT) deduction lets you deduct what you've already paid in state income tax, local income tax, property tax, or sales tax — but only if you itemize. The 2017 Tax Cuts and Jobs Act capped it at $10,000, and the effect was dramatic: the deduction became worthless to millions of homeowners in high-tax states, and roughly nine in ten filers stopped itemizing altogether.
The One Big Beautiful Bill Act changed that. Under section 70120 of the Act — which amended IRC §164(b)(6) and added a new §164(b)(7) — the cap rose to $40,000 for 2025 ($20,000 for married filing separately), effective for tax years beginning after December 31, 2024. It then rises by 1% per year: $40,400 in 2026, and onward through 2029.
How the phase-down actually works
The elevated cap is reduced by 30 cents for every dollar your modified adjusted gross income (MAGI) exceeds the threshold — but it never falls below the old $10,000 floor. For most people, MAGI here simply equals your AGI (it only adds back foreign-earned-income and US-territory exclusions under §§911, 931 and 933).
Applicable cap − 30% × (MAGI − threshold)…but never below
$10,000
| Tax year | Cap | Phase-down starts | Back to $10,000 at |
|---|---|---|---|
| 2024 (old law) | $10,000 | — | — |
| 2025 | $40,000 | $500,000 MAGI | $600,000 MAGI |
| 2026 | $40,400 | $505,000 MAGI | ~$606,333 MAGI |
| 2027–2029 | +1% each year | +1% each year | — |
| 2030 | $10,000 | No phase-down | — |
Married filing separately: halve the cap and the threshold ($20,000 / $250,000 in 2025). Single, head of household and joint filers all share the same $500,000 threshold — there's no marriage bonus here.
Run your own numbers
The itemize-or-not question is just arithmetic. Enter your figures below and the calculator applies the correct cap, the phase-down, and your standard deduction.
The "SALT torpedo": why $1 of extra income can cost you far more
Between $500,000 and roughly $600,000 of MAGI, something ugly happens. Every extra dollar of income doesn't just get taxed — it also strips away 30 cents of deduction. In the 35% bracket, that means your effective marginal rate is about 45.5% (35% × 1.30) on income inside that band.
Excess over threshold: $30,000. Phase-down: 30% × $30,000 = $9,000.
Allowable cap: $40,000 − $9,000 = $31,000 — still triple the old $10,000, but $9,000 lost.
Push that same couple to $800,000 of MAGI and the phase-down ($90,000) far exceeds the $30,000 of extra cap available, so they land on the $10,000 floor — exactly where they were before the law changed.
Who actually wins — and who doesn't
Likely to benefit
- Homeowners in high-tax states (CA, NY, NJ, IL, CT, MA) with meaningful property tax and state income tax.
- Households with MAGI roughly $150,000–$500,000 — enough SALT to clear the standard deduction, below the phase-down.
- Anyone whose SALT + mortgage interest + charitable gifts now exceeds their standard deduction for the first time since 2017.
Little or no benefit
- Renters with modest state income tax — $10,000 of headroom was already plenty.
- Residents of no-income-tax states (TX, FL, TN, NV, WA, SD, WY, AK, NH) unless property tax and mortgage interest are large.
- High earners above roughly $600,000 MAGI — fully phased down to $10,000.
- Anyone whose itemized total still trails the standard deduction. The cap is a ceiling, not a floor.
What counts as SALT — and what doesn't
Counts: state and local income taxes (including city taxes like New York City or Ohio municipal tax), or state and local general sales taxes if you elect them instead; plus state and local real property tax and personal property tax. The cap is shared, not stacked — income tax and property tax compete for the same ceiling.
Doesn't count: federal income tax and self-employment tax, foreign real property taxes, and the flat portion of vehicle registration fees. You choose either income tax or sales tax, not both — sales tax usually only wins in no-income-tax states.
Business owners: the PTET workaround still beats the cap
If you own an S-corp, partnership or multi-member LLC, most states now offer a pass-through entity tax (PTET) election. The entity pays state income tax at the entity level, deducts it as a business expense, and passes you a state credit — sidestepping the personal SALT cap entirely.
Crucially, the OBBBA did not restrict PTET. The IRS blessed the treatment in Notice 2020-75, confirming the §164(b)(6) cap doesn't apply to entity-level state tax payments. For owners above the phase-down threshold, PTET is often the single most valuable SALT strategy available. Deadlines and mechanics vary by state, and some programs have sunset or changed — worth reviewing annually.
Two other 2026 changes that affect the itemize decision
A new charitable floor. From 2026, itemizers must clear a floor of 0.5% of AGI before charitable gifts count. Meanwhile non-itemizers get a new deduction of up to $1,000 ($2,000 joint) for cash gifts — so for some, not itemizing becomes relatively more attractive.
A cap on the value of itemized deductions. Filers in the top 37% bracket now see the benefit of itemized deductions limited to roughly 35 cents per dollar. This stacks on top of the SALT phase-down for very high earners.
And don't forget the AMT. Under the alternative minimum tax, SALT is added back when computing alternative minimum taxable income — so a large SALT deduction can be clawed back at high incomes.
The 2030 cliff, and what to do about it
Unlike the tax brackets, the standard deduction, and the 20% QBI deduction — all of which the OBBBA made permanent — the expanded SALT cap is explicitly temporary. It runs 2025 through 2029, then reverts to $10,000 in 2030 unless Congress acts again.
That asymmetry matters for planning. It means the value of accelerating deductible state and local payments, and of bunching other deductions into years when you'll itemize, is highest now rather than later.
- Recheck the itemize decision every year. Many people who stopped itemizing in 2018 should be itemizing again — and never rechecked.
- Amend if you missed it on 2025. The higher cap applied retroactively to the 2025 tax year.
- Watch your MAGI near $500,000. The phase-down zone is where planning earns its keep.
- Bunch deductions. Concentrating charitable gifts or elective payments into alternating years can lift you over the standard-deduction hurdle.
- If you own a pass-through, price out PTET against your personal cap — especially above the threshold.