How Does the SALT Deduction Cap Work?
Before 2018, there was no limit on SALT deductions. The Tax Cuts and Jobs Act imposed a $10,000 cap ($5,000 MFS), combining state/local income taxes and property taxes. Taxpayers in high-tax states like New York, California, and New Jersey often pay far more than $10,000 in combined SALT, making the cap a substantial limitation.
Should You Itemize for the SALT Deduction?
The SALT deduction only benefits you if your total itemized deductions exceed the standard deduction. Since the standard deduction is relatively high, many taxpayers — even those with significant SALT payments — find that itemizing no longer saves money. Run the numbers both ways or consult a tax professional.
What Workarounds Exist for the SALT Cap?
Some states created pass-through entity tax elections allowing S-corp and partnership owners to deduct state taxes at the entity level, bypassing the individual cap. Additionally, the SALT cap is scheduled to expire after 2025 under current law, though Congress may extend, modify, or eliminate it.
Frequently asked questions
Can you deduct both state income tax and sales tax?
No. You must choose one or the other. Most taxpayers in states with income tax deduct state income tax because it is typically larger. Residents of states without income tax (Texas, Florida, etc.) deduct sales tax instead.
Does the SALT cap apply to business property taxes?
No. The $10,000 cap applies only to personal SALT deductions. Property taxes on business or investment real estate are deductible as business expenses without the cap, reported on Schedule C or Schedule E.