Planning
SALT Deduction: How It Saves You $3,000-$15,000 in 2026
The State and Local Tax (SALT) deduction lets you deduct state income taxes and local property taxes from your federal taxable income. The TCJA capped this at $10,000, but OBBBA raised the cap to $40,400 for 2026 (indexed for inflation going forward). For high earners in states like California, New York, and New Jersey, this increase can save thousands in federal taxes.
Who Qualifies
- Pay more than $10,000 in state income tax + property taxes combined
- Itemize deductions (SALT is an itemized deduction)
- Live in a high-tax state (CA, NY, NJ, CT, IL, MA, etc.)
Who does NOT qualify
- Take the standard deduction
- Live in a no-income-tax state with low property taxes (TX, FL, WA, NV, TN)
- SALT taxes below $10,000 annually
How the Math Works
Total SALT: $57K. Under old $10K cap: deduct $10K. Under OBBBA $40,400 cap: deduct $40,400. Additional deduction: $30,400.
At a 35% marginal rate, the additional $30,400 deduction saves $10,640 in federal taxes.
Legal Basis & IRC Citations
- IRC §164: Deduction for state and local taxes
- OBBBA: Increased SALT cap to $40,400 for 2026 (indexed for inflation)
OBBBA Update: OBBBA raised the SALT deduction cap from $10,000 to $40,400 for 2026, indexed for inflation in future years. This is the biggest change affecting high earners in high-tax states.
State Notes: This primarily benefits residents of high-tax states: California (13.3% top rate), New York (10.9%), New Jersey (10.75%), Connecticut, Illinois, Massachusetts. No benefit in states without income tax (TX, FL, WA, NV, TN, WY, SD).
What to Tell Your CPA
“With the OBBBA SALT cap increase to $40,400, I'd like to re-evaluate my itemized deductions. My state income tax is $[amount] and property taxes are $[amount]. Can you confirm I'm deducting the maximum SALT amount and whether bunching property tax payments would help?”
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Frequently Asked Questions
What is the new SALT cap for 2026?
$40,400 for 2026, up from $10,000 under TCJA. The new cap is indexed for inflation in future years. This was one of the major provisions of OBBBA.
Does the SALT deduction include property taxes?
Yes. SALT includes state income taxes (or sales taxes if you elect) plus local property taxes combined, up to the $40,400 cap.
Should I prepay property taxes to maximize SALT?
Possibly. If your combined state income + property taxes exceed the cap, prepaying won't help. But if you're near the cap threshold, accelerating a property tax payment into 2026 could push you above it. Consult your CPA on timing.
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