What to know about the new (higher) SALT deduction — and how to claim it

For the 2025 tax year, homeowners in high-tax states are getting a reprieve as the state and local tax (SALT) deduction cap quadruples to $40,000.

This massive jump from the previous $10,000 limit is a standout change for high-income taxpayers this year.

Here’s everything you need to know.

The SALT deduction lets you deduct a variety of non-federal taxes you paid, up to $40,000 in tax year 2025 (for taxes due April 15, 2026). You can only claim the SALT deduction if you itemize: If you take the standard deduction, this tax break is off the table.

How much you actually receive from the SALT deduction depends on your income, your state and local tax burden, and any other deductions you claim on your return.

The SALT deduction includes these write-offs:

• State and local income taxes: Payroll withholdings or quarterly payments.

• Property taxes: Taxes on your primary home, second home, or land.

• Local taxes: City income taxes or personal property taxes, like vehicle taxes in some states.

• Sales taxes (optional): If your state has no income tax — or you made a large purchase — you can deduct sales taxes instead, including those on cars, boats, or major home projects.

The SALT cap is scheduled to increase 1% each year, along with the income phase-out threshold (more on that shortly). If lawmakers don’t act, the limit is set to fall back to $10,000 in 2030.

Read more: Property tax deductions have changed — here’s what you can write off today

The SALT deduction is broad — but it doesn’t cover everything. Here’s what you can’t deduct:

• Federal taxes

• Fees and assessments: HOA dues, water and sewer charges, and trash fees are considered service costs, not taxes, so they don’t qualify.

• Fines and penalties: If you paid a late penalty on property taxes, only the tax itself is deductible — not the penalty.

• Foreign taxes: Some foreign income taxes may qualify for the Foreign Tax Credit, but they generally don’t count toward the SALT deduction.

Read more: 8 tax deductions for homeowners under the OBBB

From 2018 through 2025, the SALT cap was set at $10,000, which made the deduction either useless or extremely limited for most taxpayers.

It created two common tax traps:

1. The lower-income trap: Many moderate-income homeowners didn’t have enough deductions to justify itemizing. As a result, their property taxes had no federal tax benefit because the standard deduction was still higher.

2. The high-income trap: Higher earners in states with significant income taxes often hit the $10,000 cap from state taxes alone. Any additional property or local taxes gave them no additional federal deduction.

But the One Big Beautiful Bill Act — signed into law in July 2025 — raised the SALT deduction from $10,000 to $40,000.

Now, a homeowner who pays $15,000 in state income tax and $12,000 in property tax can deduct the full $27,000. Under the old $10,000 cap, $17,000 of that would have been worthless. For someone in the 24% tax bracket, that difference alone could translate to thousands of dollars in real tax savings.

However, many taxpayers may still benefit more from the standard deduction because their mortgage interest, charitable giving, and other write-offs aren’t substantial enough to make itemizing worthwhile.

“You have to clear the standard deduction hurdle to get any tax benefit from your itemized deductions like mortgage interest,” said Robert Persichitte, a CPA and certified financial planner at Delagify Financial in Arvada, Colo.

Technically, anyone who itemizes can claim the deduction.

However, the biggest winners tend to be middle- to high-income households in states with high income tax.

An analysis from the Tax Foundation found the deduction was most beneficial for homeowners in states such as California, New York, and Connecticut, where combined state income and property taxes often exceed the old $10,000 cap.

Families in the $400,000 to $500,000 income range are likely to see the largest relative reductions in their federal tax bills, according to the Committee for a Responsible Federal Budget.

To prevent the deduction from becoming a massive windfall for the ultra-wealthy, the OBBB introduced a phase-out for high earners.

In 2026, it starts shrinking once your income goes above $500,000 ($250,500 if married filing separately). For every dollar over that level, the deduction decreases — but it can never fall below $10,000.

In other words, very high earners lose part of the expanded benefit, though it doesn’t disappear completely.

An analysis by the Committee for a Responsible Federal Budget found that a high-income couple in Washington, D.C., earning $500,000 with a $2.5 million home could see a tax cut of about $9,600. At $600,000 in income and a $3 million home, they’d still pocket roughly $7,000. Even at $750,000 with a $3.75 million home, the SALT deduction still delivers around $1,750 in tax savings.

Meanwhile, households making $300,000 or less likely won’t benefit from the tax cut at all, according to the analysis.

To claim the state and local tax deduction this year, you’ll need to total up your property taxes, state income (or sales) taxes, and your personal property taxes on Schedule A.

For most people, their W-2 and Form 1098 (from your mortgage lender) do most of the heavy lifting.

If you live in a state with no income tax, the IRS Sales Tax Deduction Calculator is the simplest way to estimate your standard sales tax deduction using your income and ZIP code.

This tool lets you claim a baseline amount without tracking every small purchase — though you should still keep receipts for big-ticket items like cars or boats so you can add those taxes to your total.

Want things to run smoothly next tax season? Stay organized throughout the year. Keep a dedicated folder for property tax bills and vehicle registration notices, and make sure you only deduct the ad valorem (value-based) portion of any car fees.

If your situation is complex — multiple properties, large purchases, itemizing for the first time — a tax preparer can help you make the most out of the deduction while avoiding costly mistakes.

Read more: 7 tax-planning strategies that will save you money

For the 2025 tax year, the cap is $40,000 for single filers and married couples filing jointly. For those who are married filing separately, the cap is $20,000 per person.

You can include state and local real estate taxes, personal property taxes (such as annual vehicle registration fees based on value), and either state and local income taxes, or state and local sales taxes.

The expanded $40,000 cap is currently scheduled to remain in place through the 2029 tax year, with 1% annual inflation adjustments. Under the current sunset provisions of the OBBB, the cap is slated to revert to the old $10,000 limit in 2030 unless Congress acts.