SALT Cap
The annual limit on the federal deduction for state and local taxes. Pre-OBBBA (2018–2024): $10,000. OBBBA (2025+): $40,000 ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor.
The SALT cap is the annual limit on the federal itemized deduction for state and local taxes (income or sales tax plus property tax). It was introduced by the Tax Cuts and Jobs Act of 2017 at $10,000 ($5,000 for married filing separately), which applied from 2018 through 2024. Before the cap, taxpayers could deduct the full amount of state and local taxes on their federal return.
Under the One Big Beautiful Bill Act (OBBBA), signed July 2025, the cap was raised to $40,000 ($20,000 MFS) for tax year 2025 and beyond, but with a $1-for-$1 phaseout for MAGI above $500,000 ($250,000 MFS) that reverts the cap toward a $10,000 ($5,000 MFS) floor. The result: middle- and upper-middle-income itemizers in high-tax states benefit most, while ultra-high earners remain effectively capped near the pre-OBBBA level.
The cap most significantly affects homeowners in high-tax states like California, New York, New Jersey, Connecticut, and Illinois, where combined state income tax and property tax bills frequently exceed $40,000. Some states have implemented pass-through entity tax (PTET) elections as workarounds, allowing S corporations and partnerships to pay state tax at the entity level and claim the deduction outside the individual SALT cap.
Related Terms
SALT Deduction
An itemized deduction for state and local taxes paid, including income tax (or sales tax) and property tax. Under OBBBA (2025+), capped at $40,000 per return ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor. Pre-OBBBA (2018–2024) the cap was $10,000 flat.
Itemized Deduction
Specific expenses you can deduct instead of taking the standard deduction, including mortgage interest, state/local taxes (SALT cap: $40,000 for 2025+ under OBBBA, phased out for high earners), charitable donations, and medical expenses.
State Income Tax
Income tax levied by individual states, in addition to federal income tax. Rates and structures vary widely — some states have no income tax, while others have rates up to 13.3%.
Standard Deduction
A fixed dollar amount that reduces your taxable income, available to all filers who do not itemize. For 2025, it is $15,750 for single filers and $31,500 for married filing jointly (OBBBA-adjusted).