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.
The State and Local Tax (SALT) deduction allows you to deduct state and local income taxes (or general sales tax, but not both) plus property taxes as an itemized deduction on your federal return. Under the Tax Cuts and Jobs Act (2018–2024), the total SALT deduction was capped at $10,000 per tax return ($5,000 if married filing separately).
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the SALT cap to $40,000 ($20,000 MFS) starting tax year 2025, but added a $1-for-$1 phaseout for MAGI above $500,000 ($250,000 MFS). The phaseout reverts the cap toward a $10,000 ($5,000 MFS) floor for very high earners, so the practical benefit of the higher cap concentrates in the $200K–$500K MAGI range.
Before the Tax Cuts and Jobs Act of 2017, there was no cap on SALT, which made it particularly valuable for taxpayers in high-tax states like California, New York, and New Jersey. Some states have implemented workarounds for pass-through business owners using entity-level SALT elections (PTET), which allow the business to deduct state taxes without being subject to the individual cap.
Related Terms
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%.
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.
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).