SALT Deduction Cap Set to Change After 2025: How Homeowners and Taxpayers Could Benefit in 2026

Overview

For many homeowners and taxpayers, the state and local tax (SALT) deduction has long been an important component of tax planning. The Tax Cuts and Jobs Act (TCJA) of 2017 capped SALT deductions at $10,000 starting in 2018, significantly reducing itemized deductions for taxpayers in high‑tax states. Under current law, this cap was originally set to expire after the 2025 tax year, which could have allowed full SALT deductibility to return in 2026. 

However, the One Big Beautiful Bill Act (OBBBA) changed this outlook by temporarily increasing and adjusting the SALT deduction cap for tax years 2025 through 2029. Rather than reverting to no cap in 2026, taxpayers will see a higher limit with phasedown rules before eventually returning to $10,000 in 2030. 

What Is the SALT Deduction?

The SALT deduction allows taxpayers who itemize their federal tax returns to deduct certain state and local taxes from taxable income. Eligible taxes generally include:

• State and local income taxes (or sales taxes in lieu of income tax)

• Property taxes

• Certain personal property taxes

Before the TCJA, taxpayers could deduct the full amount of qualifying state and local taxes. The $10,000 cap significantly limited this benefit for many since 2018. 

Impact of the Current SALT Cap Rules

Under current law with the OBBBA changes:

• For tax year 2025, the SALT deduction cap is $40,000 for most filers (married filing separately: $20,000).

• For tax year 2026, the cap increases slightly to $40,400 and will rise by about 1% each year through 2029.

• For high‑income taxpayers, the available deduction is reduced based on modified adjusted gross income (MAGI) above certain thresholds (e.g., around $505,000 in 2026) and cannot go below $10,000.

• In 2030 and beyond, absent further legislation, the SALT cap reverts to $10,000. 

These changes represent a temporary expansion of the SALT cap, not a permanent repeal of the cap. 

Homeowner Considerations

The temporary increase in the SALT cap could influence long‑term planning for homeowners, particularly in high‑tax states:

• Larger SALT deductions may make itemizing more attractive for those with high property and state income tax payments.

• Homebuyers, refinancers, or those considering major property tax payments might time payments within the expanded cap years to maximize federal tax benefits.

• Even with the increased cap, taxpayers must still itemize for the deduction to provide benefit, and the standard deduction has also risen significantly in recent years. 

Business Owners and Rental Property Investors

Taxpayers who hold rental property or file business income on Schedule A could also benefit from the temporarily higher SALT deduction. For example:

• Those paying large local property taxes or state income taxes may see reduced federal taxable income through larger itemized deductions.

• Changes in SALT policy may affect timing of estimated payments or decisions on entity‑level pass‑through entity taxes (PTE taxes) depending on state rules and planning goals. 

Preparing Ahead

Taxpayers who expect to benefit from a higher SALT cap should:

• Keep detailed records of property taxes, state income tax payments, and other eligible SALT items.

• Evaluate whether itemizing or using the standard deduction yields the greatest federal tax benefit in any given year.

• Consult a tax professional to model how timing of payments and income might affect deductions under the phased approach through 2029.

Conclusion

The SALT deduction landscape for 2026 and the late 2020s reflects a temporary expansion of the deduction cap rather than a simple reversion to pre‑TCJA rules. The changes in the OBBBA offer meaningful opportunities for homeowners and taxpayers in high‑tax states, but they come with income‑based limits and a sunset back to the $10,000 cap in 2030. Staying informed and planning strategically can help taxpayers make the most of these evolving policies.