What Is the SALT Deduction?
The SALT deduction allows taxpayers to deduct certain state and local taxes paid during the year, including:
- State and local income taxes or sales taxes (you must choose one)
- Property taxes on real estate
- Some personal property taxes (like vehicle registration fees based on value)
TCJA
Before TCJA, there was no cap on how much you could deduct, making it especially beneficial for residents in high-tax states like California, New York, and New Jersey.
Changes Under the TCJA
Effective tax year 2018, the TCJA limited the total SALT deduction to $10,000 per year for individuals, or $5,000 for married taxpayers filing separately. This cap applies regardless of how much you actually paid in state and local taxes. Example:
If you paid $8,000 in state income tax and $6,000 in property tax, you could only deduct $10,000, even though you paid $14,000.
Impact of the Cap
- High-income and high-tax state residents have seen a significant reduction in deductible expenses.
- Married couples filing jointly are especially impacted, as the cap isn’t doubled for joint filers.
- This limitation may result in higher federal tax bills, depending on your total deductions and income level.
Workarounds and State Responses
Some states have tried to minimize the impact of the SALT cap by:
- Creating charitable contribution workarounds (largely disallowed by the IRS)
- Offering elective pass-through entity (PTE) taxes for businesses, letting owners pay state tax at the entity level and bypass the personal SALT cap
These strategies can help business owners reclaim some lost deductions, but they come with complex rules. It’s best to consult a tax advisor to see if they apply to your situation.
What to Expect in the Future
The SALT cap is set to expire after 2025, unless Congress extends it or passes new legislation. There have been repeated efforts to raise or repeal the cap, but as of 2025, no changes have been enacted.
Need Help Navigating SALT Deductions?
At SK Tax Addison, we stay up-to-date with tax law changes and can help you make the most of your deductions—within the law. Contact us today to see how the SALT cap affects your tax return and what strategies you may be able to use.
