SALT Deduction Cap 2026: How OBBBA Raised the Limit to $40,400 (and the Phase-Out)

Tax Planning Published May 16, 2026 Updated May 24, 2026

For tax year 2026 the federal State And Local Tax (SALT) deduction cap is $40,400, four times the original $10,000 ceiling set by the 2017 Tax Cuts and Jobs Act. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the cap, added a phase-down for high-income filers, and locked in a sunset back to $10,000 in 2030. This post walks through who benefits, where the phase-out bites, what state-level workarounds still matter, and why long-term planners should keep the 2030 cliff on their radar.

2026 SALT Cap in Numbers

• Cap: $40,400 (up from $40,000 in 2025; up from $10,000 in 2024 and prior)
• Escalator: roughly 1% per year through 2029
• Phase-down threshold: $500,500 MAGI (same for single, MFJ; halved for MFS)
• Phase-down rate: 30 cents per dollar of MAGI above the threshold
• Floor: $10,000 (cap never reduced below this)
• Sunset: January 1, 2030, the cap reverts to $10,000 with no income phase-out

How the Phase-Out Math Works

If your modified adjusted gross income exceeds $500,500, your effective cap is:

effective_cap = max($10,000, $40,400 − 0.30 × (MAGI − $500,500))

Worked examples (filer with $35,000 in actual state + local tax bill, 2026):

Translation: the SALT cap is essentially $40,400 for filers with MAGI up to ~$500k. Between $500k and ~$601k MAGI the cap shrinks linearly back to the $10,000 floor. Above ~$601k MAGI the cap is locked at $10,000.

Who Benefits Most

The cap raise unambiguously helps itemizers in high-tax states who are below the phase-out threshold. The biggest beneficiaries:

• California, New York, New Jersey, Illinois, Massachusetts, Connecticut, Maryland: high state income tax plus often high property tax.
• Texas, Florida: no state income tax but very high property tax (Texas effective ~1.8%, Florida ~0.83%). Homeowners with $20k+ property tax bills can benefit.
• Middle-to-upper-middle income filers ($150k to $500k MAGI): above the standard deduction breakeven but below the OBBBA phase-out.

A married couple in New Jersey with $14,000 state income tax and $18,000 property tax (total $32,000 SALT) used to get the same $10,000 deduction whether they paid $10,000 or $50,000 in actual SALT. In 2026 they get the full $32,000 deduction. At the 32% federal bracket, that is $7,040 more federal tax savings than under the TCJA cap.

Itemizing vs Standard Deduction in 2026

For 2026 the standard deduction is $16,100 single, $32,200 MFJ, $24,150 head of household (Rev. Proc. 2025-32). Itemizing only beats the standard deduction if SALT + mortgage interest + charitable + medical above 7.5% AGI together exceed those thresholds.

The math now favors itemizing for many more filers than under the TCJA. Pre-OBBBA, the $10,000 SALT cap meant a single filer in California needed $15,001 in other itemized deductions just to break even with the standard deduction. Now, a single filer with $35,000 in SALT alone already exceeds the standard deduction without any mortgage interest or charitable giving.

State Pass-Through Entity Tax (PTET) Workarounds Still Matter

Since 2018, 36 states have enacted Pass-Through Entity Tax elections that allow S-corp shareholders and partners to pay state tax at the entity level, where it is fully deductible against federal income (the entity gets the deduction, the owner gets a state-level credit for what was paid). The IRS blessed this workaround in Notice 2020-75.

PTET bypasses the SALT cap entirely, which means it remains valuable even after the OBBBA cap raise. The arithmetic:

• If your share of pass-through income generates $80,000 in state tax, paying $80,000 of PTET at the entity level deducts the full $80,000 federally.
• Paying $80,000 personally subjects you to the $40,400 cap (or less, if MAGI phases you out).
• The difference at a 32% federal bracket: roughly $12,700 in extra federal tax savings using PTET.

For W-2 employees PTET is not available. But pass-through business owners in PTET-electing states should run the PTET-vs-cap math each year with their CPA.

Charitable Bunching for Phase-Out Affected Taxpayers

If your MAGI puts you in the phase-out zone (roughly $500k to $600k single/MFJ), the SALT cap may be reduced enough that the standard deduction wins. Charitable bunching is a tactic to time itemized deductions:

• Pre-fund 2-3 years of charitable giving into a donor-advised fund in a high-income year (when itemizing wins).
• Take the standard deduction in alternate years, distributing from the donor-advised fund.
• Over the 2-3 year cycle, total deductions are higher than taking the standard deduction every year.

State-by-State Snapshot

Median property tax bills (2023 ACS data) and top state marginal rates for 2026:

The 2030 Cliff: Why Long-Term Planning Matters Now

OBBBA's SALT cap is scheduled to revert to $10,000 on January 1, 2030, with no income-based phase-out. That gives planners a four-year window during which itemizing in high-tax states is dramatically more valuable than it will be afterward.

Considerations:

• Pre-paying state estimated tax in December for the following January (where state rules allow) shifts deductibility forward. With the cap at $40,400 in 2026 and $10,000 in 2030, accelerating SALT into pre-2030 years is rational.
• Capital gain harvesting strategy: if you have a large planned sale in 2030-2032, the loss of SALT deductibility means a higher effective tax cost. Consider accelerating sales into 2026-2029.
• Roth conversions in 2026-2029 hit a moment when SALT is more deductible, which softens the federal tax cost in itemizers' states.

Congress can extend the OBBBA cap, but as written today it sunsets. The TCJA's original 2025 sunset, which OBBBA itself rescued, is a reminder that nothing about a sunset clause is guaranteed.

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