State and Local Tax Deduction: What You Need to Know

The state and local tax deduction can be a bit tricky to navigate, but don't worry, I'm here to break it down for you. The Tax Cuts and Jobs Act (TCJA) limited the deduction to $10,000 for tax years 2018 to 2025.

You can deduct state and local income taxes, sales taxes, or a combination of both. For example, if you live in a state with no sales tax, you can deduct your state income taxes. However, if you live in a state with sales tax, you can choose to deduct either your state income taxes or your sales taxes, but not both.

The TCJA also eliminated the deduction for state and local property taxes for tax years 2018 to 2025, unless you itemize your deductions. However, if you're eligible for the mortgage interest deduction, you can still deduct up to $10,000 of state and local property taxes.

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The state and local tax deduction, also known as the SALT deduction, is a federal tax break that allows filers who itemize to deduct a portion of their state and local taxes from their taxable income.

In 2025 and 2026, the SALT deduction limit is $40,000, but high earners may only be able to deduct up to $10,000. This cap is reduced by $0.30 for every dollar over $500,000 of income in 2025 or $505,000 in 2026.

To take advantage of the SALT tax deduction, you must itemize rather than take the standard deduction, which can be a significant amount. For example, in 2025, the standard deduction is $15,750 for single filers and $31,500 for married filing jointly.

Here are the standard deduction amounts for different filing statuses in 2025:

If you live in a state with no income tax and made large purchases during the year, you may benefit from the sales tax deduction, which is part of the SALT deduction. However, you can't claim both the state and local sales tax deduction and the state and local income tax deduction in the same year.

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The SALT deduction allows taxpayers to reduce their federally taxable income by the amount of state and local taxes they paid that year, up to $10,000, or $5,000 for married filing separately, for 2024.

Taxpayers can deduct property taxes, local and state income taxes, or state and local sales taxes, but not both. This means you have to choose between deducting income taxes or sales taxes if you itemize.

For 2025, the limit is $40,000, or $20,000 for married filing separately. This is a significant increase from the 2024 limit, which is $10,000 or $5,000 for married filing separately.

Taxpayers who live in states with high-income taxes often choose to deduct their state and local income taxes, while those who live in states with higher sales tax but low or no-income taxes may find it more beneficial to deduct sales tax.

In theory, the SALT deduction exists to offset some federal taxpayer liability by excluding income already taken in taxes for state and local government services.

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In this section, we'll explore some examples and limitations of the state and local tax deduction.

The SALT deduction can be a significant tax savings for taxpayers who itemize their deductions. For instance, a taxpayer who paid $20,000 in annual property taxes and $25,000 in state income taxes could claim a deduction of $40,000 in 2025, reducing their income tax liability by $9,600.

Taxpayers should be aware of the taxes and fees that are not covered by the SALT deduction. These include federal income taxes, Social Security taxes, transfer taxes, stamp taxes, homeowner's association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection.

Here are some examples of taxes and fees that are not eligible for the SALT deduction:

In the example of a SALT deduction, a taxpayer paid $20,000 in annual property taxes and $25,000 in state income taxes, totaling $45,000 in eligible state and local taxes.

The maximum SALT deduction is $40,000 for 2025, so the taxpayer's deduction would be limited to that amount.

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When you're considering the SALT deduction, it's essential to know what's not covered. Federal income taxes are not eligible for the SALT deduction.

You also can't claim Social Security taxes as part of the SALT deduction. This means you won't be able to deduct the taxes you pay on your Social Security benefits.

Transfer taxes, such as those imposed on the sale of property, are also not covered by the SALT deduction. This includes stamp taxes, which are often associated with property transactions.

Homeowner's association fees are another type of expense that can't be claimed as a SALT deduction. These fees are usually mandatory and cover costs like maintenance and amenities.

Estate and inheritance taxes are not eligible for the SALT deduction either. These taxes are typically paid by the estate or heirs of a deceased person.

Service charges for water, sewer, or trash collection are also not covered by the SALT deduction. These fees are usually mandatory and can be a significant expense for homeowners.

Here's a quick rundown of what's not covered by the SALT deduction:

The SALT deduction cap was implemented to help increase federal revenues by limiting deductions. It was one of the largest federal tax expenditures, costing the U.S. Treasury an estimated $100 billion a year.

The SALT cap was established with the passage of the Tax Cuts and Jobs Act in 2017 and modified by the One Big Beautiful Bill Act in 2025. Prior to the TCJA, there was no cap on the SALT tax deduction, so taxpayers could deduct 100% of their state and local taxes paid.

The SALT cap was initially set at $10,000, but it has been increased to $40,000 for 2025 and $40,400 for 2026. The cap will be increased by 1% per year for tax years beginning after 2026 and before 2030, and then revert to $10,000 in 2030.

The SALT cap has been a point of contention, especially in high-tax states, but it was ultimately ruled to be constitutional by the Supreme Court in 2022.

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The SALT deduction cap was established with the passage of the Tax Cuts and Jobs Act in 2017 and modified by the One Big Beautiful Bill Act in 2025. The cap limits the itemized deduction for state and local taxes to $10,000 for 2024 or $40,000 for 2025.

The SALT cap was implemented to help increase federal revenues by limiting deductions. Prior to the cap, the SALT deduction was one of the largest federal tax expenditures, costing the U.S. Treasury an estimated $100 billion a year.

In 2025, the SALT cap was increased to $40,000, providing some relief to taxpayers residing in high-tax states. This change is a result of the One Big Beautiful Bill Act, which modified the original cap established in 2017.

The SALT cap will continue to change each year, with the amount increasing by 1% per year for tax years beginning after 2026 and before 2030. For tax years beginning in 2030, the cap will revert to $10,000, or $5,000 for married filing separately.

Here is a summary of the SALT cap changes:

The SALT cap workaround is an elective pass-through entity tax (PTET) that numerous states have enacted since the implementation of the SALT deduction cap. This can be a beneficial tax-reduction tool for some pass-through entity (PTE) business owners.

More than 30 states have authorized SALT cap workarounds for some PTEs, allowing business owners to indirectly deduct state and local taxes they've paid beyond the SALT cap.

The specifics vary by state, but for some PTE owners, the SALT cap workaround may enable them to reduce their self-employment tax and take advantage of the high standard deduction and charitable deduction for non-itemizers.

Making a PTET election can potentially benefit some PTE owners in several ways:

It's essential to note that, in some instances, the SALT cap workaround can result in other tax issues for PTEs, such as valuations of business property.

The SALT deduction has a significant history. It's a large tax expenditure that provides a special deduction for state and local taxes paid.

The Joint Committee on Taxation estimated that the deduction would cost the federal government $24.4 billion for 2020.

The SALT deduction cap of $10,000 per household was scheduled to expire after 2025, but it's unclear what will happen next.

Taxpayers with higher tax liabilities in jurisdictions with higher state and local tax rates will likely see the most significant benefits in claiming the SALT deduction.

These individuals face higher income tax bills and own property with property taxes to deduct. They're the ones who will see the biggest savings from the SALT deduction.

Before the SALT cap was instituted, taxpayers with income greater than $100,000 accounted for the overwhelming majority (91%) of those claiming SALT deductions. This is a staggering number that highlights the impact of the SALT deduction on high-income earners.

These taxpayers were concentrated in six states – New York, Pennsylvania, New Jersey, California, Texas, and Illinois.

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The SALT deduction has a significant impact on taxpayers, and understanding its history is essential. The Joint Committee on Taxation estimated that the deduction for state and local taxes paid would cost the federal government $24.4 billion for 2020.

The SALT deduction is a large tax expenditure, which means it provides a special deduction that wouldn't be included in a "normal" tax code. This provision has been a part of the tax code for some time.

The SALT deduction cap of $10,000 per household was scheduled to expire after 2025, but it's unclear what will happen to this provision in the future.

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The sales tax deduction is a part of the state and local tax (SALT) deduction that lets you reduce your taxable income by up to $10,000 if you itemize. You can't claim both the sales tax and income tax deductions in the same year.

To claim the sales tax deduction, you can use Schedule A, the IRS calculator, or save your receipts from purchases throughout the year. It's also essential to consider all forms of income, including non-taxable income like Roth IRA distributions and tax-exempt interest from municipal bonds.

The IRS provides optional state sales tax tables and a worksheet to help you calculate the tax under different scenarios. You can use these tools to figure out your deduction and save time.

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Sales tax is a tax levied by states and local governments on the sale of certain goods and services. It's part of the state and local tax (SALT) deduction, which lets you reduce your taxable income by up to $10,000 if you itemize.

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People who live in states with no income tax might find it beneficial to take the sales tax deduction, especially if they made large purchases during the year. This includes those who bought expensive items like cars, homes, or furniture.

You can't claim both the state and local sales tax deduction and the state and local income tax deduction in the same year. However, you can deduct state and local real estate and personal property taxes in addition to either the income or sales tax deduction.

Here's a comparison of the two deductions:

The SALT deduction has a cap of $10,000, regardless of whether you claim state income or state sales tax. This means that even if you paid more in taxes, you can only deduct up to $10,000.

To claim the sales tax deduction, you'll need to follow these steps. First, use Schedule A to claim your itemized tax deductions, including the sales tax deduction.

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You can either save all your receipts from every purchase throughout the year, use the sales tax tables formulated by the IRS, or use the IRS sales tax deduction calculator to figure out your deduction. The calculator can save you a lot of work.

To use the IRS calculator, you'll need to identify your correct income level, which includes all forms of income, such as non-taxable income like Roth IRA distributions and tax-exempt interest from municipal bonds.

Don't forget to add the sales taxes you paid for large purchases made during the year, such as a car, boat, or a house. The IRS provides more details on this in the instructions for Schedule A.

Here are the filing status and standard deduction amounts for reference:

If you're a high earner, be aware that the SALT deduction cap is reduced by $0.30 for every dollar over $500,000 of income in 2025 or $505,000 in 2026.

You can claim the state and local taxes deduction by itemizing your taxes, and it's worth noting that you can choose between claiming sales taxes or state and local income taxes.

The SALT deduction is capped at $10,000 in 2025, with the same limit applying to everyone except taxpayers who are married and file separately, who can claim $5,000 each.

To calculate your state or local income taxes, you can use the information on your W-2 form, which will show you what you've paid in state or local income taxes over the course of the year.

If you're self-employed, you can also deduct any estimated taxes you might have paid to your state or local government over the course of a tax year.

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If you get a W-2 form from your employer, you can easily see what you've paid in state or local income taxes over the course of the year. This information can help you figure out how much state or local income tax you might be able to deduct.

You can also deduct estimated taxes paid to your state or local government if you're self-employed. This is a great way to reduce your tax liability.

If you had to make payments on prior-year state or local taxes, you can deduct those payments too.

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To make the most of your SALT deduction, keep in mind that you must itemize to claim it, and you can choose between claiming sales taxes or state and local income taxes.

You can also claim property taxes as part of this deduction, but be aware that you must choose between sales or income tax and property taxes.

The SALT deduction is capped at $10,000 in 2025, and that same limit applies to everyone except taxpayers who are married and file separately, who can claim $5,000 each.

If you live in a state with high income tax rates and own a house with steep property taxes, your state income and property taxes will likely hit the $10,000 cap, making sales taxes less relevant.

Here's a quick rundown of the SALT deduction limits:

If you're self-employed, don't forget that you can deduct any estimated taxes you might have paid to your state or local government over the course of a tax year.

You can also deduct taxes levied on personal property, such as a boat or a car, if the tax is based only on the value of the property and it's charged annually.