What SALT Is

SALT stands for State and Local Tax. The SALT deduction allows taxpayers who itemize their federal return to deduct state income tax (or sales tax in lieu of income tax) plus property tax. Before 2018, this deduction was unlimited.

The 2017 Tax Cuts and Jobs Act capped this deduction at $10,000 per household ($5,000 if married filing separately). The cap applies to the combined total of state income tax + property tax.

The 2025 One Big Beautiful Bill Act (OBBBA) temporarily raised the cap to $40,400 for 2026 ($20,200 if married filing separately). The higher cap is reduced by 30% of modified AGI above $505,000, never falling below a $10,000 floor, and continues to rise about 1% per year through 2029 before reverting to $10,000 in 2030.

Who the Cap Affects

With the 2026 cap at $40,400, the SALT cap now binds only for households in high-tax states (California, New York, New Jersey, Connecticut, Massachusetts, Illinois) whose property tax + state income tax exceeds $40,400, or for very high earners whose cap is reduced by the $505,000 MAGI phaseout.

Example: California

• Married couple, $400K income. State income tax: roughly $30K.
• Property tax on $2M home: roughly $22K.
• Total state and local tax: $52K.
• Pre-2018: full $52K deduction.
• 2026 ($40,400 cap): deduction limited to $40,400. Lost: ~$11.6K.
• Under the old $10,000 cap they would have lost $42K, so the OBBBA cap restores most of the deduction (worth ~$9,700/year at a 32% marginal rate).

For most retirees in low-tax states like Arizona, Florida, or Texas, the SALT cap rarely binds because total state and local tax is well below $40,400 anyway.

The PTET Workaround for Pass-Through Business Owners

For high-earning pass-through business owners (S-corps, partnerships, multi-member LLCs), many states have enacted Pass-Through Entity Tax (PTET) workarounds. The mechanic: the entity pays state tax on the owner's share of business income directly. The state tax becomes a business deduction, sidestepping the personal SALT cap.

As of 2026, more than 30 states have enacted some form of PTET. The mechanics vary: some states require an annual election, some apply automatically. For business owners in high-tax states with significant pass-through income, the PTET election can recover most or all of the SALT cap deduction loss.

This is one of the most underused tax planning tools for high-income business owners. The annual savings from a PTET election can run $5,000–$50,000+ depending on income and state.

What OBBBA Changed, and the 2030 Cliff

The original $10,000 cap was scheduled to sunset after 2025 along with the rest of the 2017 Tax Cuts and Jobs Act. Instead, the 2025 One Big Beautiful Bill Act (OBBBA) kept a cap but raised it sharply, to $40,400 for 2026, and indexed it up about 1% per year through 2029.

Two wrinkles matter for high earners. First, the higher cap phases down by 30% of modified AGI above $505,000, bottoming out at the $10,000 floor near $606,000 of MAGI, a "SALT torpedo" that can make an extra dollar of income unusually expensive in that band. Second, the $40,400 cap is temporary: under current law it reverts to $10,000 in 2030.

The planning implication: high-income, high-state-tax households get a materially larger SALT deduction in 2026–2029 than they did under the $10,000 cap, but should plan for the 2030 reversion, and watch the $505,000 phaseout when timing income, Roth conversions, or a relocation decision.

Real Scenario: A Pre-Retiree Considering Arizona

A married couple in California, $300K income, $1M home. Combined California state income tax + property tax: ~$30K. Under the 2026 $40,400 cap, that $30K is now fully deductible, so the SALT cap itself no longer drives the decision the way it did under the old $10,000 cap.

The relocation case still stands on Arizona's lower overall burden: a 2.5% flat state income tax (versus California's graduated rates up to 13.3%) and lower property tax on a comparable home. The state-tax savings alone can run well into five figures per year for a household at this income.

The caveat: the $40,400 cap reverts to $10,000 in 2030. If it does, this household's SALT-cap loss returns, roughly $20K of lost deduction, which would again strengthen the federal-tax case for relocating to a low-tax state.

The Itemize-vs-Standard-Deduction Math

The SALT cap interacts with the standard deduction. The 2017 TCJA roughly doubled the standard deduction, a change OBBBA made permanent, which means many households who used to itemize now take the standard deduction. For those households, the SALT cap is irrelevant: they aren't itemizing in the first place.

Itemizing only helps households whose itemized deductions (SALT + mortgage interest + charitable giving) exceed the standard deduction. For 2026, the standard deduction is $32,200 for a married couple. A household with $40K of SALT plus $15K of mortgage interest plus $10K of charitable giving = $65K of itemized deductions, far beating the standard. The higher 2026 SALT cap ($40,400) lets much more of that state and property tax count toward the itemized total than the old $10,000 cap did.

Common Mistakes

• Assuming the SALT cap doesn't affect you without checking the actual state + property tax total.
• Missing PTET workarounds available for pass-through business owners.
• Not factoring SALT changes into multi-year relocation planning.
• Forgetting that the $40,400 cap is temporary: it reverts to $10,000 in 2030, so multi-year strategies should account for the reversion.

The Bottom Line

The SALT cap limits the deduction for state income tax plus property tax on the federal return: $40,400 for 2026 under OBBBA, up from the 2017 law's $10,000 and set to revert to $10,000 in 2030. It hits hardest in high-tax states with high property values.

For Arizona retirees, the cap is rarely the binding constraint. For pre-retirees still in high-tax states, the cap is one factor in the relocation cost-benefit analysis, and the PTET workaround is worth investigating for pass-through business owners.