The SALT deduction: What it is, how it works and what you should know about the $10,000 cap

Key takeaways

• You can claim the SALT deduction only if you itemize.
• The SALT deduction lets you deduct a variety of state and local taxes, including property, income and sales taxes. But, while you can claim different types of state taxes under this deduction, you must choose between deducting state income and state sales taxes -- you can't deduct both in the same year.
• Not all state and local taxes qualify for this deduction.
• The maximum deduction is currently limited to $10,000.
• The $10,000 cap is in place for the 2024 and 2025 tax years.

If you itemize on your taxes, you may be able to take advantage of the state and local tax (SALT) deduction to reduce how much of your income is subject to taxes -- and thus lower your tax bill.

What is the SALT deduction?

The SALT deduction is a federal tax perk that allows taxpayers to write-off the money they spend on state and local taxes, including property and sales taxes, thereby reducing their taxable income.

The amount you can deduct is currently capped at $10,000, but that limit is slated to expire at the end of 2025, along with many provisions of the tax law that brought the SALT cap into existence -- the Tax Cuts and Jobs Act (TCJA) of 2017.

SALT deduction in the news

The Tax Cuts and Jobs Act (TCJA) placed a temporary cap on the SALT deduction, and that cap is set to end after 2025. Before 2018, the SALT deduction amount was unlimited, meaning most taxpayers could deduct 100 percent of the state and local taxes they had paid (some high-income taxpayers were subject to limitations on the total amount of their itemized deductions).

In the 2017 Tax Cuts and Jobs Act, lawmakers created a $10,000 limit for single and married filing jointly filers, and a $5,000 limit for married couples filing separately. This new limit helped offset some of the lost revenue from the TCJA tax cuts, but it also had a major effect on taxpayers in high-tax states like California, New York and New Jersey.

Learn more: Find your state's income and sales tax rates

In the years since, numerous lawmakers have proposed various ideas, including increasing the $10,000 cap to $20,000 or removing the cap entirely, but none of these proposals became law.

The tax provisions in the TCJA will expire at the end of 2025, which means the SALT deduction will revert to an unlimited amount -- unless Congress takes action before then. President Donald Trump campaigned on a promise to permanently lift the cap on SALT deductions, and there are Republicans and Democrats who support changing or eliminating the $10,000 cap.

If lawmakers don't pass tax legislation this year, then the cap will expire and most taxpayers will, once again, be able to deduct all of the state and local taxes that they've paid, without limit (though some high earners could, once again, face a cap on their total deductions).

"A great deal of controversy surrounds the SALT limitation," says Kemberley Washington, a certified public accountant and Bankrate tax expert. Lawmakers have proposed "many options to amend or repeal the cap for taxpayers," she says. "However, doing so may increase the federal deficits significantly."

Learn more: Trump and the expiration of the TCJA: What it means for your taxes

How to claim the SALT deduction

While the SALT deduction can reduce your tax burden, you must itemize to take advantage of it -- and it generally only makes sense to itemize if your deductible expenses exceed the standard deduction.

Learn more: Standard deduction vs. itemized deductions: How to decide

The number of taxpayers who itemize has dropped in recent years, mostly because the Tax Cuts and Jobs Act -- the same law that limited the SALT deduction to $10,000 -- nearly doubled the standard deduction for individual filers.

As a result, many taxpayers find it more cost-effective to claim the standard deduction rather than itemize their deductions. Less than 10 percent of taxpayers itemized their deductions in 2022, according to the most recent IRS data.

The standard deduction is worth $14,600 for single filers and $29,200 for married-filing-jointly couples for tax year 2024. Those amounts generally rise each year due to IRS inflation adjustments. But the Tax Cuts and Jobs Act is set to expire at the end of 2025, which may reduce the standard deduction and make itemizing more attractive once again. Still, there's a good chance lawmakers will update or change the law before it expires.

How the SALT deduction works

The SALT deduction allows taxpayers who itemize their deductions to reduce their taxable income by the amount of state and local taxes they paid that year, up to a maximum of $10,000. (For married couples filing separately, the limit is $5,000.)

The types of taxes covered by the SALT deduction are state and local property taxes, income taxes and sales taxes. But you must choose between income and sales taxes -- you can't deduct both in the same year.

For example, people who live in states with no income taxes likely would choose to deduct sales taxes rather than state income taxes, and someone in a high-income-tax state likely would benefit from claiming the SALT deduction for state income taxes.

Certain state and local taxes can't be deducted, including those spent on gasoline, car inspection fees and licensing fees. See this IRS page.

SALT deduction example

To better understand how the SALT deduction works, let's consider an example. Suppose a taxpayer, a single filer, plans to itemize deductions on her tax return. She paid $8,000 in annual property taxes and $5,000 in state income taxes in 2024. Assume the taxpayer's maximum, or marginal, income tax rate is 22 percent.

Learn more: Marginal tax rate: What it is and how to find yours

While this taxpayer paid $13,000 of eligible state and local taxes, current law only allows her to claim a maximum SALT deduction of $10,000. Using her 22 percent marginal tax rate, this deduction would reduce this taxpayer's 2024 tax burden by $2,200 (which is the $10,000 deduction amount multiplied by her 22 percent tax rate).

Before 2018, this same taxpayer could have saved $2,860 in taxes by deducting the full $13,000 she paid in eligible state and local taxes.

Even though all taxpayers are limited to the same $10,000 deduction, the tax benefit of a deduction won't be the same for all taxpayers. That's because the value of a deduction is calculated based on your marginal tax rate. People in lower tax brackets see a smaller tax bill reduction with the SALT deduction, while those in the highest tax bracket (currently 37 percent) could save up to $3,700 in federal income taxes.