OBBBA SALT Cap Increase: What the New $40,000 Deduction Limit Means for You
The OBBBA raised the SALT deduction cap from $10,000 to $40,000 for itemizers — but it phases back down to $10,000 once your income passes $500,000, and only benefits taxpayers who itemize. Here’s how the new limit actually works.
The One Big Beautiful Bill Act raises the cap on the itemized deduction for state and local taxes (SALT) from $10,000 to $40,000 for tax years 2025 through 2029. But the increase phases back down for itemizers with modified adjusted gross income (MAGI) above $500,000, and it only helps taxpayers who itemize deductions in the first place.
Key facts
- SALT cap rises from $10,000 to $40,000 ($20,000 married filing separately) starting in 2025
- The cap increases 1% per year through 2029, then reverts permanently to $10,000 in 2030
- Phases down 30 cents per dollar of MAGI above $500,000 ($250,000 MFS); fully back to the $10,000 floor at $600,000 MAGI
- Only benefits taxpayers who itemize deductions on Schedule A — non-itemizers see no change
- Unrelated to the OBBBA tips, overtime, senior, or car loan interest deductions, which are all above-the-line
What counts as a SALT deduction
SALT stands for state and local taxes — the itemized deduction for state and local income tax (or sales tax, if you elect that instead) plus property taxes, claimed on Schedule A. It’s only available to taxpayers who itemize instead of taking the standard deduction.
The new cap, year by year
- 2025: $40,000 ($20,000 if married filing separately)
- 2026: $40,400 (a scheduled 1% increase)
- 2027–2029: continues rising roughly 1% per year
- 2030 and later: reverts to the original $10,000 cap ($5,000 MFS), with no income-based phase-down
The income phase-down
For MAGI above $500,000 ($250,000 for married filing separately), the $40,000 cap shrinks by 30 cents for every dollar over the threshold, per H.R. 1, the One Big Beautiful Bill Act. Because the reduction is worth 30% of each extra dollar, the tax hit from crossing into this range can be sharper than the underlying tax-bracket jump — some advisors call it the "SALT torpedo." The cap can’t fall below the original $10,000 floor; that floor is reached once MAGI hits $600,000 ($300,000 MFS).
A worked example
A single itemizer with $550,000 of MAGI who paid $45,000 in state income and property taxes is $50,000 over the $500,000 threshold. At 30 cents per dollar, that’s a $15,000 reduction — bringing their allowed cap down to $25,000. Since they paid more than that ($45,000), their SALT deduction is limited to $25,000: more than the old $10,000 cap, but $15,000 less than the full $40,000 they’d get below the threshold.
Only helps if you itemize
The 2026 standard deduction is $16,100 for single filers and $32,200 for married filing jointly, per IRS Rev. Proc. 2025-32. Since the Tax Cuts and Jobs Act nearly doubled the standard deduction in 2018, most filers stopped itemizing altogether. A bigger SALT cap only matters if your SALT payments, plus mortgage interest, charitable giving, and other itemized deductions combined, exceed your standard deduction — otherwise the increase changes nothing on your return.
Who benefits most
In practice, the increase mainly helps itemizers in states with high property taxes or state income taxes — think California, New York, or New Jersey — who were capped at $10,000 under the old rule regardless of how much they actually paid. See how the OBBBA’s other provisions play out for tipped and overtime workers in California, New York, and New Jersey.
A separate track from pass-through entity tax elections
Many states let business owners route state taxes through a pass-through entity tax (PTET) election, deducting them at the entity level instead of the individual SALT cap entirely. The OBBBA generally left these state PTET workarounds in place, but the interaction with the new $40,000 cap and its phase-down is genuinely complex — talk to a tax professional if this applies to your business.
Frequently asked questions
Is the SALT cap increase permanent?
No. It runs 2025 through 2029, then reverts permanently to the $10,000 cap ($5,000 MFS) starting in 2030, with no income phase-down at that point.
Does the SALT cap affect the OBBBA tips, overtime, or senior deductions?
No. Those are separate, above-the-line deductions available whether or not you itemize. The SALT cap only affects the itemized deduction for state and local taxes on Schedule A. See our guides to the senior deduction and car loan interest deduction for the above-the-line side of the law.
What exactly counts toward the $40,000 cap?
State and local income tax (or sales tax, if elected instead) plus real and personal property taxes, combined, claimed on Schedule A.
Can the phase-down push my deduction below $10,000?
No. $10,000 ($5,000 MFS) is a floor. Once MAGI reaches $600,000 ($300,000 MFS), the cap stops shrinking further and stays at $10,000.
Do I need to do anything differently to claim the higher cap?
You still itemize on Schedule A as before; the higher limit is applied automatically based on your MAGI. There’s no separate election or form beyond your normal itemized return.
This article is for general educational purposes and reflects the text of H.R. 1 (Pub. L. 119-21) available as of August 2026. It is not tax advice. Consult a qualified tax professional about your specific itemized deductions.