2026 SALT Deduction Phase-Down Explained

Pre-OBBB SALT Cap vs OBBB SALT Cap — A 4x Increase

Under TCJA (P.L. 115-97), the deduction for state and local taxes under IRC §164 was capped at $10,000 per year. The OBBB (P.L. 119-21, §70120) increased this cap substantially for 2026 through 2028:

The Phase-Down Formula

Above $500,000 MAGI (MFJ) or $250,000 MAGI (single), the cap reduces by 30% of the MAGI excess above the threshold, with a floor of $10,000.

Reduced Cap = OBBB Cap − 30% × (MAGI − Threshold)
Minimum Cap = $10,000

MFJ Example at $700,000 MAGI:

Reduced Cap = $40,400 − 30% × ($700,000 − $500,000)
            = $40,400 − 30% × $200,000
            = $40,400 − $60,000
= −$19,600 → below $10,000 floor → cap is $10,000

Phase-down impact table — MFJ filers:

The full phase-down is complete by approximately $633,000–$635,000 MAGI (MFJ). Above that income level, the effective cap is identical to the TCJA cap.

State-by-State SALT Pain Rankings

The OBBB cap expansion primarily benefits residents of high-tax states:

• California: State income tax rates up to 13.3%; median property taxes ~$5,000–$12,000 depending on area
• New Jersey: State income tax up to 10.75%; property taxes often $8,000–$15,000
• New York: State income tax up to 10.9% + NYC 3.876%; property taxes vary widely
• Illinois: Flat 4.95% income tax but high property taxes
• Connecticut: Income tax up to 6.99%; high property taxes

The SALT change provides no benefit to residents of states with no income tax (FL, TX, WY, NV, WA, TN, SD, AK), since their SALT deductions are typically limited to property taxes that often fall well below both caps.

Three Worked Examples

Example 1: California MFJ, $300,000 W-2 — Full OBBB Cap Available

• MAGI: $300,000 — below $500,000 threshold, no phase-down
• CA state income tax: ~$22,000; property tax on $900k CA home: ~$10,000
• Total SALT: $32,000; OBBB cap: $40,400 — full amount available
• Deductible SALT: $32,000. The additional $22,000 deduction (vs TCJA) at 24% saves $5,280 in federal taxes.

Example 2: New Jersey MFJ, $700,000 MAGI — Phase-Down Hits Hard

• MAGI: $700,000 — exceeds $500,000 threshold by $200,000
• Phase-down: 30% × $200,000 = $60,000 reduction
• Effective SALT cap: max($40,400 − $60,000, $10,000) = $10,000
• NJ state income tax: ~$60,000; property tax: ~$12,000; total SALT: ~$72,000 — deductible: $10,000
• This couple receives no benefit from the OBBB SALT increase.

Example 3: Texas MFJ, $500,000 MAGI — Cap Largely Unused

• MAGI: $500,000 — at threshold, no phase-down
• Texas state income tax: $0; property tax on $800k TX home: ~$16,000–$20,000
• Total SALT: ~$18,000 — deductible: $18,000 (under $40,400 cap)
• However, $18,000 SALT + $5,000 charitable = $23,000 < $32,200 MFJ standard deduction — most Texas filers still take standard deduction

SALT Components — What Counts

IRC §164 allows deductions for:

1. State and local income taxes (or state/local general sales taxes, if elected as an alternative)
2. Real property taxes (state and local on personal residences; foreign real property taxes are not deductible post-TCJA)
3. Personal property taxes (primarily vehicle registration fees based on value)

What does NOT count as SALT:

• Federal income taxes
• Self-employment taxes
• Real estate transfer taxes / recording fees
• Homeowner association fees
• Special assessments for improvements

Frequently Asked Questions

See Your SALT Deduction with the SALT Deduction Calculator

The phase-down formula has a significant kink at $500,000 MAGI where the benefit starts declining rapidly. The SALT deduction calculator computes your effective SALT cap, total itemized vs standard comparison, and tax impact for your specific MAGI and filing status. The property tax calculator and 2026 federal income tax calculator help model the full picture.