The State and Local Tax (SALT) deduction allows eligible taxpayers to deduct certain taxes paid to state and local governments when they itemize deductions on their federal income tax return.
What is the State and Local Tax Deduction?
The SALT deduction is an itemized deduction claimed on Schedule A of Form 1040. It allows taxpayers to deduct certain state and local taxes paid during the tax year, subject to annual limitations.
SALT Deduction Limits
For tax years 2018 through 2024, the deduction for state and local taxes was limited to:
- $10,000 for most filing statuses
- $5,000 for Married Filing Separately (MFS)
For tax years 2025 through 2029, the deduction limit has increased:
| Tax Year | Maximum SALT Deduction | Married Filing Separately |
|---|
| 2025 | $40,000 | $20,000 |
| 2026 | $40,400 | $20,200* |
*The annual limit increases by 1% each year through 2029.
Income Phase-Out
The increased SALT deduction begins to phase out for higher-income taxpayers.
For 2025:
- The phase-out begins when adjusted gross income (AGI) exceeds $500,000.
- For Married Filing Separately, the phase-out begins at $250,000.
For 2026:
- The phase-out begins when AGI exceeds $505,000.
- These AGI thresholds also increase by 1% annually.
As a taxpayer’s AGI increases above the applicable threshold, the maximum allowable deduction is gradually reduced until it reaches $10,000.
How Does SALT Tax Deduction Work?
Taxpayers who itemize deductions may deduct up to the annual limit for qualifying state and local taxes paid during the tax year.
Eligible taxes include:
- State and local income taxes
- State and local property taxes
- Foreign income taxes
- Foreign property taxes
Instead of deducting state and local income taxes, taxpayers may elect to deduct state and local sales taxes.
Taxpayers who claim the standard deduction are not eligible to claim the SALT deduction.
For more information see the following on the IRS website:
- Schedule A instructions for line 5
- IRS Publication 17, Part III, Section 11 – Taxes
- IRS Topic No. 503 – Deductible Taxes
How to Claim SALT Deduction
Taxpayers who itemize deductions report their qualifying state and local taxes on Schedule A (Form 1040), Lines 5a through 5c.
If the total state and local taxes exceed the applicable annual limitation, Schedule A automatically limits the deduction to the maximum allowable amount.
A taxpayer should itemize deductions only if their total itemized deductions exceed their standard deduction for inflation.
For tax year 2025, the standard deduction amounts are:
- $15,750 — Single or Married Filing Separately
- $31,500 — Married Filing Jointly or Qualifying Surviving Spouse
- $23,625 — Head of Household
Standard Deduction Amounts
Tax Year 2025
| Filing Status | Standard Deduction |
| Single or Married Filing Separately | $15,750 |
| Married Filing Jointly or Qualifying Surviving Spouse | $31,500 |
| Head of Household | $23,625 |
Tax Year 2026
| Filing Status | Standard Deduction |
| Single or Married Filing Separately | $16,100 |
| Married Filing Jointly or Qualifying Surviving Spouse | $32,200 |
| Head of Household | $24,450 |
Pass-Through Entity Tax (PTE) – A SALT Deduction Workaround
Many states have enacted Pass-Through Entity Tax (PTE) legislation as a workaround to the federal SALT deduction limitation.
The PTE election allows eligible partnerships and S corporations to pay state income tax at the entity level rather than having the tax paid by the individual owners.
When a pass-through entity elects to pay the tax:
- The partnership or S corporation pays the state income tax directly.
- Partners or shareholders generally receive a credit on their state individual income tax return for their share of the tax paid.
- In many states, the owners may not be required to report that portion of pass-through income on their individual state income tax return, depending on the state’s specific PTE rules.
Because PTE laws vary by state, taxpayers should review the rules established by their state’s Department of Revenue to determine whether a PTE election is available and how it applies to their situation.
