Who this applies to
Homeowners and business owners in states with income tax, and S corporation or partnership owners deciding on a PTET election.
Key questions
- Where does your 2026 modified AGI fall against the $505,000 phase-down threshold?
- Do your itemized deductions now exceed the standard deduction?
- Does your state's PTET give a full credit, and when is the election due?
Review with the OICPA team
- Estimate 2026 modified AGI and your effective SALT cap
- Compare itemizing with the standard deduction
- Decide on the PTET election before your state's deadline
On this page
From 2018 through 2024, you could deduct no more than $10,000 of state and local taxes on your federal return. The One Big Beautiful Bill Act raised that cap for 2025 through 2029. For many homeowners and business owners in higher-tax states, itemizing makes sense again. For high earners, the cap shrinks back toward $10,000.
The 2026 numbers
- Cap: $40,400 ($20,200 if married filing separately). It was $40,000 for 2025 and rises 1% a year through 2029.
- Phase-down: the cap drops by 30% of your modified AGI above $505,000 for 2026 ($252,500 if married filing separately).
- Floor: the cap never drops below $10,000 ($5,000 married filing separately).
- 2030: the cap returns to $10,000 unless Congress acts again.
The cap covers state and local income tax (or sales tax, if you choose) plus property taxes on your home.
An example of the phase-down
A married couple has modified AGI of $560,000. That is $55,000 above the $505,000 threshold. Thirty percent of $55,000 is $16,500. Their 2026 cap is $40,400 minus $16,500, or $23,900.
At about $606,000 of modified AGI, the cap reaches the $10,000 floor. Between roughly $505,000 and $606,000, each extra dollar of income also reduces the SALT deduction. The effect is a higher marginal tax rate in that income range, which is worth planning around.
Should you itemize again?
Compare your total itemized deductions with the 2026 standard deduction: $32,200 for joint filers and $16,100 for single filers. With a $40,400 cap, a couple paying $15,000 of state income tax and $12,000 of property tax can now deduct $27,000 of SALT. Add mortgage interest and charitable gifts, and itemizing often wins.
The PTET election still works
Most states with an income tax let S corporations and partnerships pay state income tax at the entity level. This is the pass-through entity tax, or PTET. The business deducts the state tax as a business expense, so it does not count against the SALT cap, and the owners receive a state credit or exclusion.
The new law left this option in place. It is most valuable when:
- Your income is in or above the phase-down range, so your personal SALT cap is small.
- Your property taxes alone already use up most of the cap.
- Your state gives a full credit for the entity-level tax.
It is less valuable, and sometimes costs money, when your total state and property taxes are already under the cap. The PTET payment also reduces the business income that counts toward the QBI deduction. State rules differ on deadlines, estimated payments, and which owners can opt in.
What to review this year
- Estimate your 2026 modified AGI and see where it falls against $505,000.
- Decide whether to itemize, and whether to bunch property tax or charitable payments into one year.
- If you own an S corporation or partnership, confirm your state's PTET deadline. Some elections are due during the tax year.
The Owner Tax Planner models the SALT cap, its phase-down, and a PTET election on the same return. Our multi-state tax team handles the state elections.
Frequently asked questions
Does the SALT cap apply to taxes my business pays?
No. Taxes a business pays to operate, such as property tax on a business building or an entity-level PTET payment, are business expenses and are not subject to the personal SALT cap. State income tax you pay personally on business profits is subject to the cap.
Can I deduct sales tax instead of state income tax?
Yes. You can deduct either state and local income tax or general sales tax, not both. Sales tax usually makes sense only in states with no income tax.
What is the cap if I am married filing separately?
For 2026, the cap is $20,200, the phase-down starts at $252,500 of modified AGI, and the floor is $5,000.
Does every state have a PTET election?
No. Most states with a personal income tax offer one, but the rules differ on who can elect, when the election is due, and how the credit works. Some states tie their PTET to the federal cap and may change it.
What counts as modified AGI for the phase-down?
For most people it is simply adjusted gross income. Taxpayers who exclude foreign earned income add that excluded income back.
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