The SALT Deduction Explained
SALT stands for State and Local Taxes. On your federal return, you can deduct state income taxes (or sales taxes — you choose one), local income taxes, and property taxes. The TCJA capped SALT at $10,000 in 2018. The OBBBA raised this to $40,000 for 2025 through 2029, with a phase-down of $50 for every $1,000 of AGI over $500,000. For married filing separately, the cap is $20,000.Income Tax vs. Sales Tax
You can deduct either state income tax or state sales tax — not both. In most cases, income tax yields a larger deduction. But if you live in a state with no income tax (Florida, Texas, Nevada, Washington, etc.), the sales tax deduction can be valuable. The IRS provides optional sales tax tables so you don't need to keep every receipt — you can use the table amount plus sales tax on major purchases (cars, boats, home materials).Example: High-Tax State Resident
You live in California, earn $150,000, and pay: State income tax $10,500, property tax $8,000. Total SALT: $18,500. Under the old $10,000 cap, you'd lose $8,500 in deductions. Under the new $40,000 OBBBA cap, you can deduct the full $18,500. This is a significant improvement for residents of high-tax states like CA, NY, NJ, CT, and IL.
SALT Cap Workarounds for Business Owners
Many states now offer a pass-through entity tax (PTET) election that lets S-corps and partnerships pay state income tax at the entity level. This is treated as a business expense (not subject to the SALT cap) while providing a state tax credit to the owners. With the SALT cap now at $40,000, the PTET workaround is less critical but still valuable for high earners.
Many states now offer a pass-through entity tax (PTET) election that lets S-corps and partnerships pay state income tax at the entity level. This is treated as a business expense (not subject to the SALT cap) while providing a state tax credit to the owners. With the SALT cap now at $40,000, the PTET workaround is less critical but still valuable for high earners.
Track Your SALT Deduction
Hivebooks tracks state tax payments and property taxes together, showing you exactly where you stand against the $40,000 SALT cap throughout the year.
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