SALT cap increase

Congress raised the federal deduction cap for state and local taxes to $40,000, up from $10,000, starting with the 2026 tax year. (congress.gov) The deduction covers state income taxes, local income taxes, and property taxes that filers claim if they itemize on Schedule A instead of taking the standard deduction. The Congressional Research Service said the new law sets the cap at $40,400 in 2026, with a $20,200 cap for married people filing separately. (congress.gov) The higher cap is not unlimited. Under the House-passed tax package summarized by the Congressional Research Service, the larger deduction is reduced for higher-income taxpayers and then rises by 1% a year through 2029 before reverting to $10,000 in 2030. (congress.gov) For many households, the practical effect is a somewhat smaller federal tax bill, not a lower property-tax bill from the town or state. Providence Journal’s analysis said the biggest gains go to households earning up to about $600,000 that already pay well above $10,000 in combined property and state income taxes. (providencejournal.com) The change matters most in states where homeowners face both high property taxes and state income taxes, because those taxpayers were more likely to hit the old $10,000 ceiling. Fidelity said the new law could make itemizing worth revisiting for filers in high-tax states who had defaulted to the standard deduction under the old limit. (fidelity.com) The old cap dates to the 2017 Tax Cuts and Jobs Act, which limited the deduction through 2025 and became a major target for lawmakers from New York, New Jersey, California, and other high-tax states. Tax Foundation said lifting the cap mainly helps higher earners because they are more likely to itemize and to pay enough state and local tax to exceed $10,000. (taxfoundation.org) Tax advisers are warning clients not to confuse a bigger deduction with a broad tax overhaul. In interviews published by AOL and USA Today, advisers described the new cap as modest relief for upper-middle-income households rather than a major rewrite of how property taxes work. (aol.com) (usatoday.com) The next test will come when taxpayers and preparers run 2026 returns under the new rules and compare itemizing against the standard deduction again. For many filers, the headline is simple: the cap is higher, but the savings are still limited by income, filing status, and whether itemizing beats the standard deduction. (fidelity.com) (congress.gov)