Good news for homeowners who want to soften their financial load this tax year, as the IRS still permits qualified taxpayers to deduct up to $10,000 of property taxes under the State and Local Tax (SALT) deduction.
If you itemize on your taxes, you may be able to take advantage of the SALT deduction to reduce how much of your income is subjected to taxes, lowering your tax bill.
In order to benefit from the SALT deduction, your property taxes must be included as itemized deductions on Schedule A of your return. They include state and local property taxes up to a maximum of $10,000 – $5,000 for married couples filing separately. The deduction only applies to qualified property taxes you paid in the tax year.
The SALT deduction is an important tax perk, particularly for those living in high-property tax states such as New York, New Jersey and California.
What is the SALT deduction?
The SALT deduction is a federal tax perk that allows taxpayers to deduct money they spend on state and local taxes, including property and sales taxes, thus reducing their taxable income.
The amount you can deduct was capped at $10,000 by the Tax Cuts and Jobs Act (TCJA), ushered in 2017 by Donald Trump on his first term as president, but that limit is set to expire at the end of 2025. Before 2018, the SALT deduction amount was unlimited, meaning most taxpayers could deduct 100% of the state and local taxes they had paid.
In the 2017 TCJA, lawmakers established a $10,000 limit for single and married couples filing jointly, and a $5,000 limit for married couples filing separately. This new limit helped offset some of the lost revenue from the TCJA tax cuts, but it also had a major effect on high-tax states such as California, New York and New Jersey – who argue the deduction disproportionately affects them.
How to claim the SALT deduction
While the SALT deduction may reduce your tax burden, you must itemize to take advantage of it – and it only makes sense to itemize if your deductible expenses exceed the standard deduction.
There are a number of taxes covered by the SALT deduction:
- Local and state income taxes
- Sales tax
- Property tax
However, taxpayers must make a choice: they can deduct local and state income taxes or local and state sales taxes – they can’t deduct both in the same year. For example, people who live in states with no income taxes would likely choose to deduct sales taxes rather than state income taxes, whereas someone in a high-income-tax state would likely benefit from claiming the SALT deduction for state income taxes.
Certain state and local taxes can’t be deduced, such as gasoline, car inspection fees and licensing fees.
What’s happening with the SALT cap?
The tax provisions in the TCJA will expire at the end of the 2025, which means the SALT deduction will go back to an unlimited amount – unless Congress passes legislation before then.
Lawmakers in the U.S. are preparing a major tax reform since Republicans control the White House, and both chambers of Congress as well as President Trump reportedly would like to see adjustments to the SALT $10,000 cap in 2025. Several Republicans have said they won’t support a 2025 tax reform that doesn’t lift or eliminate the cap, while others are considering a SALT adjustment as high as $30,000.
Trump called for lifting the SALT cap during his 2024 presidential campaign, sparkling mixed reactions. Some viewed it as a necessary adjustment for taxpayers in high-tax states, while others critized him for previously supporting the legislation that imposed the cap.
Eliminating the SALT cap could cost an estimated $1.2 trillion over ten years, according to the Committee for Responsible Budget. These numbers have raised concerns about federal revenue and deficit reduction.
