SALT Deduction Cap Rises to $40,400 for 2026 Tax Year

Itemizers can now deduct more state and local taxes, though the benefit phases out for high-income households.

Updated on Oct. 30, 2026 in Taxes

Bold flat-color editorial illustration of a brass balance scale with stacked tokens, representing US tax policy changes. — The One Big Beautiful Bill Act increases the federal state and local tax deduction cap to $40,400 for the 2026 tax year. AI Illustration. Upload story photo >

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The One Big Beautiful Bill Act, enacted in July 2025, raised the federal state and local tax (SALT) deduction cap to $40,400 for the 2026 tax year. This change significantly alters the landscape for taxpayers across the United States who itemize their deductions.

Why it matters

The increased cap provides a larger deduction for those in high-tax states, though the benefit phases out for those with a modified adjusted gross income exceeding $505,000. Navigating this alongside state-level decoupling from federal laws now requires more careful end-of-year planning.

The federal SALT deduction cap is now $40,400 for 2026 under IRC § 164(b)(7), marking a significant increase from the $10,000 baseline. This higher limit remains effective until the cap is scheduled to revert to $10,000 after 2029.

The players

One Big Beautiful Bill Act

Federal legislation enacted in July 2025 that mandates current income tax deduction rules and SALT caps.

The details

The deduction applies to state and local taxes paid during the tax year. For those who do not itemize, the Act introduces a new provision allowing a charitable deduction of $1,000 for individuals or $2,000 for joint returns. Taxpayers are increasingly using donor-advised funds to bunch charitable gifts into one year to maximize these deductions, while also managing capital gains timing to remain under the phaseout threshold.

July 2025: Enactment of the One Big Beautiful Bill Act.
2026: The current tax year under the new SALT cap.
December 2026: Recommended period for fourth-quarter state tax payments.
January 15, 2027: Deadline for fourth-quarter state and local taxes.
After 2029: Scheduled reversion of the SALT cap to $10,000.

Money Landscape

The $40,400 cap represents a major departure from the long-standing $10,000 limit set by previous tax reform. This update arrives as more states, such as Michigan, actively decouple from federal tax law to protect their own local revenue streams.

Itemizers should review their 2026 tax projections to determine if they remain below the $505,000 phaseout threshold for the full deduction. Consider discussing bunching strategies with a qualified tax professional before the December 2026 year-end planning window closes.

The takeaway

The higher SALT cap provides a significant deduction window for qualifying households, but the 2029 expiration date makes long-term tax planning essential. Review your anticipated annual income against the $505,000 phaseout limit to assess your eligibility for these increased deductions.