For years, the $10,000 SALT deduction cap was one of the most-criticized pieces of the 2017 tax law, hitting homeowners in high-tax states the hardest. The One Big Beautiful Bill Act quadrupled that cap starting in 2025 — and for 2026, it stands at $40,400, with an income-based phase-down that higher earners need to understand.
The new number, and how we got here
The SALT (State and Local Tax) deduction cap was locked at $10,000 from 2018 through 2024. The One Big Beautiful Bill Act, signed July 4, 2025, raised that cap to $40,000 for 2025, rising by 1% a year through 2029 — putting the 2026 cap at $40,400. Under current law, the cap is scheduled to snap back down to $10,000 in 2030.
Who the higher cap actually helps
Homeowners in high-property-tax and high-income-tax states — think California, New Jersey, New York, Connecticut, and Illinois — are the biggest beneficiaries, since they're the taxpayers most likely to have been bumping against the old $10,000 ceiling in the first place. A homeowner paying $9,000 in property tax and $12,000 in state income tax now deducts the full $21,000, instead of being capped at $10,000 as before.
The income phase-down higher earners need to watch
The $40,400 cap phases down for taxpayers with modified adjusted gross income above $505,500 in 2026 (roughly half that for married filing separately), reduced by 30 cents for every dollar of income above the threshold — though it never drops below the original $10,000 floor, regardless of income. A high-earning household well above the threshold effectively remains at the old $10,000 cap even under the new law.
How this changes the standard-vs-itemized decision
A dramatically higher SALT cap makes itemizing worthwhile for far more homeowners than it did under the $10,000 rule, since SALT alone can now clear a meaningful share of the standard deduction on its own, especially when combined with mortgage interest and charitable giving. Homeowners who defaulted to the standard deduction for years under the old cap should re-run the comparison for 2026 rather than assuming last year's answer still holds.
Frequently asked questions
Is the higher SALT cap permanent?
No — it's currently scheduled to apply through 2029, rising 1% annually, before reverting to the original $10,000 cap in 2030 under current law, unless Congress acts again before then.
Does the $40,400 cap apply to both property tax and income tax combined?
Yes — it's a combined cap covering state and local income (or sales) tax plus property tax together, the same bundled structure as the old $10,000 cap, just with a much higher ceiling.
What if my income is right around the $505,500 phase-down threshold?
The reduction is gradual (30 cents per dollar over the threshold) rather than an abrupt cutoff, so being slightly over the line only modestly reduces your cap rather than dropping you straight to $10,000.