If you pay state or local taxes—income tax, property tax, or sales tax—you might be eligible for the SALT deduction when you file your 2025 return. The rules changed recently, so it is worth knowing how much you can deduct, what limits apply, and whether you even qualify. Let us walk through the details together.
What is the SALT deduction for 2025
The SALT deduction lets taxpayers who itemize on their federal return deduct certain state and local taxes they paid during the year. These can include state/local income taxes, property taxes, or state/local sales tax (you must choose either income tax or sales tax, not both).
In 2025, thanks to the One Big Beautiful Bill Act (OBBBA), the SALT deduction cap is $40,000 for married couples filing jointly or single filers. For married filing separately, the cap is $20,000. This is a big increase from the previous $10,000 cap under the Tax Cuts and Jobs Act (TCJA).
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What are the limits and phasedowns
While the $40,000 cap is higher, it is not unlimited. The law introduces a phase-down (a gradual reduction) if your modified adjusted gross income (MAGI) is above a certain threshold. For 2025, that threshold is $500,000 for joint filers.
Here is how it works: If your MAGI exceeds $500,000, part of your deduction above that threshold is reduced. If your income is very high—around $600,000 or more—the benefit phases down until you are back to the prior $10,000 limit.
Also, the cap and the thresholds will increase by 1% each year from 2026 through 2029. Then, starting in 2030, the cap reverts to $10,000 (and $5,000 for married filing separately), unless new laws change that.
Who qualifies for the SALT deduction
You need to meet a few conditions:
- You must itemize deductions on Schedule A of Form 1040. If you take the standard deduction, you cannot also claim SALT.
- You must have paid qualifying state or local taxes: income taxes (or sales tax if you choose that instead), property taxes, or certain personal property taxes.
- Your MAGI matters: if you exceed the threshold (like $500,000 for joint filers in 2025), your SALT deduction may be reduced.
People in high-tax states benefit more, especially if they have large property tax bills or high state income tax. But even if you are not in a high-tax state, rising thresholds and the higher SALT cap may make itemizing more attractive than before.
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How to claim the SALT deduction on your IRS tax return
Here is what you need to do to claim:
- Use Schedule A (Form 1040) for your itemized deductions. That is where SALT amounts go.
- Collect documents: W-2s showing state or local income tax withheld, bills or receipts for property taxes, or statements of sales taxes you paid (if you are using sales tax instead of income tax).
- Choose either state/local income tax or sales tax—you cannot deduct both. Then add property taxes.
- Compute your total SALT-eligible taxes, then apply the cap rules. If your MAGI is above the phase-down threshold, calculate how much your deduction gets reduced. Make sure you understand what your modified AGI is (IRS definitions, adjustments, etc.)
- Compare itemizing vs standard deduction: For 2025, the standard deduction is $15,000 for single filers and married filing separately, $30,000 for married filing jointly. If your itemized deductions (including SALT) do not exceed the standard deduction, the standard deduction may give you a lower tax bill.
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