The salt tax deduction, more formally known as the State and Local Tax (SALT) deduction, is a U.S. federal tax provision that allows taxpayers who itemize their deductions to deduct certain state and local taxes paid from their federal taxable income. Eligible taxes include state and local income taxes, property taxes, and either state and local sales taxes or income taxes (but not both in the same year)
. Key points about the SALT deduction:
- It helps avoid double taxation by allowing taxpayers to deduct taxes already paid to state and local governments from their federal taxable income
- Taxpayers must itemize deductions on their federal tax return (Schedule A of Form 1040) to claim it; it is not available if taking the standard deduction
- The deduction is capped at $10,000 per year ($5,000 if married filing separately), a limit imposed by the Tax Cuts and Jobs Act of 2017, effective from 2018 through 2025
- The deduction disproportionately benefits higher-income taxpayers in states with higher taxes
- The cap is scheduled to expire after 2025 unless Congress extends it
In practice, a taxpayer can deduct up to $10,000 of combined state and local property, income, or sales taxes paid during the tax year, reducing their federal taxable income and thus their overall federal tax bill
. In summary, the SALT deduction reduces federal income tax liability by allowing taxpayers to deduct certain state and local taxes paid, subject to a $10,000 cap and the requirement to itemize deductions
