The SALT deduction (State and Local Tax deduction) is a U.S. federal tax provision that allows taxpayers who itemize 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)
. Key points about the SALT deduction:
- It is intended to avoid double taxation by allowing taxpayers to deduct taxes paid to state and local governments from their income that is also subject to federal income tax
- Taxpayers must itemize deductions on their federal tax return (Schedule A of Form 1040) to claim it; it cannot be claimed if taking the standard deduction
- The deduction is capped at $10,000 per year for most taxpayers ($5,000 for married filing separately) due to the Tax Cuts and Jobs Act of 2017, which applies for tax years 2018 through 2025. Without this cap, there was no limit on the amount deductible
- The deduction disproportionately benefits higher-income taxpayers in states with higher taxes
- Taxpayers can choose to deduct either state and local income taxes or sales taxes, but not both
- The cap is scheduled to expire after 2025 unless Congress extends it
In practice, the SALT deduction reduces your taxable income by the amount of qualifying state and local taxes paid, up to the cap. For example, if a taxpayer paid $13,000 in eligible state and local taxes but is subject to the $10,000 cap, they can only deduct $10,000, reducing their federal taxable income by that amount
. Summary:
- Deductible taxes: state/local income tax or sales tax (choose one), plus property tax.
- Must itemize deductions.
- Deduction capped at $10,000 ($5,000 if married filing separately).
- Cap in effect for 2018–2025.
- Primarily benefits higher-income taxpayers in high-tax states.
This deduction helps reduce federal tax liability by accounting for taxes already paid to state and local governments
