Money is weird. One minute you think you’ve got your budget nailed down, and the next, you’re staring at a tax return that makes absolutely no sense. If you live in a place like California, New York, or New Jersey, there’s a good chance a four-letter acronym is the reason your refund looked a little light—or why you owed a check to the IRS. We're talking about the SALT cap.
It sounds like something you’d find in a kitchen, but it’s actually one of the most polarizing pieces of tax legislation passed in the last decade. Basically, it’s a limit on how much of your state and local taxes you can deduct from your federal taxable income. Before 2017, there wasn't really a limit. You paid your state income tax, your property taxes, and your local assessments, and then you just subtracted all of it from your federal bill. It was a straightforward way to avoid "double taxation." Then the Tax Cuts and Jobs Act (TCJA) happened.
Now? There’s a hard ceiling. It doesn't matter if you paid $50,000 in property taxes to keep your house in Westchester or the Bay Area. Uncle Sam only lets you write off a fraction of that.
What the SALT Cap Actually Does to Your Wallet
The SALT cap is a $10,000 limit on the deduction for state and local taxes. This includes a combination of state and local income taxes (or sales taxes, if you live in a state like Florida or Texas without income tax) plus your property taxes. For a single filer, it’s $10,000. For a married couple filing jointly? It’s still $10,000.
Yeah, you read that right.
The "marriage penalty" is a real thing here. If two high-earning individuals live together but aren't married, they could potentially each claim $10,000 in deductions on their separate returns. Once they tie the knot, their combined deduction is slashed in half. It's one of those quirks in the tax code that feels slightly vindictive if you're living in a high-cost-of-living area.
Think about a middle-class family in Long Island. Their property taxes alone might be $15,000. Add in state income tax on a $120,000 salary, and they’re looking at maybe $22,000 in state and local taxes. Before the 2017 law, they could deduct that full $22,000. Today, they lose $12,000 of that deduction. That isn't just a "rich person problem." It hits anyone who owns a home in a state with robust public services or high real estate values.
The Politics Behind the Numbers
Why did this happen? It depends on who you ask.
If you talk to the architects of the TCJA, like former House Speaker Paul Ryan, the argument was about fairness. Why should the federal government "subsidize" high-tax states? By allowing an unlimited deduction, the federal government was essentially making it easier for states to raise taxes because the residents could just write it off. Proponents argued that the SALT cap encourages state governments to be more fiscally responsible.
On the flip side, governors like New York’s Kathy Hochul or New Jersey’s Phil Murphy view it as a direct attack on "blue states." Since the states most affected by the cap tend to lean Democratic, the political optics were messy from day one. There’s a legitimate argument that this creates a situation where the same dollar is taxed twice—once by the state and once by the feds.
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The Workarounds: How States are Fighting Back
High-tax states didn't just take this lying down. They got creative. Real creative.
The most successful "fix" so far is the Pass-Through Entity Elective Tax (PTET). This is some high-level tax wizardry. Basically, it allows small business owners, S-corps, and partnerships to pay their state income taxes at the entity level rather than the individual level.
Because the $10,000 SALT cap applies to individuals, but business expenses are generally fully deductible, the PTET allows the business to pay the tax and then pass a credit through to the owner. It’s a legal way to bypass the cap. As of 2024, over 30 states have enacted some version of this. If you’re a freelancer or a small business owner, this is probably the biggest "hack" available to you.
Some states tried other things that didn't work. New York tried to set up "charitable funds" where residents could "donate" to the state in exchange for a tax credit. The IRS saw right through that and shut it down pretty quickly. You can't just rename a tax a "donation" and hope the feds won't notice.
The 2025 Sunset: A Massive Financial Cliff
Here is the thing no one is talking about enough: The SALT cap isn't permanent.
Most of the individual tax provisions in the TCJA are set to expire at the end of 2025. This means that on January 1, 2026, the tax code basically reverts to what it was in 2017. The $10,000 limit could just... vanish.
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But it’s not that simple. If the cap disappears, the federal deficit takes a massive hit. We’re talking hundreds of billions of dollars in lost revenue for the Treasury. Congress is currently in a deadlocked debate about whether to extend the cap, raise it (maybe to $20,000 or $25,000), or let it die a natural death.
If you're planning a home purchase or a major career move in 2026, you're essentially gambling on what a future Congress will do. It’s frustrating. It makes long-term financial planning feel like throwing darts at a moving board.
Who Actually Benefits from Removing the Cap?
There’s a lot of nuance here. If we get rid of the SALT cap, who wins?
According to data from the Tax Policy Center, the vast majority of the benefits of repealing the cap would go to the top 5% of earners. This creates a weird political paradox. Progressive politicians who usually advocate for taxing the wealthy are the ones loudest about removing the cap because it hurts their specific constituents. Meanwhile, some conservatives who usually want tax cuts are defending the cap because it forces states to keep their own spending in check.
It’s a complete reversal of traditional party lines.
Specific Real-World Impacts
Let’s look at two different people:
- Austin, Texas: High property taxes, but zero income tax. Since Texas has no state income tax, the resident here is mostly just deducting property taxes. If their home is worth $600,000, their taxes might be $12,000. They are $2,000 over the cap. It stings, but it’s manageable.
- San Francisco, California: High property taxes AND high income tax. A teacher and a nurse making a combined $200,000 might pay $15,000 in state income tax and another $10,000 in property tax. They are $15,000 over the cap. That’s a massive chunk of change that is now subject to federal tax that wasn't before 2018.
This disparity is why the SALT cap has actually influenced migration patterns. You’ve probably seen the headlines about people fleeing California for Florida or New York for Tennessee. While weather and lifestyle are factors, the inability to deduct high state taxes has pushed the "math" over the edge for a lot of families.
How to Manage Your Taxes Under the Cap
If you're stuck with this cap for the next year or two, you have to be smart. Honestly, the old ways of "just itemizing everything" don't always work anymore.
Since the SALT cap exists alongside a much higher Standard Deduction, many people find that itemizing isn't even worth it. For 2024, the standard deduction is $14,600 for individuals and $29,200 for married couples. If your total itemized deductions (SALT up to $10k, mortgage interest, and charity) don't beat $29,200, you're better off just taking the standard deduction anyway.
One strategy people use is "bunching." You might take the standard deduction one year, and then the next year, you pack all your charitable donations and elective medical procedures into a single 12-month period to blast past that standard deduction threshold. You're still capped at $10,000 for your taxes, but you can maximize the other parts of the itemization list.
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Actionable Steps for Tax Season
Don't just hand your papers to an accountant and hope for the best. You need to be proactive about the SALT cap and how it interacts with your specific life situation.
- Check for PTET Eligibility: If you have any 1099 income or own a share of a partnership, ask your tax professional if your state allows a Pass-Through Entity Tax election. It is the single most effective way to "legally" ignore the $10,000 limit.
- Evaluate Your "Tax Home": If you split time between two states, documentation is everything. The IRS and state tax boards are getting aggressive about auditing people who claim residency in low-tax states while spending significant time in high-tax ones. Keep your receipts.
- Re-calculate Your Withholding: If the cap hit you hard this year, adjust your W-4. Don't let the IRS hold onto your money interest-free all year just to find out you owe them even more in April.
- Monitor the 2025 Sunset: Keep an eye on legislative news toward the end of 2025. If it looks like the cap will expire, you might want to delay certain property tax payments (if your municipality allows) or accelerate them to take advantage of the changing laws.
- Maximize Other Deductions: Since the SALT door is partially closed, look at Health Savings Accounts (HSAs) or 401(k) contributions. These reduce your Adjusted Gross Income (AGI) before you even get to the deduction stage, which is often more valuable than a capped deduction anyway.
The reality is that the SALT cap changed the math of the American Dream for a lot of people in high-cost areas. Whether it's "fair" is a debate for Congress, but the impact on your bank account is very real. Understanding where that $10,000 limit comes from and how to navigate around it with business elections or bunching strategies is the only way to keep your head above water until the laws change again. Check your previous year's Schedule A. If you see a large number on the line for state and local taxes that gets truncated down to $10,000, you are directly paying the price for this policy. Talk to a CPA about whether a PTET election is viable for your specific income mix before the next filing deadline.