What Are SALT Deductions?
SALT stands for State and Local Taxes. When you file your federal tax return, you may be able to deduct the amount you paid in certain state and local taxes. These can include property taxes, income taxes, or sales taxes. For many homeowners, especially those in states with high property values or income taxes, the SALT deductions have historically been an important way to reduce their overall tax bill.
What Changed with the Tax Cuts and Jobs Act?
In 2017, the Tax Cuts and Jobs Act (TCJA) placed a $10,000 cap on the SALT deduction. This cap applies to both individuals and married couples filing jointly. For those who file separately, the deduction is capped at $5,000. Before this law went into effect, there was no limit to how much state and local tax you could deduct. This change has had a big impact on homeowners in high-tax states such as New York, New Jersey, California, and Illinois.
Why This Matters to Homeowners
If you own a home, you are likely paying property taxes. If you also have state income tax or pay high sales taxes, your total SALT payments may easily exceed $10,000. But with the cap in place, you can only deduct up to $10,000. This means you may owe more in federal income taxes than you would have prior to 2017. It is a good idea to talk with a tax professional to see how this deduction affects your personal situation.
What Is the Standard Deduction?
At the same time the SALT deduction was capped, the standard deduction was nearly doubled. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Because of this increase, many taxpayers now take the standard deduction rather than itemizing their deductions. If you do not itemize, you cannot claim the SALT deduction.
Can You Deduct Both Sales and Income Taxes?
No, you must choose one or the other. You can deduct either the amount you paid in state and local income taxes or the amount you paid in sales tax. Most people in states with income tax choose to deduct that amount. However, if you live in a state with no income tax, such as Florida or Texas, you can choose to deduct sales tax instead.
How Does This Impact Buying or Owning a Home?
Many homeowners felt the pinch of the SALT cap because it increased their taxable income. This has become a consideration not just for homeowners, but for people who are thinking about relocating. Some are even factoring in how much they would save in taxes by moving to states with lower tax burdens. This has led to broader discussions about housing affordability, migration trends, and the local impact on high-tax states.
Are There Any Proposed Changes to the Cap?
Over the past few years, several lawmakers have proposed increasing or removing the SALT cap, particularly those representing high-tax states. So far, these efforts have not resulted in a new law, but the SALT deduction remains a political issue that may change depending on future tax reform efforts.
The Bottom Line
SALT deductions can be a valuable tax benefit, but the current $10,000 cap limits how much you can claim. Whether you are a current homeowner or are planning to buy a home, understanding how this deduction works and whether you should itemize can help you make informed decisions. Be sure to consult with a tax advisor if you are unsure about how the cap affects you.
If you are thinking of buying a home and have tax questions along the way, I am happy to connect you with a trusted real estate agent in your market who can walk you through the process and point you to additional resources for SALT deductions information and more.
