taxes

SALT deduction

The State and Local Tax deduction allowing taxpayers to deduct up to $10,000 of state income taxes, property taxes, or sales taxes paid, capped at $10,000 since 2018.

Example

“Living in high-tax California, her state income and property taxes totaled $40,000 — but the SALT cap limited her deduction to $10,000.”

Memory Tip

SALT = State And Local Taxes. Capped at $10,000 deduction since 2018 TCJA.

Why It Matters

The SALT deduction significantly impacts your tax bill if you live in a high-tax state or own property with substantial property taxes. Understanding this $10,000 cap helps you plan your taxes more effectively and decide whether itemizing deductions makes sense compared to taking the standard deduction.

Common Misconception

Many people believe they can deduct unlimited state and local taxes, but the $10,000 cap means that residents of high-tax states like California, New York, and New Jersey often cannot deduct their full tax burden. This cap applies regardless of how much you actually paid in state and local taxes.

In Practice

A homeowner in New Jersey pays $8,000 in state income tax and $7,000 in property taxes for a total of $15,000. Even though they paid $15,000, they can only deduct $10,000 of these combined state and local taxes, losing $5,000 in potential deductions due to the cap.

Etymology

SALT = State And Local Taxes. The deduction for STATE AND LOCAL TAXES paid.

Common Misspellings

SALT-deductionsalt deductionSALT deducton

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