Updated for 2026
The cap is $40,400 this year, not $10,000 and not $40,000. It starts shrinking once modified adjusted gross income passes $505,000, and it is gone as a benefit above roughly $606,000. Separately, 2026 is the first year a second limit applies to itemized deductions for taxpayers in the 37% bracket.
- The state and local tax deduction is capped at $40,400 for 2026 ($20,200 married filing separately).
- Above $505,000 of modified adjusted gross income the cap falls by 30 cents per dollar of income, down to a floor of $10,000.
- Inside that band an extra dollar of income is taxed like $1.30. That is the part people miss.
- New this year: itemized deductions are reduced by 2/37 for taxpayers in the top bracket.
For seven years the answer to "how much of my state and local tax can I deduct?" was $10,000, and that was the end of the conversation. It is not $10,000 any more, and the number that replaced it is not a flat number either.
The cap now depends on your income, and it disappears across a band rather than at a line. If you are a professional in New York or California earning between roughly half a million and six hundred thousand dollars, the arithmetic below is worth ten minutes, because inside that range your effective marginal tax rate is materially higher than the bracket you think you are in.
What the cap actually is now
Two years, side by side, from the Schedule A instructions and the IRS’s correction to the 2026 Form 1040-ES.
| 2025 | 2026 | |
|---|---|---|
| Cap on state and local taxes | $40,000 | $40,400 |
| Married filing separately | $20,000 | $20,200 |
| Phase-down begins at MAGI | $500,000 | $505,000 |
| Rate of reduction | 30% of the excess | 30% of the excess |
| Floor it cannot fall below | $10,000 | $10,000 |
| Income at which the floor is reached | $600,000 | $606,333 |
The last row is arithmetic rather than a published figure: the cap falls by 30 cents per dollar, it has $30,400 to give up before it hits the floor, and $30,400 divided by 0.30 is $101,333 of income above the threshold.
What this looks like on an actual return
Three married couples filing jointly in 2026. Identical facts except income. Each paid $52,000 in state income tax and property tax — ordinary for a household at this level in New York, New Jersey or California.
| On the return | MAGI $480,000 | MAGI $560,000 | MAGI $650,000 |
|---|---|---|---|
| State and local taxes actually paid | $52,000 | $52,000 | $52,000 |
| Starting cap | $40,400 | $40,400 | $40,400 |
| MAGI above $505,000 | — | $55,000 | $145,000 |
| Reduction at 30% | — | ($16,500) | (capped at floor) |
| SALT actually deductible | $40,400 | $23,900 | $10,000 |
| Deduction lost against tax paid | $11,600 | $28,100 | $42,000 |
The couple at $650,000 deducts a quarter of what the couple at $480,000 deducts, on the same $52,000 of tax paid. At a 35% marginal rate the difference between the first and third column is worth roughly $10,600 of federal tax. Figures are illustrative and rounded.
The one-line version. Between $505,000 and about $606,000 of income, every extra dollar you earn also takes 30 cents of deduction away from you.
Why the band matters more than the cap
A dollar of additional income inside the phase-down does two things: it is taxed, and it reduces your SALT deduction by 30 cents, which increases taxable income by a further 30 cents. Taxable income rises by $1.30 for every $1.00 earned.
At the 35% bracket that is an effective marginal rate of 45.5% on federal tax alone, before state tax. A $20,000 bonus taken inside the band costs about $9,100 of federal tax rather than $7,000.
This is why the timing of discretionary income matters more this year than the size of it. A partner distribution, an equity vest, a Roth conversion or a property sale that lands inside the band is being taxed at a rate that appears in no bracket table.
Whether the cap costs you anything is a per-return question. It turns on where your income sits in the phase-down band, and on whether itemizing beats the standard deduction at all. Talk it through with the firm.
New for 2026: the second haircut
The One Big Beautiful Bill Act rewrote section 68, and the replacement applies to tax years beginning after December 31, 2025 — meaning this year is the first one it touches.
Itemized deductions are now reduced by 2/37 of the lesser of (a) total itemized deductions or (b) taxable income above the point where the 37% bracket starts. For 2026 that bracket begins at $640,600 for single filers and $768,700 for joint filers.
The practical effect is that a dollar of itemized deduction is worth 35 cents rather than 37 cents at the top. It is a smaller effect than the SALT phase-down, and it lands on a different group — but if your income clears the top bracket, both are working on the same return.
Whether you should itemize at all
None of this matters unless your itemized deductions beat the standard deduction, which also rose. For 2026 it is $32,200 filing jointly, $16,100 single, and $24,150 for heads of household.
| Filing jointly, 2026 | Amount |
|---|---|
| SALT, after the cap | $23,900 |
| Mortgage interest | $18,000 |
| Charitable gifts | $6,000 |
| Total itemized | $47,900 |
| Standard deduction | $32,200 |
| Benefit of itemizing | $15,700 |
Households whose only meaningful deduction is state tax often find that even the restored cap does not get them past the standard deduction. That is a real answer, and it saves the time of assembling receipts.
What to do about it
Use the pass-through entity tax if you have business income. This is the single largest lever, and it is not a loophole — the IRS blessed it in Notice 2020-75, which states that a specified income tax payment made by a partnership or S corporation "is not taken into account in applying the SALT deduction limitation" at the partner or shareholder level. The entity pays your state tax and deducts it, so it never reaches your Schedule A or your cap. New York, New Jersey, California and roughly thirty other states have an election. The election deadlines are unforgiving and several states require it before the year begins.
Watch the band, not the bracket. If your income will land between $505,000 and $606,000, deferring or accelerating discretionary income across the line is worth more than it looks, because you are managing a 45% effective rate rather than a 35% one.
Time the property tax payment. If you are already at the cap this year and expect to be below it next year, prepaying does nothing. The reverse is also true, and it is the ordinary bunching decision made sharper by a cap that moves with income.
Check your withholding against the new numbers. A household that has assumed a $10,000 cap since 2018 is now over-withholding, sometimes substantially.
Frequently asked questions
Is the SALT cap still $10,000?
No. For 2026 the cap is $40,400, and $20,200 for married filing separately. The $10,000 figure survives only as the floor the cap cannot fall below once the income phase-down has run its course.
At what income does the higher cap disappear?
The reduction starts above $505,000 of modified adjusted gross income and runs at 30 cents per dollar. The cap reaches its $10,000 floor at about $606,333 of MAGI. Above that, every additional dollar of income has no further effect on the cap.
Does the pass-through entity tax still work?
Yes. Notice 2020-75 remains the governing guidance, and the 2025 legislation did not disturb it. State income tax paid by a partnership or S corporation on its owners’ behalf is deducted by the entity and is not counted against the owner’s cap. Whether it is worth electing depends on your state’s rules and on how much of your income runs through the entity.
What is the 2/37 reduction I keep seeing?
It is the rewritten section 68, effective for tax years beginning after December 31, 2025. Itemized deductions are reduced by 2/37 of the lesser of your total itemized deductions or your taxable income above the start of the 37% bracket. In effect it caps the value of an itemized deduction at 35 cents on the dollar for top-bracket taxpayers.
Should I itemize now that the cap is higher?
Only if your itemized total beats the standard deduction, which is $32,200 filing jointly for 2026. With the cap restored, many households in high-tax states clear it comfortably once mortgage interest is added. Households whose only large deduction is state tax often still do not.
Related reading
- Tax preparation and planning
- Equity compensation: RSUs, options and ESPP
- How restricted stock units are taxed
- Entity formation
- Speak with a CPA about your situation
Start with a conversation
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General information, not advice for your situation. Figures are for the 2026 tax year and are illustrative and rounded. Sources: the IRS correction to the 2026 Form 1040-ES for the $40,400 cap and the $505,000 phase-down threshold, the 2025 Schedule A instructions for the prior-year figures and the 30% reduction, 26 U.S.C. 68 for the 2/37 limitation, the IRS 2026 inflation adjustments for the standard deduction and bracket thresholds, and Notice 2020-75 for the pass-through entity tax.
