The SALT Cap Increase to $40,400: What It Means If You're a Remote Worker in a High-Tax State
7 min read · Updated September 2026
For seven years, the $10,000 cap on state and local tax (SALT) deductions quietly pushed a lot of homeowners in high-tax states like California, New York, and New Jersey away from itemizing at all. That changed for 2025 through 2029, and the new cap is large enough that it's worth revisiting whether itemizing makes sense again — especially for anyone weighing a cost-of-living move that's partly about state tax exposure in the first place.
What Actually Changed
The One Big Beautiful Bill Act (OBBBA) raised the SALT deduction cap from the Tax Cuts and Jobs Act's flat $10,000 (or $5,000 for married filing separately) to $40,000 for 2025, rising roughly 1% each year through 2029 — putting the 2026 cap at $40,400 ($20,200 for married filing separately). This covers the combined total of state and local income tax (or sales tax, if you elect that instead) plus property tax claimed on Schedule A. The increase is scheduled to be temporary: without further legislation, the cap reverts to the original $10,000 starting in 2030.
The Income Phase-Down That Limits Who Benefits
The larger cap isn't available to everyone regardless of income. For 2026, the enhanced $40,400 cap phases down once modified adjusted gross income (MAGI) exceeds $505,000, reducing the benefit by 30% of the income above that threshold until it bottoms out at the original $10,000 floor — meaning very high earners get essentially no benefit from the increase and are back to the old $10,000 cap in practice, while filers well under the threshold get the full expanded benefit.
| 2026 Figure | Amount |
|---|---|
| SALT deduction cap | $40,400 ($20,200 married filing separately) |
| Phase-down begins (MAGI) | $505,000 |
| Floor after full phase-down | $10,000 ($5,000 married filing separately) |
| Scheduled reversion | Cap returns to $10,000 for everyone starting in 2030 |
Who This Actually Helps
The primary beneficiaries are upper-middle-income homeowners in high-tax states — broadly, households with MAGI somewhere between roughly $150,000 and $505,000 who own property and pay meaningful state income tax. For this group, combined property tax and state income tax liability often runs well above the old $10,000 ceiling, so the expanded cap frequently pulls them over the threshold where itemizing beats the standard deduction ($16,100 single / $32,200 married filing jointly for 2026) for the first time since 2017.
The AMT Trap Worth Knowing About
The Alternative Minimum Tax doesn't allow a SALT deduction at all — the entire amount claimed on Schedule A gets added back when computing AMT liability. OBBBA also made the AMT itself bite harder starting in 2026, tightening the exemption phase-out. For someone whose income puts them near AMT territory, a large SALT deduction on the regular tax calculation can end up contributing very little to their actual tax bill once AMT is factored in — a genuine planning trap that's easy to miss if you only look at the regular tax calculation in isolation.
Why This Matters for Remote Work State Decisions
For remote workers actively comparing states as part of a location decision, the calculus around no-income-tax states hasn't fundamentally changed — living somewhere with no state income tax still means less state tax paid overall, full stop. What has changed is the relative cost of staying in a high-tax state if itemizing now recovers a meaningfully larger share of that tax through the federal SALT deduction, for households under the phase-down threshold. This doesn't reverse the arithmetic in the state comparison framework covered elsewhere on this site, but it does modestly soften the federal penalty for staying in a high-tax state for filers in the affected income range — worth factoring in explicitly rather than assuming the pre-2025 SALT math still applies.
PTET Elections: A Separate Workaround for Business Owners
Beyond the individual SALT cap itself, many states have enacted a pass-through entity tax (PTET) election that lets an S-corp or partnership pay state income tax at the entity level rather than passing it through to the owner's individual return. Because entity-level state taxes aren't subject to the individual SALT cap at all — they're deducted as an ordinary business expense before income ever reaches the individual owner's Schedule A — this has become one of the more effective planning tools for owners of pass-through businesses in high-tax states, layering on top of (not replacing) the individual SALT cap increase discussed above. This is specific to business owners with a pass-through entity structure, not W-2 employees or sole proprietors filing on Schedule C, and it's worth raising directly with a CPA familiar with your specific state's PTET election mechanics and deadlines.
Frequently Asked Questions
Do I need to itemize to benefit from the higher SALT cap?+
Yes — the SALT deduction is only available to filers who itemize on Schedule A rather than taking the standard deduction, so the increased cap only matters if your total itemized deductions (SALT plus mortgage interest, charitable giving, and anything else eligible) exceed the standard deduction amount for your filing status.
Is the $40,400 cap permanent?+
No — as currently written, the increased cap applies for tax years 2025 through 2029, rising roughly 1% each year, and is scheduled to revert to the original $10,000 cap starting in 2030 unless Congress passes additional legislation to extend or change it before then.
Does the SALT cap increase affect renters as well as homeowners?+
Indirectly at most — renters don't pay property tax directly and typically have less state income tax exposure to itemize against without a large deduction like mortgage interest alongside it, so the increased cap's benefit is concentrated much more heavily among homeowners in high-tax states than among renters.
This article is educational only and is not tax, legal, or financial advice.
Model this scenario yourself
Plug your own gross salary, state, and W-2/1099 status into the free calculator to see your exact take-home number.
Open the Salary Calculator →