If you’re paying state and local taxes, you may be able to get some of that money back on your federal tax return with the SALT deduction. As long as you are able to claim the itemized deduction instead of taking the standard deduction, you may be eligible for the SALT tax deduction.
Now is the perfect time to learn more about some of the lesser-known deductions so you can be prepared next time you file. Keep reading to learn more about the SALT deduction and how you can save on your taxes if you qualify.
What is the SALT deduction?
You can qualify for the state and local tax (SALT) deduction if you pay state and local taxes.
The SALT deduction has existed for more than a century. In 1913, the original federal tax code allowed taxpayers to claim itemized deductions for state and local taxes on their federal tax returns.
With the introduction of the Tax Cuts and Jobs Act (TCJA) in 2017, a few changes were made to the SALT deduction. The SALT cap was introduced, which is a limit on the amount you can deduct that’s in effect for tax years 2018–2025.
There are three main categories of deductible taxes when it comes to the SALT deduction:
- State, local, and foreign income taxes — or state and local sales tax where there’s no income tax
- State and local real property taxes
- State and local personal property taxes
If you’re paying any of these state and local taxes, you can claim the amounts paid during the year as an itemized deduction on your tax return. You can decide whether you want to deduct state and local income taxes or state and local general sales taxes.
General sales taxes are any taxes imposed at a retail store. If you’re in a state or county where you pay sales tax every time you make a purchase, you can write that off with.
There are certain types of taxes that can’t be deducted on Schedule A. You can’t claim federal income taxes, Social Security taxes, transfer taxes, stamp taxes, HOA fees, estate and inheritance taxes, or service charges for water, sewer, or trash collection.
Who can claim the SALT deduction?
Whether or not you can claim the SALT deduction depends on your circumstances. Your income and where you live can also impact the amount you pay in state and local taxes, so claiming the itemized SALT deduction isn’t always worth it. However, keep in mind that you have to file a tax return where you use the itemized deductions in order to claim the SALT deduction on your return.
While some taxpayers benefit from itemized deductions, some people can save more by claiming the standard deduction. You can read up on taking the standard vs. itemized deduction to learn more about some of the key differences.
People in higher tax brackets usually benefit more from the SALT deduction and itemized deductions in general. The more you pay in state and local taxes, the more you can save.
Being in a higher tax bracket also means you don’t benefit from the standard deduction as much. If you can claim more than $14,600 for single, $29,200 for married filing joint, or $21,900 for head of household, (the standard deduction amounts for 2024) in itemized deductions, you can save by using Schedule A to claim the itemized deduction.
While people in higher tax brackets can benefit more from the SALT deduction, the SALT cap still imposes limits. No matter how much you pay in state and local taxes, you can only claim so much on your tax return.
What’s included in the SALT deduction?
The SALT deduction includes any state and local taxes you pay which includes more than just your income taxes.Most states have some form of income tax, and counties can impose additional taxes to help fund schools and other public needs.
The states that have no state or local income tax are:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
In New Hampshire, you only have to pay taxes on interest and dividends.
If you’re in a state with no income tax, you might still have to pay state or local sales tax. Therefore, if you pay sales tax and not income tax, you can still claim the SALT deduction as you’re paying some kind of state and local taxes.
Real property taxes, or real estate taxes, are also collected on a state and local level and are included in the SALT deduction. Any state or local taxes you pay on your primary residence or other real estate can be deducted on your federal tax return.
You can also deduct personal property taxes on your federal tax return. Personal property taxes are imposed on expensive items like cars and boats, but they’re reported separately from real property taxes.
Since the SALT deduction is an itemized deduction, you can claim it along with other itemized deductions and tax write-offs to lower your tax bill even more.
Why is there a SALT cap?
When the Tax Cuts and Jobs Act (TCJA) was introduced in 2017, several tax credits and deductions were affected, including the SALT deduction.
The SALT deduction is currently capped at a total of $10,000, or $5,000 for those filing asmarried filing separately. This means that even if you pay significantly more in state and local taxes, you are limited toa deduction of up to $10,000 (or $5,000 if you are filing separately.
The TCJA was designed to provide tax relief for middle-income filers. To achieve that goal, tax brackets were shifted, and several deductions were limited or eliminated entirely.
Fortunately, you can still take advantage of other itemized deductions to reduce taxable income and save on your federal taxes. Working with a tax expert is the best way to make sure you’re claiming any and all deductions and credits you qualify for.
When does the cap expire?
The good news is that the SALT cap won’t last forever. The limit imposed by the TCJA took effect during the 2018 tax year and will end after the 2025 tax year. Once the SALT cap expires, you may be able to claim more than $10,000 with the SALT deduction if the rules go back to the pre-TCJA amounts.
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