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The SALT deduction for 2026 is capped at $40,400 and shrinks above $505,000 of income. Phase-out math, the 45.5% zone and year-end moves for NJ and NY.
Checked against IRS, New Jersey and New York guidance current as of October 26, 2026.
The SALT deduction for 2026 is capped at $40,400, or $20,200 for a married person filing separately. SALT is the federal deduction for state and local taxes. The cap shrinks once modified adjusted gross income (MAGI) passes $505,000 ($252,500 if married filing separately). It drops by 30 cents for every dollar above that line but never falls below $10,000 ($5,000). The deduction only helps if you itemize on Schedule A.
| Tax year | SALT cap | Phase-out starts at MAGI of | Lowest the cap can go |
|---|---|---|---|
| 2025 | $40,000 | $500,000 | $10,000 |
| 2026 | $40,400 | $505,000 | $10,000 |
| 2027 to 2029 | Rises 1% a year | Rises 1% a year | $10,000 |
| 2030 onward | $10,000 | No phase-out | n/a |
Married people filing separately get half of each dollar figure in the table.
The IRS puts the 2026 rule this way in Publication 505 (2026): "For 2026, the limit is $40,400 ($20,200 if married filing separately)." It is "reduced if your modified adjusted gross income is more than $505,000 ($252,500 if married filing separately) but will not be reduced below $10,000 ($5,000 if married filing separately)."
One trap: the 2026 Form 1040-ES first went out showing the 2025 figures, $40,000 and $500,000. The IRS posted a correction and said "The 2026 Form 1040-ES will not be revised." If you are working from that form, use the corrected numbers above.
The Schedule A instructions list what qualifies. The 2026 edition has not been released yet, so the rules below are from the 2025 edition.
Three kinds of tax go into the cap together.
State and local income taxes, or sales taxes instead. Income taxes include amounts withheld from your pay, estimated payments you make during the year, and a prior-year balance you pay during the year. You can elect to deduct general sales taxes instead, but the IRS is clear that "You can't deduct both." In both states, households with enough income for the cap to matter will usually find their income tax is the larger figure. The IRS lets you compare.
New Jersey and New York workers have a detail many national guides leave out. The Schedule A instructions count "Mandatory contributions you made to the California, New Jersey, or New York Nonoccupational Disability Benefit Fund" as state income taxes. They also count mandatory contributions to New Jersey's state unemployment fund and to state family leave programs, "such as the New Jersey Family Leave Insurance (FLI) program."
Real estate taxes on property you own that you don't use for business. The tax has to be assessed uniformly across the community, so charges for trash, water or a new sidewalk don't count. If your mortgage servicer pays through escrow, you can include only "the amount the mortgage company actually paid to the taxing authority" during the year. That is not the amount you deposited.
Personal property taxes, if they are based on value alone and charged every year.
Whatever the mix, the total you can deduct is capped. For example, a New Jersey couple paying $18,000 in property tax and $30,000 in state income tax has paid $48,000 of SALT, but $40,400 is the most they can deduct for 2026, and less if their MAGI is over $505,000.
Under Publication 505 (2026), the phase-out starts at $505,000 and stops at $10,000. The rate comes from the law and the Schedule A worksheet. The law reduces the cap by 30% of the amount by which your MAGI exceeds $505,000. It stops reducing once the cap reaches $10,000. At 30 cents per dollar, the $30,400 of room between $40,400 and $10,000 is gone after about $101,333 of extra income. So for 2026 the phase-out runs from $505,000 to about $606,333 of MAGI.
| 2026 MAGI | Reduction | Your 2026 SALT cap |
|---|---|---|
| $505,000 or less | $0 | $40,400 |
| $530,000 | $7,500 | $32,900 |
| $560,000 | $16,500 | $23,900 |
| $590,000 | $25,500 | $14,900 |
| About $606,333 or more | Floor reached | $10,000 |
What MAGI means here. For this rule, MAGI is your adjusted gross income plus any income you excluded as foreign earned income or housing, or as income from Puerto Rico or certain U.S. territories. For most New Jersey and New York residents with no foreign or territory income, MAGI is simply AGI.
The phase-out shrinks the cap, not what you paid. If your SALT payments are already below your reduced cap, the phase-out changes nothing. For example, someone at $560,000 of MAGI who paid $20,000 of SALT still deducts all $20,000, because the reduced cap is $23,900.
Illustration (hypothetical, not a client case): a Long Island couple at $560,000. All three illustrations in this article assume the dollar amounts, treat MAGI as equal to AGI and the extra income as ordinary income, and treat charitable gifts as cash gifts to eligible charities, not donor-advised funds. They show only federal income tax, at 2026 rates, and the alternative minimum tax would not apply at these figures.
A married couple filing jointly has $560,000 of MAGI. They paid $24,000 in property tax and $36,000 in New York income tax, a total of $60,000 of SALT. Their 2026 cap is $40,400 − 30% × $55,000 = $23,900, so they deduct $23,900 of SALT.
They also paid $15,000 of mortgage interest and gave $10,000 to charity. The 2026 floor of 0.5% of AGI ($2,800) leaves $7,200 of the gifts deductible (both 2026 charitable rules are explained below). Their itemized total is $23,900 + $15,000 + $7,200 = $46,100. That beats the most they could deduct without itemizing: the $32,200 standard deduction plus the $2,000 non-itemizer charitable deduction, or $34,200.
Compared with the full $40,400 they could deduct at $505,000 or less, the phase-out costs them $16,500 of deductions. At their 2026 brackets that $16,500 is taxed partly at 32% and partly at 35%, so it costs about $5,300 of federal income tax.
This section uses the 2026 brackets from IRS release IR-2025-103. Inside the phase-out range, an extra dollar of ordinary income, such as wages or a bonus, does two things. It adds a dollar of income, and it removes 30 cents of SALT deduction. Your taxable income rises by $1.30, so your effective federal income tax rate on that dollar is 1.3 times your bracket. Some advisors call this the "SALT torpedo."
| Your 2026 federal bracket | Effective federal income tax rate inside the phase-out |
|---|---|
| 32% | 41.6% |
| 35% | 45.5% |
For 2026 the 32% bracket starts at $403,550 of taxable income for married couples filing jointly, and the 35% bracket starts at $512,450. For single filers, the 35% bracket covers taxable income from $256,225 to $640,600. Those are taxable income figures, which sit below your MAGI once deductions come off.
The higher rate applies only when all three of these are true:
Below the range nothing is lost. Above it the cap has already hit $10,000 and the extra drag stops.
Illustration (hypothetical, not a client case): a $10,000 bonus in New York City. A single filer has $540,000 of MAGI, SALT payments well above the cap, and $8,000 of mortgage interest. Their 2026 cap is $29,900, so they itemize $37,900.
A $10,000 year-end bonus raises MAGI to $550,000, which cuts the cap to $26,900. Taxable income rises by $13,000, all in the 35% band. The extra federal income tax is $4,550, or 45.5% of the bonus, before payroll taxes and any state or city tax.
You claim the SALT deduction only by itemizing. The 2026 standard deduction, set in IRS release IR-2025-103, is:
Two separate charitable rules start in 2026, one for each side of the choice.
You get one or the other, never both. So compare your itemized total with the standard deduction plus any non-itemizer charitable deduction you qualify for.
Illustration (hypothetical, not a client case): a Bergen County couple at $310,000. A married couple filing jointly has $310,000 of MAGI. They paid $16,000 in property tax and $14,500 in New Jersey income tax. That is $30,500 of SALT, all of it deductible because it is under the cap.
They also paid $11,000 of mortgage interest and gave $4,000 in cash to charity.
Itemizing gives them $9,750 more in deductions. At their 24% bracket that saves $2,340 of federal income tax.
With the same figures and the old $10,000 cap, their itemized total would have been $23,450. They would not have itemized, and would have taken the $34,200 instead.
Every move here only helps if you itemize and your 2026 SALT payments are still under your cap. Check that first.
New Jersey's and New York's fourth-quarter estimated payments for 2026 are both due January 15, 2027. Those dates come from the 2026 NJ-1040-ES instructions and New York's estimated tax due dates.
The Schedule A instructions count state and local estimated tax payments in the year you make them. So a payment made by December 31, 2026 counts for 2026, and the same payment made in January counts for 2027. Keep it to a genuine estimate of your 2026 state tax, and a payment above that comes back to you as a refund. For New Jersey, our New Jersey tax calculator gives a starting estimate of your 2026 state income tax.
New Jersey property taxes are due in four installments set by statute: February 1, May 1, August 1 and November 1. The Division of Local Government Services lists them. New Jersey's Local Finance Notice 2017-28 cites state law that "taxes may be received and credited as payments at any time, even prior to the statutory due dates."
So a town can accept an early payment. That does not make the payment deductible for 2026. The most recent IRS instructions on this point are the 2025 Schedule A instructions, which say: "Only taxes paid in 2025 and assessed prior to 2026 can be deducted for 2025."
If the 2026 instructions keep that rule, paying the February 1, 2027 installment in December counts for 2026 only if that tax was assessed before 2027. Even then, it helps only if your 2026 SALT is still under your cap. Ask your municipal tax collector whether next year's tax has been assessed before you pay early, and confirm the treatment with your tax preparer.
New York collection calendars are set locally, so check with your town, county or school district. If your taxes go through escrow, the deduction follows what your servicer paid, not what you sent the servicer.
Income you can time affects the cap directly. Examples include a year-end bonus your employer lets you defer, or a capital gain you could realize in either year. A home sale counts too: gain above the $250,000 exclusion, or $500,000 on a joint return, is income (IRS Topic No. 701). Selling a New Jersey home has its own state issues, covered in our New Jersey exit tax guide.
Pre-tax 401(k) deferrals go the other way. They are left out of your W-2 wages, so they lower AGI (IRS Topic No. 424). Our tax-loss harvesting guide covers offsetting gains you have already taken.
IRS Notice 2020-75 covers state income tax that a partnership or an S corporation pays at the business level. The entity deducts the payment "for the taxable year in which the payment is made." The payment "is not taken into account in applying the SALT deduction limitation" to its partners or shareholders.
Because the entity deducts it, your share of business income on your Schedule K-1 is smaller. That also lowers your AGI, which can matter if you are near the phase-out.
The two states set their election deadlines differently, and for 2026 that difference matters.
New Jersey's Business Alternative Income Tax (BAIT). The 2026 PTE-100 instructions say the election "must be made electronically each year by the original due date of Form PTE-100." They also say "Form PTE-100 for Calendar Year 2026 is due March 15, 2027." So a calendar-year business can still elect for 2026 until March 15, 2027.
Two timing rules decide whether that helps your 2026 federal return:
So a 2026 federal deduction needs both the election and the payment made by December 31, 2026. An election made in early 2027 still lets the business pay BAIT for 2026, but a payment made in 2027 generally gives a 2027 federal deduction. New Jersey's rates run from 5.675% to 10.9%, and members claim a refundable credit on their New Jersey return.
New York's pass-through entity tax (PTET). The election for a tax year must be made between January 1 and March 15 of that same year, so the 2026 window closed in March 2026. The 2027 window runs from January 1 to March 15, 2027. Only an authorized person at the business can make the election, not the tax preparer.
Sole proprietorships can't elect in either state. A single-member LLC can't elect in New Jersey, and in New York it can elect only if it is treated as an S corporation for New York purposes. The election also isn't right for every business, so model the state credit and any nonresident owners before choosing.
If your business is still choosing an entity type, our guide to LLC vs. S-corp vs. sole proprietor covers that decision. How much S-corp owners should pay themselves feeds into the same calculation. The entity returns behind both elections are covered on our New Jersey corporation and partnership tax and New York partnership tax pages.
| New Jersey | New York | |
|---|---|---|
| Payroll contributions that count as state income tax | Disability fund, unemployment fund, Family Leave Insurance | Disability benefit fund |
| Fourth-quarter 2026 estimated payment due | January 15, 2027 | January 15, 2027 |
| Property tax due dates | February 1, May 1, August 1, November 1 (state statute) | Set locally |
| Property tax benefit on the state return | Deduction up to $15,000 or a $50 refundable credit on the NJ-1040, not both | If you itemize on the New York return, reduce real estate taxes by any STAR credit received |
| Pass-through entity tax election for 2026 | BAIT: open until March 15, 2027 | PTET: closed in March 2026 |
| Can't elect the pass-through entity tax | Sole proprietorships, single-member LLCs | Sole proprietorships; single-member LLCs unless treated as an S corporation for New York |
Two notes on the table. New Jersey's NJ-1040 property tax benefit is a state-return item and does not change the federal cap. ANCHOR, Senior Freeze and Stay NJ are separate programs, covered in our New Jersey retirement income guide.
New York's STAR instruction covers the New York return only. Keep the STAR check stub or bank record with your property tax records, so your preparer can decide how it affects your federal return.
Under the current law, 26 U.S.C. § 164(b)(7), the $40,400 cap and the $505,000 threshold each become 101% of the prior year's amount for 2027, 2028 and 2029 only. For tax years beginning in 2030, the cap returns to $10,000, or $5,000 married filing separately, and the phase-out disappears.
For a New Jersey or New York household, that leaves four tax years, 2026 through 2029, with a much larger deduction than the $10,000 cap that applied from 2018 through 2024. It also makes the timing questions above worth revisiting every year until then.
The figures in these answers are from Publication 505 (2026) and the sources listed below.
1. Is the 2026 SALT cap $40,000 or $40,400?
It is $40,400, or $20,200 for married filing separately. The $40,000 figure was the 2025 cap. The 2026 Form 1040-ES was printed with the 2025 amounts, and the IRS has posted a correction.
2. Is the SALT cap the same for single filers and married couples filing jointly?
Yes. Single filers, heads of household and married couples filing jointly share the same $40,400 cap and $505,000 threshold. Only married people filing separately get half of each.
3. Can I deduct both state income tax and sales tax?
No. You choose one. Most New Jersey and New York households with higher incomes will find income tax is larger, but you can compare.
4. Can I prepay my 2027 property taxes in December 2026?
New Jersey towns can accept early payments, but paying early does not by itself create a 2026 deduction. Under the most recent IRS instructions (the 2025 edition), only taxes paid in the year and assessed before the next year count for that year. Ask your local tax collector whether next year's installment has been assessed, and confirm with your tax preparer before paying early.
5. Does a PTET or BAIT payment count toward my $40,400 cap?
No. Under IRS Notice 2020-75, a state income tax paid by a partnership or S corporation is deducted by the business and is not counted against the owners' personal SALT caps.
6. Will the SALT cap go back to $10,000?
Under current law, yes, for tax years beginning in 2030. From 2027 through 2029 the cap and the phase-out threshold rise 1% a year.
The 2026 cap is generous for most New Jersey and New York households. It still takes planning to use well. The four questions to settle before December 31 are:
GTA Accounting Group helps New Jersey and New York households and business owners with year-end planning on exactly these points. See New Jersey tax planning services, New York state tax planning and consulting, individual tax preparation in New Jersey or income tax preparation in New York, or contact the team to review your numbers before year-end.
This article is general information, not tax advice for your specific situation. Confirm current figures against IRS/state guidance or speak with a licensed professional.
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