More than a year after Republicans passed what supporters called President Trump’s signature tax change, a temporary expansion of the federal deduction for state and local taxes is still reshaping how some taxpayers plan for 2026. The larger cap on the SALT deduction matters now because it can change whether you itemize, affect refund size for residents of high-tax states, and create tricky income thresholds that raise marginal tax costs.
The law lifts the federal cap on the SALT (state and local tax) deduction from $10,000 in 2024 to $40,000 in 2025, then to $40,400 for 2026. The limit will increase by 1% a year through 2029 before reverting to $10,000 in 2030. That temporary change primarily helps taxpayers who itemize and who pay significant property, state income or sales taxes.
How SALT fits into your return
When preparing a return, filers choose between the standard deduction and itemizing. For 2026 the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. Most taxpayers—about 90% in 2023 IRS figures—use the standard deduction, but the higher SALT cap can tip the balance for households with large state or local tax bills.
The SALT deduction itself covers property taxes plus either state and local income taxes or state and local sales taxes (not both). Prior to the 2018 tax changes, that deduction was not capped, a shift that had been particularly consequential for residents of states with higher tax rates.
Signals from recent filing seasons
The IRS has not yet published detailed data on SALT claims for the 2025 tax year, but analysts and some accounting firms noted that filers in high-tax states—including California and New Jersey—appeared to receive larger refunds during the 2026 filing season. Economists say that pattern is consistent with the expanded SALT cap benefiting certain taxpayers, though final IRS breakdowns will provide a clearer picture.
Practical steps taxpayers can take for 2026
Because only itemizers can use SALT, taxpayers who sit close to the standard deduction threshold may consider accelerating deductible payments into one tax year to push total deductions above the standard amount.
- Prepay property taxes: If your jurisdiction has issued an assessment, you may be able to make an extra payment by Dec. 31 to include more on your 2026 return. If property taxes are paid through an escrow account, your ability to prepay may be limited.
- Time state estimated payments: For those with self-employment, business, or investment income, making the last state quarterly estimated tax payment by Dec. 31 can sometimes increase deductible payments on the current-year return. Note: the federal fourth-quarter estimated-tax deadline is Jan. 15, 2027; state deadlines vary.
- Group other itemized deductions: Charitable gifts, qualifying medical expenses and other deductions can sometimes be coordinated into a single year to surpass the standard deduction.
Financial planners caution that the timing of property tax assessments, escrow rules and state-specific payment deadlines all affect whether these moves will work for an individual taxpayer. It’s also important to keep records proving when payments were made.
Beware the so-called “SALT torpedo”
The temporary boost in SALT creates an uneven marginal tax picture for higher earners. For 2026, the full $40,400 SALT deduction begins to phase out once modified adjusted gross income surpasses $505,000. The deduction is reduced progressively and falls back to $10,000 at roughly $606,333 of income.
That phase-out can produce an abrupt effective tax increase—sometimes called a SALT torpedo—because taxpayers lose a portion of their SALT benefit as income rises in the phase-out range. For 2026, taxpayers lose about 30% of the deduction’s value for every additional dollar of income between the phase-out floor and ceiling, which makes precise income forecasting important for those near these thresholds.
Advisors say this dynamic should factor into year-end decisions that affect taxable income—Roth conversions, recognizing capital gains, or deferring bonuses, for example—because such moves can push filers into the phase-out band and reduce or eliminate the SALT advantage.
Key takeaways
- Who benefits: Itemizers with significant property or state taxes, especially in high-tax states, are most likely to gain from the temporary increase.
- Timing matters: Accelerating deductible payments into 2026 can help some filers exceed the standard deduction and claim more SALT.
- Watch income levels: The SALT benefit phases out between roughly $505,000 and $606,333 of modified AGI in 2026, creating potential marginal-rate surprises for higher earners.
As the 2026 filing season progresses and the IRS publishes more granular data, taxpayers and advisors will better understand who gained from the expanded cap and how widely the change altered refunds and tax planning choices. For now, households with substantial state or local tax bills should review payment timing and income moves before year-end to determine whether they can take advantage of the temporary rules.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.