The SALT deduction, or state and local tax deduction, is a federal tax provision in the United States that allows taxpayers who itemize deductions on their federal tax returns to deduct certain state and local taxes paid during the year from their taxable income
. Key features of the SALT deduction:
- It includes deductions for state and local income taxes, property taxes, and either state and local sales taxes or income taxes (taxpayers must choose one, not both)
- The deduction is intended to prevent double taxation by allowing taxpayers to subtract taxes already paid to state and local governments from their federal taxable income
- Since the Tax Cuts and Jobs Act of 2017, the SALT deduction is capped at $10,000 per year for individuals or married couples filing jointly, and $5,000 for married individuals filing separately
- Taxpayers must itemize deductions on Schedule A of Form 1040 to claim the SALT deduction; those who take the standard deduction cannot claim it
- The cap on the deduction is currently set to expire after 2025 unless Congress extends it
- The deduction disproportionately benefits higher-income taxpayers living in states with higher state and local taxes, such as New York, California, and New Jersey
How the SALT deduction works in practice: For example, if a taxpayer pays $8,000 in property taxes and $5,000 in state income taxes, they have paid $13,000 in eligible taxes. However, due to the $10,000 cap, only $10,000 can be deducted from their federal taxable income. This reduces the amount of income subject to federal tax, lowering their overall tax burden
. In summary, the SALT deduction allows taxpayers to reduce their federal taxable income by deducting certain state and local taxes paid, but with a current cap of $10,000, limiting the benefit for those with higher state and local tax payments
