Hi,
For years, the deduction for state and local taxes (SALT) was capped at just $10,000, no matter how much you actually paid. For 2026, that cap is $40,400 – and many people who stopped itemizing back in 2018 have no idea they may be leaving thousands of dollars on the table.
The SALT deduction covers state and local income taxes (or sales taxes) plus property taxes. If any of these apply to you, there’s a good chance the new cap helps:
- You live in California, which has some of the highest state income tax rates in the country
- You own a home with a sizable property tax bill
- You’ve been taking the standard deduction since 2018 because the old $10,000 cap made itemizing pointless
- You pay more than $10,000 a year in state income and property taxes combined
- You own a business and pay state tax on its profits through your personal return
Here’s how the numbers work:
- The cap is $40,400 for 2026 ($20,200 if married filing separately), and it rises about 1% a year through 2029.
- A couple paying $25,000 in state income tax and $15,000 in property tax can now deduct about $30,000 more than under the old cap – worth roughly $7,000 to $10,000 in federal tax savings, depending on their bracket.
- Itemizing makes sense once your total deductions beat the 2026 standard deduction of $32,200 for married couples ($16,100 for single filers).
- There’s a catch for higher earners: once your income passes $505,000, the cap shrinks by 30 cents for every extra dollar, down to $10,000 at about $606,000. In that range, your effective tax rate on extra income can top 45%.
- And the higher cap is temporary – it drops back to $10,000 in 2030 unless Congress acts.
There are also a few moves to make before December 31:
- Pay your fourth-quarter California estimated tax in December instead of January, so it counts toward 2026
- Check whether you can prepay property taxes – payments generally count only if the tax has already been assessed
- Time bonuses, business income, or asset sales if you’re close to the $505,000 threshold
- Business owners: review the pass-through entity tax (PTET) election – California lets eligible businesses pay state tax at the entity level, where the cap doesn’t apply
The catch is that the right answer depends on your whole picture – your income, your business, your home, and your state. A deduction that saves you money on one line can cost you on another if no one is looking at everything together. That’s what our team does for you:
- Year-end tax planning to decide what to pay, prepay, or defer before December 31
- A side-by-side comparison of itemizing vs. the standard deduction for 2026
- PTET election review for business owners
- Monthly bookkeeping and payroll, so your business income is accurate before year-end
- Quarterly tax estimates, federal and CA, so you know what you owe before April
- Personal and business tax returns, prepared by the same team that did your planning
Reply to this email by Wednesday and we’ll set up a free 15-minute call with our senior tax advisor to go over your situation. Bring your 2025 tax return, your latest property tax bill, and your 2026 state estimated payments – so we can tell you how much of the new deduction you can actually use.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com