How Does the State and Local Tax Deduction Work?

Back in the old days, the state and local tax (SALT) deduction was arguably the most popular tax deduction in America.

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You probably remember your parents or grandparents saving every receipt—even on small purchases like a box of nails or a single heirloom tomato—and stuffing them in a manila folder. That’s because, once upon a time, you could deduct an unlimited amount of sales taxes, as well as state income and property taxes, off your federal tax bill.

Thanks to the One Big Beautiful Bill Act (OBBBA), the SALT deduction received a huge boost and could provide a nice cut your tax bill. Let’s find out if the SALT deduction will benefit you, and if it does, how to claim it.

What Is the State and Local Tax Deduction (SALT)?

First off, remember that a tax deduction is basically any expense that can be used to lower your taxable income. For 2025, the SALT deduction allows you to deduct up to $40,000 total of your state and local property taxes ($20,000 if married filing separately), and either your state and local income taxes or sales taxes.¹

However, if your modified adjusted gross income is more than $500,000 ($250,000 if married filing separately), we’ve got some bad news: Your SALT deduction will be reduced, but not less than $10,000 ($5,000 if married filing separately).²

Keep in mind that this boost to the SALT deduction is temporary, with the cap set to return to $10,000 starting in 2030.³

The SALT deduction allows you to deduct up to $40,000 of your state and local property taxes, plus either your state and local income or sales taxes.

Wait, wait, hold up—state income or sales taxes? Yep. Unfortunately, you can’t deduct both state income and sales tax (Uncle Sam sees that as trying to stick both hands in the cookie jar). You can combine property and sales taxes or you can combine property and income taxes, but not all three. Deciding which combination works best for your tax return is a part of the fun of taking this tax deduction (sarcasm intended).

How Do SALT Deductions Work?

Now, before you get too excited about the SALT deduction, keep in mind that the OBBBA puts a hard cap on it. Remember, the most you’ll be able to deduct is $40,000—or $20,000 if you’re married filing separately.⁴

That’s really good news for taxpayers living in states with high property or state taxes. For example, let’s say you paid $7,000 in property taxes and $9,000 in state income taxes for the current tax year. Before OBBBA, the SALT deduction was capped at $10,000. In that case, you couldn’t deduct $16,000 from your federal income taxes. But now, you’ll be able to deduct all of it—with plenty of room to spare!

How Do You Claim the SALT Deduction?

Alright, now for the fun part. Luckily, claiming the SALT deduction on your federal income taxes isn’t super complicated.

1. Itemize your deductions.

At this point, you should know for sure you’re not taking the standard deduction. Again, you can deduct up to $40,000, so if the SALT is your only tax deduction, you should only itemize if the amount of tax you are deducting is greater than the standard deduction.

2. Decide to deduct either the sales or state income taxes.

Even if you’re the kind of person who spends more time looking for something to watch on TV than actually watching TV, this decision should be super obvious (thank goodness, right?): Pick the larger of the two.

For instance, if you live in a high income-tax state—like California, New Jersey or New York—you’ll probably deduct your state and local income taxes. On the other hand, if you live in a state with a high sales tax but low or no income tax—like Louisiana, Tennessee or Texas—you’ll probably deduct your sales tax if you itemize.

But what if you spent an equal amount of money on sales and income taxes? Well, in that case, pick the one you can back up with more evidence. You may have spent $5,000 on sales taxes, but if you don’t have receipts to back it up (or you don’t have time to dumpster dive in your filing cabinet), consider deducting the income tax instead. 

3. Use Schedule A to claim the SALT deduction.

Finally, look at your Schedule A and report your numbers (you’ll find the state and local tax on Line 5 of Schedule A).⁵

Who Uses SALT Deductions?

You’ll hear a lot of folks say the SALT deduction benefits taxpayers who live in states with high income and property taxes (think New York, New Jersey and California), which is partly true. But more so than that, the SALT deduction benefits high-income taxpayers who live in states with high tax rates.

The higher your income, the more you care about tax deductions, regardless of where you live because—you guessed it—you’re taxed at a higher rate. So if you make a lot of money, don’t rule out the SALT deduction, even if your state has low income taxes. 

Should You Take the SALT Deduction?

Remember: You can only claim the SALT deduction if you itemize your deductions. And you should only itemize your deductions if that amount exceeds the standard deduction.

For tax year 2025, the standard deduction is $15,750 for singles and anyone married filing separately, $31,500 for married couples filing jointly, and $23,625 for heads of household.⁶

Since the standard deduction is lower than the $40,000 SALT deduction, you might find yourself paying enough in state and local taxes to make itemizing your tax deductions worth it.

You can also see if deducting your donations to charity, medical expenses and mortgage interest on top of your local taxes would push you over the standard deduction amount—but it does mean you have to do some math.

If you’re still considering itemizing your deductions, or you’ve got a more—well, salty—tax situation, you shouldn’t let any eligible tax deduction go unclaimed. That’s why we recommend working with a reliable tax expert. Truth is, missing out on deductions could end up costing you more than it would to work with a pro.