SALT Deduction: How to Write Off State and Local Tax
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What is the SALT tax deduction?
The state and local tax (SALT) deduction is a federal tax break that allows filers who itemize to deduct up to $10,000 of certain state and local taxes from their taxable income.
To take advantage of this deduction, you must choose to itemize rather than take the standard deduction when you file your annual return.
If the SALT deduction and your other write-offs don’t add up to more than the standard deduction amount — which ranges from $14,600 to $29,200 for 2024 — it may not make sense to itemize.
How much is the SALT deduction?
The maximum amount you can take for the SALT deduction for 2024 (taxes filed in 2025) is $10,000. The limit for those married filing separately is $5,000.
Before 2017, the SALT deduction was unlimited. The passage of the Tax Cuts and Jobs Act (TCJA) under then-President Donald Trump instituted the $10,000 cap as a way to pay for some of the other programs in that law.
When does the SALT cap expire?
The current SALT deduction limit is set to expire at the end of 2025. And the looming expiration has created a lively political debate about its future.
On one hand, proponents of the cap tout its ability to increase federal revenue while mostly sparing the lowest-income taxpayers. After all, you have to both itemize deductions and have more than $10,000 in state and local taxes to have the limit affect you.
On the other hand, plenty of taxpayers have to pay more in taxes because of the deduction limit, particularly those who live in higher-cost, higher-tax states. For example, a taxpayer in New York or California may have more than $10,000 to claim compared with, say, a resident of Tennessee, where the state and local tax burden is lower.
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How does the SALT deduction work?
There are a number of taxes covered by the SALT tax deduction: state income taxes, sales tax and even property tax. But for a few of the big ones, you might have to make a choice: You can deduct local and state income taxes or state and local sales taxes. Not both.
Let’s go over these deductions one by one.
SALT deduction for income taxes
If you get a W-2 form from your employer, it’s pretty easy to see what you’ve paid in state or local income taxes over the course of the year. You can use the information on that form to figure out how much state or local income tax you might be able to deduct.
If you are self-employed, note that you can also deduct any estimated taxes you might have paid to your state or local government over the course of a tax year.
And if you had to make any payments on prior year state or local taxes, you can deduct those, too.
SALT deduction for sales taxes
If you decide it’s a good idea to deduct sales taxes rather than income taxes, there are a few ways to do this. If you have really good records of the sales taxes you’ve paid over the course of the year, you can use those to calculate the exact amount of your deduction.
But not everyone is able to hang onto receipts from each taxable purchase they made throughout the year. So the IRS also offers a sales tax deduction calculator to help you figure out what you can claim.
SALT deduction for property taxes
Generally speaking, you can claim property taxes with your SALT deduction, but some types of payments do not qualify. The IRS says deductible real estate taxes are “levied for the general public welfare. The charge must be uniform against all real property in the jurisdiction at a like rate.”
So, which types of property taxes might not be deductible?
Some taxes assessed by state or municipal governments pay for special benefits for a particular district. Maybe they pay for new sewers for one neighborhood or better sidewalks for a specific area. Because these taxes and benefits don’t affect the entire tax base, they aren’t deductible.
SALT deduction for personal property taxes
You can generally deduct taxes levied on personal property such as a boat or a car. If the tax is based only on the value of the property, and it’s charged annually (even if it’s billed more regularly), the SALT deduction may cover it.
What taxes aren’t covered by the SALT deduction?
The IRS says you can’t use the SALT deduction for “federal income taxes, Social Security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner's association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection.”
Why is it called the SALT tax?
SALT is an acronym for “state and local tax.” It doesn’t have anything to do with the seasoning for your food.
However, if you paid attention in history class, you might remember that taxes on salt — sodium chloride — are among the oldest government taxes in the world. Salt taxes may have helped pay for the Great Wall of China, for instance. And in Europe, excessive taxation on salt is among the factors credited with inspiring the French Revolution.
Today, if you’re paying taxes on salt, it might be through a sales tax on food or other salty products. In theory, you could deduct the cost of that tax using the SALT deduction.
