The $40,000 SALT Cap Has an Income Ceiling

For Most of Our Clients, the Full Benefit Runs Through 2029

If your household’s modified adjusted gross income is under $505,000 in 2026 (the line rises about 1% a year), the phase-out never touches you. You can deduct up to $40,400 of property tax and other state and local taxes in 2026, and slightly more each year after, through the 2029 tax year, the return you file in 2030. That is four more full tax years to use it.

At a MAGI of $250,000 or less, there is no reduction at all under any filing status, including married filing separately, whose threshold is the lowest at $250,000 in 2025 and $252,500 in 2026. You keep the full cap for your filing status in every year of the expansion. Married couples filing separately each get half the cap: $20,200 apiece in 2026.

Filing status matters more as income rises. At $300,000 of MAGI, a married person filing separately is $47,500 over the 2026 threshold and loses $14,250 of a $20,200 cap, leaving $5,950. At $250,000, nothing is lost however you file. The one hurdle that remains is itemizing: the cap helps only if your total itemized deductions on IRS Schedule A exceed your standard deduction.

In Texas that deduction is mostly your property tax bill. Add mortgage interest and charitable gifts, and many Austin homeowners who took the standard deduction under the old $10,000 cap now come out ahead by itemizing.

Budget with the payment and the tax savings

How much house you can afford should reflect two numbers: the full monthly payment (principal, interest, property taxes, and insurance) and the tax reduction that payment creates. A lender qualifies you on the payment alone. Your real monthly cost is lower once you count the deduction.

Take advantage of it, and plan for 2030. Unless Congress extends it, the cap returns to $10,000 in 2030, and a 30-year mortgage will outlast it. A sound budget counts the savings for the years you have them and still works if they shrink. Your CPA can run the numbers for your bracket before you set a price range.

How the SALT Deduction Phase-Out Works

The One Big Beautiful Bill Act set the state and local tax (SALT) cap at $40,000 for 2025 and raises it 1% a year through 2029. The income level where the phase-out starts rises 1% a year too. Once your modified adjusted gross income (MAGI) passes that threshold, the cap shrinks by 30 cents for every dollar over, but it never drops below $10,000. Married couples filing separately get half of each figure.

Thresholds apply to single and joint filers alike, so a married couple gets the same income ceiling as one single filer. The cap and threshold keep rising 1% a year through 2029. In 2030 the cap reverts to a flat $10,000 unless Congress acts.

Three Households, Same 2026 Rules

Assume each household pays more than $40,400 in state and local taxes, so the cap is the only limit.

The phase-out range carries a hidden surtax

Inside the phase-out window, each extra dollar of income is taxed once as income and then shrinks your deduction by 30 cents. For a joint filer in the 35% bracket who itemizes, that works out to an effective federal rate of about 45.5% on income between roughly $512,000 and $606,000 in 2026. Above the window, the rate drops back to the normal bracket because there is nothing left to phase out.

What It Means for Austin Homeowners

Texas has no state income tax, so for Austin households the SALT deduction is mostly property tax, plus the option to deduct sales tax instead of income tax. A home in central or East Austin at today’s prices can easily carry a property tax bill above $10,000. If your income is above the phase-out range, everything past $10,000 still gets no federal deduction.

Itemizing still has to beat the standard deduction

SALT only helps if your total itemized deductions on Schedule A exceed the standard deduction. For married couples filing jointly, that is $32,200 for 2026 and $33,200 for 2027. At the $10,000 floor, you need more than $22,200 of other itemized deductions in 2026, or more than $23,200 in 2027, before your property taxes save you anything. Mortgage interest and charitable gifts are the usual ways to clear that bar.

Rental property follows different rules

Property taxes on a rental you report on Schedule E are a business expense. They are not subject to the SALT cap or the phase-out, so a rental’s tax bill stays fully deductible against its rental income no matter what you earn.

A home sale can push you into the window

Gain on a home sale above the $250,000 exclusion ($500,000 for joint filers) counts toward your MAGI. So does a large capital gain from anything else. A sale in a year when you are near the threshold can shrink your SALT cap in the same year. If you are planning to sell, talk timing with your CPA before you list.

Planning Moves Before December 31

None of these help if your income is far above the window. They matter most for households within reach of the threshold.

• Lower MAGI with pre-tax savings. Pre-tax 401(k), 403(b), and HSA contributions reduce MAGI and can recover part of the cap if they move you back into or below the phase-out range.
• Time income and gains. Bonuses, stock sales, Roth conversions, and taxable home-sale gains all raise MAGI. Shifting one into a different year can change which side of the threshold you land on.
• Bunch deductions. Grouping two years of charitable giving into one year, for example through a donor-advised fund, can push you over the standard deduction in that year.
• Lower the bill itself. A smaller property tax bill helps no matter what the federal cap does. Check your exemptions and protest your appraisal each spring.

For the local side, see our guides to Texas homeowner tax exemptions and protesting your property taxes. For a CPA who knows these rules, start with the tax section of our Austin Vendor & Services Guide.

SALT Deduction Phase-Out FAQ