A deduction for itemizers who pay significant state and local taxes
Updated January 4, 2021|4 min read
Table of Contents
The SALT deduction allows you to deduct your payments for property tax payments and either income or sales tax payments
The maximum SALT deduction is $10,000, but there was no cap before 2018
You must itemize using Schedule A to claim the SALT deduction; most people do not qualify to itemize
The state and local tax deduction, commonly called the SALT deduction, is a federal deduction that allows you to deduct the amount you pay in taxes to your state or local governments.
Specifically, the SALT deduction can include the amounts you paid on property and real estate taxes, personal property taxes, such as for cars and boats, and either local income tax or sales tax. You cannot deduct both income and sales taxes.
The SALT deduction is only available if you itemize your deductions using Schedule A. You can only itemize when your individual deductions are worth more than the 2020 standard deduction of $12,400 for single filers, $24,800 for joint filers, and $18,650 for heads of household. Most people do not qualify to itemize after the 2017 tax reform.
States that benefit most from the SALT deduction include California, New York, Illinois, and Texas.
The state and local tax deduction, or SALT deduction for short, allows taxpayers to deduct certain state and local taxes on their federal tax returns. Like the standard deduction, the SALT deduction lowers your adjusted gross income (AGI). (This differs from a credit, which decreases the amount you owe, also known as taxable income, after you’ve calculated your AGI.)
Everyone claiming the SALT deduction can deduct their property taxes. Then you can deduct either the amount you paid for state and local income taxes or sales taxes. You cannot include all three types of taxes for the deduction. Everyone is also able to deduct taxes on personal property. Personal property includes movable objects, like your car, a boat, furniture, or business property.
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You can only claim the deduction if you itemize, which means you do not take the standard deduction. (Other itemized deductions include the mortgage interest deduction and the deduction for charitable contributions.)
Less than 15% of taxpayers currently qualify to itemize according to estimates from the U.S. Congress’ Joint Committee on Taxation. That means this deduction isn’t available to most people except in years when spending spikes. For example, you may pay abnormally high sales tax one year because you bought an expensive car. In that case, the additional tax may make you able to claim the SALT deduction.
As of 2019, the maximum SALT deduction is $10,000. This limit applies to single filers, joint filers, and heads of household. The deduction has a cap of $5,000 if your filing status is married filing separately. This cap remains unchanged for your 2020 and 2021 taxes.
The cap on the SALT deduction started in 2018 because of the Tax Cuts and Jobs Act, a tax reform passed in 2017. The deduction was unlimited before 2018. (See what other deductions changed in 2018.)
You can only claim the state and local tax deduction if you itemize deductions on your tax return. That means you do not take the standard deduction. Most tax filers do not qualify to itemize because the standard deduction is worth more than itemizing for them.
When you itemize, you can claim the SALT deduction on Line 5 of Schedule A. This line is called “State and local taxes.” For older tax returns, the line numbers on Schedule A are different, but very similar.
Learn more in our guide to filing your taxes
Any electronic filing service you use will do all of the math for you, but it’s useful to understand how claiming the state and local tax deduction actually works.
Line 5 of the 2020 Schedule A is divided into five sections:
Line 5a is where you write the amount you paid in either local income taxes, or sales tax. (You cannot deduct the amount you paid for both types of taxes.)
Line 5b is for the amount you paid in local property taxes or real estate taxes.
Line 5c asks for the amount you paid in personal property taxes. This includes state and local taxes you pay on things like a car, boat, or other person belonging.
Line 5d asks for the sum of Line 5a, 5b, and 5c
Line 5e is the value of your SALT deduction. If the amount on Line 5d is $10,000 or less then that’s the amount of your deduction. If Line 5d is more than that, then your deduction is just $10,000.
If you paid any other taxes already, put it on Line 6 and then write the sum of Line 5e and 6 on Line 7. You can add up all of your itemized deductions at the bottom of Schedule A. That amount goes on Line 9 of your Form 1040.
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The state and local tax deduction is most popular in states with high local tax rates. States with high income taxes account for most SALT deductions. In particular, California filers accounted for 21% of national SALT deductions in 2017, based on the total value of their SALT deductions. New York made up the next highest percentage of national SALT deductions, at 13% of all deductions. Other high income states like New Jersey and Illinois also used the deduction frequently.
Some taxpayers claim the deduction because of high local sales and property taxes. Texas has no income tax, but residents still make up the fourth highest amount of SALT deductions claimed.
The table below uses 2017 IRS data to show which states benefit most from the SALT deduction. This is the year before the recent tax reform, so there was no cap on the SALT deduction. (The maximum deduction is $10,000.)
|State||Average AGI||Average amount of SALT deduction||State share of national SALT deductions|
|District of Columbia||$98,075||$17,758||0.4%|