How the SALT Cap Phases Down, in Dollars

For tax year 2026 (the return you file in 2027), the cap on the state and local tax deduction is $40,400 up to $505,000 of modified adjusted gross income. Above that it shrinks by $300 for every $1,000 of MAGI and stops at $10,000, which it reaches at $606,334. Section 70120 of the One Big Beautiful Bill Act wrote every one of those figures into §164(b)(6) and §164(b)(7) of the Internal Revenue Code. None of them comes from an inflation table: Rev. Proc. 2025-32, the IRS list of 2026 adjusted amounts, has no SALT entry.

Four numbers, all in the statute

§164(b)(7) as amended by §70120 sets the 2026 limit in four clauses. Subparagraph (A)(ii) names the "applicable limitation amount" for a taxable year beginning in 2026: $40,400. Clause (B)(ii)(II) names the threshold: $505,000. Clause (B)(i) reduces the limitation by 30 percent of the excess of MAGI over that threshold. Clause (B)(iii) stops the reduction at $10,000, the same figure §70120(a) struck out of §164(b)(6).

The threshold is one number for single filers, heads of household and married couples filing jointly. A couple does not get $1,010,000. MAGI is defined in (B)(iv) as adjusted gross income plus anything excluded under §911 (foreign earned income), §931 or §933 (income from U.S. possessions and Puerto Rico); a filer who claims none of those exclusions uses plain AGI (line 11b of the 2025 Form 1040).

The worksheet, line by line

The IRS turns the clauses into a ten-line State and Local Tax Deduction Worksheet in the 2025 Schedule A instructions, printed with that year's $40,000 cap and $500,000 threshold. Run for 2026 with the statute's figures substituted, for a single filer with $550,000 of MAGI who paid $45,000 of state income tax and property tax, it reads:

1. Line 1, the cap before any reduction: $40,400.
2. Lines 2 through 4, MAGI: $550,000 (no excluded foreign or possession income).
3. Line 5, the threshold: $505,000.
4. Line 6, the excess: $550,000 − $505,000 = $45,000.
5. Line 7, the reduction: $45,000 × 30% = $13,500.
6. Line 8: $40,400 − $13,500 = $26,900.
7. Line 9, the larger of line 8 or $10,000: $26,900.
8. Line 10, the smaller of line 9 or the tax paid (Schedule A line 5d): $26,900 against $45,000 paid, so $26,900 goes on line 5e.

At $505,000 the same filer would have deducted $40,400. Forty-five thousand dollars of income above the threshold removed $13,500 of deduction.

Eight incomes on one formula

The cap at each MAGI follows from line 8 and line 9 alone. The last column prices the lost deduction for a single filer at 35 percent, the bracket that covers every dollar of 2026 taxable income from $256,225 to $640,600 (Rev. Proc. 2025-32, Table 3), and it assumes the filer paid at least $40,400 of SALT so the cap binds the whole way.

The floor sits $30,400 below the cap, and at 30 cents per dollar that takes $101,333.33 of income to erase, which puts the floor at $606,333.33 of MAGI. Past that point the reduction keeps growing on paper and line 9 throws it away. The most the phase-down can cost a single filer in the 35 percent bracket is $10,640 of 2026 federal income tax.

The torpedo zone: $1.30 of taxable income per dollar earned

Between $505,000 and $606,334 of MAGI, each extra dollar of income does two things to an itemizer whose SALT bill exceeds the cap. It adds itself to taxable income, and it removes 30 cents of SALT deduction, which adds 30 cents more. Taxable income rises $1.30 per dollar earned, so the marginal federal income tax rate is 1.3 times the bracket rate:

• Single filer, 35 percent bracket: 1.3 × 35% = 45.5 percent. The worked filer above shows it. Raising MAGI from $550,000 to $551,000 cuts line 5e from $26,900 to $26,600. With $15,000 of mortgage interest, Schedule A falls from $41,900 to $41,600 and taxable income climbs from $508,100 to $509,400. Under Table 3 the tax goes from $146,604.25 ($58,448 plus 35 percent of the excess over $256,225) to $147,059.25: $455 on $1,000.
• Married filing jointly, 32 percent bracket: 1.3 × 32% = 41.6 percent. The joint 35 percent bracket starts at $512,450 of taxable income (Rev. Proc. 2025-32, Table 1). A couple with $50,000 of SALT and $20,000 of mortgage interest has $444,600 of taxable income at $505,000 of MAGI, still in the 32 percent bracket. They cross into 35 percent at about $557,200 of MAGI and pay 45.5 percent on each dollar from there to the floor.

Above $606,334 the cap stops falling and the rate drops back to the plain bracket rate. The zone is a hump in the rate schedule that Rev. Proc. 2025-32 never prints.

Three conditions shut the zone off for a particular return:

• SALT paid below the cap. The worksheet's line 10 takes the smaller of the cap and what you paid. A filer who paid $20,000 loses nothing until the cap falls under $20,000, which happens at $573,000 of MAGI ($40,400 − $20,000 = $20,400, divided by 0.30 is $68,000 above the threshold).
• The standard deduction takes over. A single filer whose only itemized deduction is SALT stops itemizing once the cap falls below the $16,100 standard deduction. That happens at $586,000 of MAGI, and from there each dollar is taxed at the bracket rate.
• The alternative minimum tax sets the bill. Form 6251, line 2a adds every tax deducted on Schedule A back into alternative minimum taxable income. As long as a filer's tentative minimum tax stays above their regular tax, a smaller SALT deduction leaves the total owed unchanged.

These rates cover federal income tax only. Payroll taxes and the net investment income tax apply to the extra dollar itself and are not in these figures, and neither is state income tax.

Married filing separately: half the cap, half the speed

§164(b)(6) gives a married person filing separately "half the applicable limitation amount", and §164(b)(7)(B)(i) uses "half the threshold amount" for the same filer. The halving of the cap comes last. The IRS worksheet does it the same way: lines 1 and 9 carry the full $40,000 and $10,000, and only line 10 takes "half the amount on line 9 if married filing separately" (2025 instructions).

So for 2026 a separate filer starts at a $20,200 cap with a $252,500 threshold. The 30 percent reduction applies to the full $40,400, and halving it afterward means the separate filer's cap falls 15 cents per dollar, half the 30-cent pace on every other return. At $300,000 of MAGI: $40,400 − 30% × $47,500 = $26,150, halved to $13,075. The $5,000 floor arrives at $353,834, the same $101,333.33 past the threshold as on a joint return. A separate filer in the 35 percent bracket loses 1.15 × 35% = 40.25 percent at the margin inside that band.

2025 through 2030

§164(b)(7)(A)(iii) and (B)(ii)(III) raise the cap and the threshold to 101 percent of the prior year's figure for every year after 2026. The statute writes no rounding rule, so the computed amounts carry cents.

For tax years beginning after 2029, (A)(iv) sets the cap at $10,000 for everyone, and (B)(i) applies the 30 percent reduction only "in the case of any taxable year beginning before January 1, 2030." The threshold clause still compounds 1 percent a year after that, governing nothing.

What the cap is worth in New Jersey and in Hawaii

Below the threshold, the stretch of cap between the $10,000 floor and $40,400 is worth at most $30,400 × 35% = $10,640 a year to a single filer in the 35 percent bracket. How much of that stretch a filer fills depends on the state. The Tax Foundation's 2024 effective property tax rates on owner-occupied housing put New Jersey first at 1.88 percent and Hawaii 50th at 0.29 percent. Those are statewide ratios of total tax paid to total home value, so they describe a typical bill and not any particular one.

At New Jersey's 1.88 percent, property tax alone reaches the $10,000 floor on a home worth about $532,000 and the full $40,400 cap at about $2.15 million. At Hawaii's 0.29 percent the same two points sit at about $3.45 million and $13.9 million. On a $1,000,000 home, the New Jersey bill comes to $18,800, of which $8,800 lies above the floor and is worth $3,080 at 35 percent. The Hawaii bill comes to $2,900, under the floor, so any value the higher cap has for a Hawaii homeowner comes from the state income tax, whose 2026 top rate is 11.00%.

Past $606,334 of MAGI the floor binds in both states. A New Jersey homeowner on a $532,000 house fills the whole $10,000 with property tax before paying a dollar of New Jersey's 10.75% top-rate income tax.

The phase-down ends with tax year 2029. From 2030 the deduction is the smaller of $10,000 and the tax paid at every income, the figure §70120 struck out of §164(b)(6), this time with no end date in the statute.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.