Understanding the SALT Deduction in 2026: What Homeowners Need to Know

If you own real estate, the SALT deduction can directly affect how much you’re able to deduct on your federal tax return when filing in 2026 (for the 2025 tax year).

SALT stands for State and Local Taxes, and recent changes have significantly increased the deduction limit.

Here’s what that means in simple terms.

The federal tax code allows taxpayers who itemize to deduct certain taxes paid to state and local governments.

For the 2025 tax year, the federal SALT deduction limit increased.

When filing in 2026, eligible taxpayers may deduct:

• Up to $40,000 in combined state and local taxes
• $20,000 if married filing separately
• Subject to income-based phase-down rules

This includes:

• Property taxes paid in 2025
• State income taxes paid in 2025
• OR state sales tax (not both)

You must itemize deductions to benefit.

Only taxes paid in 2025 count toward your 2025 return — not amounts assessed but unpaid.

This is particularly relevant for:

• Buyers who prepaid property taxes at closing
• Sellers who paid prorated taxes through escrow

Rental Properties Are Different

The SALT cap applies to personal property taxes on your primary residence or second home.

If you own a rental or investment property, property taxes are generally deducted as a business expense on Schedule E and are not subject to the SALT cap

Watch this video to help you review your Closing Disclosure carefully.

IRS Schedule A:
https://www.irs.gov/forms-pubs/about-schedule-a-form-1040

IRS Publication 17 overview:
https://www.irs.gov/publications/p17