How to Save With SALT: What Business Owners Need to Know

Written by Business Tax Relief September 22, 2026

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Overview

State and local taxes can add up quickly, especially for business owners who live or operate in high-tax states. Fortunately, recent changes to the state and local tax (SALT) deduction could allow some taxpayers to deduct significantly more of these taxes on their federal income tax returns. Under the One Big Beautiful Bill Act (OBBBA), the previous $10,000 SALT deduction limit was temporarily increased to $40,000 for 2025, with additional increases scheduled through 2029. However, income limits, itemizing requirements, and other tax rules can affect how much you can actually deduct.

For business owners, understanding how the SALT deduction works—and how it interacts with your personal and business taxes—may help you identify opportunities to reduce your federal taxable income.

Key Takeaways

The SALT deduction cap increased significantly under the OBBBA. The limit increased from $10,000 to $40,000 for 2025 and rises by 1% annually through 2029 before returning to $10,000 in 2030.
Higher-income taxpayers may not receive the full deduction. The increased SALT cap begins to phase down once modified adjusted gross income (MAGI) exceeds an annual threshold.
Business owners may have additional SALT considerations. Owners of pass-through entities should understand the difference between the individual SALT deduction and state-level pass-through entity tax (PTET) rules when evaluating their overall tax strategy.

What Is SALT?

SALT stands for state and local taxes. The SALT deduction allows taxpayers who itemize their federal deductions to deduct certain taxes paid to state and local governments.

Generally, eligible taxes can include:

State and local income taxes, or state and local general sales taxes
State and local real estate taxes
Certain personal property taxes

You cannot deduct both state and local income taxes and general sales taxes for the same year. You should generally choose whichever provides the greater benefit. The eligible taxes are combined and then subject to the applicable SALT deduction limit.

For example, suppose you paid $20,000 in state income taxes and $25,000 in eligible real estate taxes during 2026. You would have $45,000 of potentially deductible SALT expenses. However, the maximum SALT deduction for most taxpayers in 2026 is $40,400, assuming the income-based phase-down doesn’t apply.

It’s also important to distinguish the individual SALT deduction from ordinary and necessary taxes paid directly in connection with operating a business. Different rules may apply to business-level taxes and pass-through entity taxes.

How Did SALT Change Under the OBBBA?

The Tax Cuts and Jobs Act (TCJA) generally limited the individual SALT deduction to $10,000 per year ($5,000 for married taxpayers filing separately). That restriction significantly reduced the amount some taxpayers (particularly those in states with higher income and property taxes) could deduct.

The OBBBA changed the rules beginning with the 2025 tax year.

For 2025, the SALT cap increased to $40,000, or $20,000 for married taxpayers filing separately. The law then increases the limit by 1% each year through 2029.

The higher limits are temporary. Unless Congress makes another change, the SALT cap returns to $10,000 ($5,000 for married filing separately) beginning in 2030.

The OBBBA also introduced an income-based phase-down of the higher limit. As a taxpayer’s MAGI exceeds the applicable threshold, the maximum SALT deduction decreases by 30% of the amount exceeding that threshold. However, the deduction limit cannot be reduced below $10,000 ($5,000 for married filing separately).

SALT Caps 2026–2029

The maximum SALT deduction continues to increase each year through 2029.

Tax Year	SALT Deduction Cap	Married Filing Separately
2026	$40,400	$20,200
2027	$40,804	$20,402
2028	$41,212	$20,606
2029	$41,624	$20,812
2030 and Later	$10,000	$5,000

These limits apply before taking the income-based phase-down into account.

The difference can be substantial compared with the previous $10,000 limit. For example, a taxpayer who qualifies for the full $40,400 deduction in 2026 could potentially deduct $30,400 more in state and local taxes than would have been permitted under a $10,000 cap.

Keep in mind, however, that a larger deduction does not mean you receive that amount as a tax refund. A deduction reduces taxable income; your actual tax savings depend on your marginal tax rate and overall tax situation.

Income Phase-Out Thresholds (2026–2029)

The maximum SALT deduction isn’t available to every taxpayer.

For 2025 through 2029, the higher SALT limit is gradually reduced when a taxpayer’s modified adjusted gross income (MAGI) exceeds a specified threshold. The threshold also increases by 1% annually.

Tax Year	MAGI Phase-Down Threshold	Married Filing Separately
2026	$505,000	$252,500
2027	$510,050	$255,025
2028	$515,151	$257,575
2029	$520,302	$260,151

Once your MAGI exceeds the applicable threshold, your SALT deduction limit is reduced by 30 cents for every $1 of income above the threshold, until the deduction reaches its $10,000 minimum ($5,000 for married taxpayers filing separately).

Example

Suppose your MAGI is $525,000 in 2026.

The 2026 phase-down begins at $505,000, so your income exceeds the threshold by $20,000.

$525,000 − $505,000 = $20,000

Your SALT cap would be reduced by 30% of that amount:

$20,000 × 30% = $6,000

Starting with the $40,400 maximum:

$40,400 − $6,000 = $34,400

Therefore, your maximum SALT deduction would be $34,400, assuming you actually paid at least that much in eligible state and local taxes and otherwise qualify to claim the deduction.

How Much Can I Save With SALT?

Your actual savings from the SALT deduction depend on several factors, including:

How much you paid in eligible state and local taxes
Your MAGI
Your filing status
Whether you itemize deductions
Your federal marginal income tax rate
Other deductions and tax limitations that apply to your return

One of the easiest ways to understand the potential benefit is to compare the amount you’re able to deduct with the federal tax rate that applies to the income being offset.

Example

Suppose you qualify for the full $40,400 SALT deduction in 2026 and have enough eligible taxes to use the entire amount.

If the deduction offsets income that otherwise would have been taxed at 24%, the potential federal income tax reduction attributable to the $40,400 deduction could be approximately:

$40,400 × 24% = $9,696

That does not mean every taxpayer claiming a $40,400 SALT deduction will save $9,696. The actual benefit depends on your tax circumstances, including whether itemizing provides a greater benefit than claiming the standard deduction. For 2026, for example, the standard deduction is $16,100 for single filers, $24,150 for heads of household, and $32,200 for married couples filing jointly.

For business owners, the calculation may be more complicated. Owners of partnerships, S corporations, and other pass-through entities may also need to consider their state’s pass-through entity tax (PTET) rules.

A PTET election can allow an eligible pass-through entity to pay certain state income taxes at the entity level. Because these rules are separate from the individual SALT deduction and vary by state, business owners should evaluate both federal and state consequences before making tax-planning decisions.

Frequently Asked Questions

Does SALT apply to business owners?

Yes, but it’s important to distinguish between personal and business taxes. The SALT cap discussed here generally applies to an individual’s itemized deductions on Schedule A. A business owner may claim eligible state and local taxes personally while other qualifying taxes associated with operating a business may be treated differently.

Owners of pass-through businesses may also have access to state PTET elections that can affect how state income taxes are paid and deducted.

Do I have to itemize to claim the SALT deduction?

What taxes count toward the SALT deduction?

Can I deduct state income taxes and sales taxes?

Does the SALT cap apply to property taxes?

What happens if my income exceeds the SALT phase-out threshold?

Is there an income limit where I lose the SALT deduction completely?

What happens to the SALT deduction after 2029?

What is a PTET, and how does it relate to SALT?

A pass-through entity tax (PTET) is a state-level tax that certain partnerships, S corporations, and other eligible pass-through entities may elect or be required to pay at the business level, depending on the state.

PTET rules developed in many states as a way to address the federal individual SALT deduction limitation. Because eligibility, elections, deadlines, and tax treatment vary by state, business owners should carefully evaluate their state’s rules rather than assuming a PTET election will automatically produce tax savings.

Can I deduct delinquent state taxes that I pay this year?

Potentially. For cash-basis individual taxpayers, the timing of a SALT deduction is generally based on when an eligible tax is actually paid rather than simply when the tax liability arose. However, the deductibility of a particular payment can depend on the type of tax and other circumstances. Penalties and interest may also be treated differently from the underlying tax.

Business owners dealing with past-due state taxes should determine which portions of a payment may be deductible and which tax year the deduction belongs to.

Final Thoughts

The temporary increase in the SALT deduction creates a potentially valuable tax-planning opportunity through 2029, particularly for taxpayers who pay substantial state income and property taxes. For qualifying taxpayers, the difference between the former $10,000 limit and a deduction exceeding $40,000 can translate into meaningful federal tax savings.

But the maximum deduction is only one part of the equation. Your income, filing status, total itemized deductions, state of residence, business structure, and potential PTET options can all affect the actual benefit.

For business owners, tax planning becomes even more important when personal and business tax obligations overlap. Understanding what you owe, what you can deduct, and which payment or resolution options are available can help you make informed decisions and avoid allowing unresolved tax problems to interfere with your business.

If you have unpaid business taxes or are struggling to keep up with federal or state tax obligations, Business Tax Relief can help you understand your situation and explore available tax resolution options.