SALT Deduction: How to Write Off State And Local Tax

Paying state and local income taxes and sales taxes can eat into your paycheck. Fortunatel, there’s a way to reclaim some of this money—the SALT tax deduction lets you deduct either state and local income taxes or state and local sales taxes from your federal income tax. Understanding the SALT deduction can help you decide whether you want to claim the standard or itemized deductions so you can maximize your tax benefits. Learn about how the SALT deduction works, which taxes you can claim, and how SALT can benefit you.

Key Takeaways 

• SALT, or State and Local Tax, is a tax relief that allows you to claim state and local income or state and local sales tax on your federal income tax return. 
• In order to claim SALT, you need to itemize your tax deductions on Schedule A (Form 1040).
• SALT includes state and local income taxes, sales tax, real estate tax, and personal property tax
• The SALT deduction cap is $10,000, or $5,000 for married couples filing separately.

Table of Contents

• What Is SALT?
• How Does the SALT Deduction Work?
• Which Taxes Are Covered By SALT Deductions?
• Which Taxes Are Not Covered By SALT Deductions?
• SALT Deduction Cap
• SALT Deduction Benefits
• Freshbooks: Your Partner for Smooth Tax Preparation
• Frequently Asked Questions

What Is SALT?

SALT, or the State And Local Tax deduction, is a tax deduction where you can claim back some of the sales taxes paid to state and local governments when you file your federal income taxes. Throughout the year, you pay local and state income taxes and/or local and state sales taxes. SALT allows you to claim some of these expenses as a deduction on your federal taxes—you can claim either state and local income tax deductions or state and local sales tax deductions, but not both.
The SALT deduction is particularly beneficial for taxpayers with higher adjusted gross income (AGI), who are more likely to claim the deduction.

How Does the SALT Deduction Work?

The SALT deduction allows you to claim either income taxes or sales taxes at the state and local level. High-income earners, particularly those with adjusted gross income (AGI) above $100,000, often find that the income tax deduction is most beneficial, whereas those who live in high sales-tax states and have made many purchases often benefit from claiming sales tax. This can also change from year to year, depending on how much you earn or if you’ve made major purchases.

All US taxpayers have the option to either claim the standard deduction or to itemize their taxes to claim an assortment of tax deductions. The SALT deduction is one of the deductions that can be claimed if you itemize—meaning if you claim the standard deduction, you can’t make use of SALT. It’s a good idea to add up all of your itemized deductions, including SALT, and if that amount exceeds the standard deduction for your filing status, then you should file your taxes as itemized.

Which Taxes Are Covered By SALT Deductions?

There are several different options for what you can claim from the SALT tax. These are divided into 4 categories:

SALT Deduction For Income Taxes

If a state imposes income tax on individuals, , and you’re an employee, it’s easy to see how much you’ve paid in state income taxes—you’ll receive your W-2 wage and tax form from your employer which will list this amount. Self-employed people can calculate or estimate the state income taxes they’ve paid over the year. You can use these amounts to determine whether you’ll benefit more from claiming the SALT income tax deduction or one of the other SALT deductions.

SALT Deduction For Sales Taxes

There are 2 ways to calculate your sales taxes paid: through careful recordkeeping or through estimates with the IRS tax tables. If you keep meticulous records and copies of your receipts, you can add up all of your actual sales tax paid to calculate your total SALT sales tax deduction. If you don’t have these records available, you can also estimate your sales tax amounts with the IRS tax calculator tool.

If you made certain major purchases during the year (like a car or boat) and elect to use the Optional State Sales and Local tax tables, you may also be able to add sales taxes paid on these items to the estimated deduction amount.

SALT Deduction For Real Estate Taxes

If you own real estate, you pay state and local taxes on your property. SALT offers the option to claim these property taxes back when you file your federal income taxes. These deductible real estate taxes can be especially beneficial if you live in an area where you pay a high property tax, or if you own multiple pieces of real estate.

SALT Deduction For Personal Property Taxes

Some personal property like boats and cars are taxed based on their value. If you’re taxed on higher-value personal property items, you may find it helpful to claim the SALT deduction for your personal property taxes.

Looking for more tips on filing your annual income taxes? Discover how FreshBooks takes the pain out of tax preparation for guidance on filing and claiming deductions.

Which Taxes Are Not Covered By SALT Deductions

There are some taxes, as well as certain services, that you can’t claim under the SALT deduction. These include:

• Federal income taxes: you can claim state and local income taxes under SALT, but not federal income taxes
• Social Security taxes
• Transfer taxes on property sales: you can claim your annual real estate taxes, but not taxes associated with the transfer of real estate
• Homeowners association fees: although these are related to your real estate, they’re not state or local taxes so they can’t be claimed under SALT
• Estate and inheritance taxes
• Services for water, sewer, and trash: although you may pay a sales tax on these services, they don’t fall under the list of municipal taxes that you can claim

SALT Deduction Cap

The current (2025) cap for the SALT deduction is set at $10,000, or $5,000 for married couples who are filing separately. This means that you can add your property taxes plus either state or local income taxes and deduct up to $10,000 of this amount from your federal income taxes. 

The SALT deduction cap may impact your choice to itemize or claim the standard deduction if you don’t have many other itemized deductions. For most single filers the 2024 standard deduction is $14,600, though this varies slightly depending on age and filing status. If you’re only planning to claim SALT you’re better off taking the standard deduction, however, if you intend to claim the maximum amount of SALT plus at least $4,600 in other itemized deductions it’s beneficial for you to itemize.

Impact on Taxpayers

The introduction of the SALT deduction cap has had a profound impact on taxpayers, especially those residing in high-tax states. According to the IRS, the number of taxpayers claiming the SALT deduction plummeted from 30% in 2017 to just 9% in 2020. This significant decline is largely attributed to the increased standard deduction amounts introduced by the TCJA, which reduced the incentive for many taxpayers to itemize their deductions.

Taxpayers in states with high property taxes, such as New York, New Jersey, and California, are among the most affected. These individuals may experience a substantial increase in their federal taxable income, leading to higher federal income taxes. Additionally, the cap impacts those with high state and local income taxes, particularly in states with elevated income tax rates. The result is a higher overall tax burden for many residents in these states.

Claiming the SALT Deduction

To claim the SALT deduction, taxpayers must itemize their deductions on Schedule A of their federal income tax return. The deduction is capped at $10,000 for the total amount of state and local taxes paid, which includes property taxes, state and local income taxes, and sales taxes. Taxpayers have the option to deduct either state and local income taxes or sales taxes, but not both.

To qualify for the SALT deduction, taxpayers must have paid state and local taxes during the tax year. These taxes must be paid on or before the due date of the tax return, including any extensions. Additionally, taxpayers can deduct taxes paid on prior year state and local taxes, provided they were paid during the current tax year. This ensures that taxpayers can maximize their deductions and potentially reduce their overall tax liability.

SALT Deduction Benefits

There are a number of scenarios where the SALT deduction may be very beneficial:

• If you’re a high earner and have paid a large amount in state and local income taxes
• If you’ve made major purchases and want to claim back a large amount of sales tax
• If you own multiple pieces of real estate, or if you pay high property taxes on your real estate
• If you’re claiming many itemized deductions
• If you have a higher adjusted gross income (AGI), as taxpayers with higher AGI are more likely to benefit from the SALT deduction

In general, the SALT deduction is beneficial for those planning to itemize their deductions. Even if you’re not claiming the full $10,000, if you have a number of other itemized deductions, then adding SALT can still help you reduce your total tax liability.

State and Local Tax Planning Strategies

For taxpayers affected by the SALT deduction cap, strategic planning can help minimize federal taxable income. One effective strategy is to prepay state and local taxes before the end of the year to maximize the SALT deduction. However, this approach may not be beneficial for those subject to the alternative minimum tax (AMT).

Another strategy involves making charitable contributions to state and local governments. These contributions may be deductible as charitable contributions rather than state and local taxes, providing an alternative way to reduce taxable income. Taxpayers should also consider consulting with a tax professional to determine the best strategy for their specific circumstances, ensuring they make the most of available deductions and minimize their tax burden.

Freshbooks: Your Partner for Smooth Tax Preparation

The State and Local Tax deduction lets you claim state and local income or sales tax back when you file your federal taxable income, helping you reduce your overall tax liability. It’s one of a number of deductions that can be claimed when you itemize your taxes. It’s especially helpful if you pay high local income taxes, or have made major purchases and want to reclaim your sales tax.

FreshBooks accounting software makes it easy to keep track of your income and expenditures so you can make the most of the SALT deduction. Try FreshBooks free to get started claiming your tax deductions today.

FAQs About Salt Tax Deduction

Browse frequently asked questions on SALT deduction limits, benefits, and more.

Is the SALT deduction limit permanent?

The current SALT deduction limit is set to expire in 2025. This doesn’t guarantee that the limit will disappear, but it does mean that the SALT deduction limit may change. You can elect to claim the standard deduction or itemize each year, so you can always reevaluate if the limit changes.

Is the SALT deduction available for married filing jointly?

Yes, married couples filing jointly are eligible to claim the SALT deduction. However, married couples filing separately are at a disadvantage for the deduction limit—single filers and married couples filing jointly can claim up to $10,000. In contrast, married couples filing separately can only claim $5,000 each.

What is the SALT cap for 2025?

The SALT deduction limit for 2025 has not yet been determined. The current SALT deduction cap is $10,000, or $5,000 for married couples filing separately. However, this cap is scheduled to expire at the end of 2025 unless Congress decides to extend or modify it.
Taxpayers affected by the SALT deduction cap should stay informed about any changes to the tax law and adjust their tax planning strategies accordingly. Keeping abreast of legislative updates will help ensure that taxpayers can optimize their deductions and minimize their tax liabilities.

Is mortgage interest included in SALT?

Mortgage interest is not included in the SALT deduction. However, mortgage interest is eligible to be claimed on Schedule A. FreshBooks accounting software helps you track and organize your expenses so you can claim all eligible deductions.

What is the SALT deduction limit for married filing jointly?

Married couples filing jointly are subject to the $10,000 SALT deduction limit. If a married couple files separately, they can each claim a maximum of $5,000. Therefore when it comes to SALT, there’s no advantage to filing either jointly or separately.

Can small business owners benefit from the SALT Deduction?

Yes, it can be beneficial for small business owners. Particularly if you are already itemizing your deductions, you can claim SALT to increase your overall deductions. SALT can also be beneficial for high-income taxpayers who have made large purchases with sales tax, or have paid high income tax and want to claim one of those back.

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