Posted by accounting byte
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The SALT tax deduction stands for the State and Local Tax deduction. It allows taxpayers who itemize their deductions to subtract certain state and local taxes they paid from their federal taxable income. SALT includes state income taxes, local income taxes, property taxes, and in some cases, state sales taxes (if you choose to deduct sales tax instead of income tax).
This deduction helps reduce your overall federal tax burden by lowering your taxable income. For example, if you paid significant property taxes on your home and state income taxes during the year, you may be able to deduct those amounts—subject to certain limits.
Under the Tax Cuts and Jobs Act (TCJA) of 2017, the SALT deduction is capped at $10,000 per year ($5,000 if married filing separately). This limit applies to the combined total of property taxes and state and local income or sales taxes. Even if you paid more than $10,000 in eligible taxes, you cannot deduct the excess amount on your federal return.
The cap has been a major topic of debate, especially for taxpayers living in high-tax states where property and income taxes are higher.
To claim the SALT tax deduction, you must itemize deductions on Schedule A of your federal tax return. If you take the standard deduction, you cannot also claim SALT. This means the deduction is most beneficial for homeowners and higher-income individuals whose total itemized deductions exceed the standard deduction threshold.
The SALT tax deduction can significantly lower taxable income for eligible taxpayers. However, due to the $10,000 cap, many households may not receive the full benefit they once did before 2018. Understanding how SALT works can help you plan property purchases, manage tax payments, and optimize your overall tax strategy.