Tax
SALT Cap (State and Local Tax Deduction Cap)
The $10,000 federal cap on the individual itemized deduction for state and local taxes (income, property, and sales combined), introduced by the 2017 Tax Cuts and Jobs Act. Materially reduces the deductibility of state taxes for high-income residents of high-tax states.
The SALT cap was introduced by the 2017 Tax Cuts and Jobs Act (TCJA), which limited the federal itemized deduction for state and local taxes to $10,000 per year per return (or $5,000 for married-filing-separately). The $10,000 is a combined cap covering (1) state and local income tax OR general sales tax, whichever the taxpayer elects, plus (2) real property tax, plus (3) personal property tax. Before the cap, high-tax-state residents routinely deducted $30,000, $50,000, or more; the cap wiped out the excess.
The cap primarily bites in California, New York, New Jersey, Connecticut, Massachusetts, Illinois, and other high-tax states where a household earning $250K+ typically pays state income tax well into five figures on top of substantial property tax. For a California household earning $500K, the SALT cap can eliminate $30,000 to $50,000 of previously-deductible state tax, worth $10K to $20K in federal tax at their bracket.
States responded with PTET (pass-through entity tax) elections. The mechanic: instead of the individual paying state tax and hitting the $10,000 cap, the passthrough entity (S-corp, partnership, LLC) pays state tax at the entity level, which is fully deductible against federal income at the entity — bypassing the individual cap entirely. The individual then takes a credit against their state personal return for what the entity paid. Roughly 35 states with income tax now offer PTET; the mechanics, deadlines, and rates vary state by state.
The cap was scheduled to sunset after 2025 alongside other TCJA individual provisions, but the One Big Beautiful Bill Act (OBBBA) extended it. Its long-term future depends on future tax legislation. For most high-income households in high-tax states, PTET is the correct workaround where available, and modeling it before electing is essential — the math depends on federal bracket, state tax rate, and the mix of business vs personal income.
Common pitfalls
- Assuming property tax on a second home stacks separately — the $10,000 cap covers all state and local tax combined, not per-category
- Missing the state PTET election deadline; each state has its own timing (California's PTET prepayment is due June 15 of the year BEFORE the election year)
- Electing PTET without modeling the math — for owners whose state tax is already close to $10,000, the benefit is small
- Assuming an out-of-state resident escapes the cap on income sourced to a high-tax state; they typically still owe non-resident state tax subject to the same cap
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Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.