SALT Cap 2026: The $40,400 Limit and the NJ and NY PTE Tax Fix

The SALT cap for 2026 is $40,400. SALT stands for state and local taxes: the property, state income (or sales) and local taxes you can deduct on your federal return if you itemize. The One, Big, Beautiful Bill Act raised the old $10,000 limit, which matters most in high-tax states like New Jersey and New York. But the new limit shrinks at higher incomes, and the timing of your payments decides which year they count in.

What is the SALT deduction limit for 2026?

For 2026 the limit is $40,400, or $20,200 if you're married filing separately. The IRS confirmed these figures in a correction to the 2026 Form 1040-ES, which had printed last year's $40,000. The higher limit applies to tax years 2025 through 2029. Under current law it returns to $10,000 starting in 2030.

One point people miss: the cap only helps if you itemize. For 2026 the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers. If your SALT, mortgage interest and charitable gifts together don't beat that, you'll take the standard deduction and the cap won't matter to you.

The SALT deduction phase-down over $505,000

If your modified adjusted gross income (MAGI, which for most people is close to the AGI on your return) is above $505,000 ($252,500 married filing separately), the limit is reduced by 30% of the amount over that line. It never goes below $10,000 ($5,000 married filing separately).

The limit hits the $10,000 floor at about $606,333 of MAGI. Between $505,000 and that point, each extra $1,000 of income costs you $300 of deduction, so deferring a bonus or timing a large capital gain can matter more than usual.

Should I itemize in 2026? Year-end moves before Dec. 31

1. Add up your 2026 taxes. Property tax, state and local income tax withheld from pay, and state estimated payments. In New York City, the city's resident income tax counts too.
2. Pay what's due before year-end. Taxes count in the year you pay them. If you're under the cap and itemizing, paying your fourth-quarter state estimate in December instead of January moves that deduction into 2026.
3. Prepay property taxes before year-end only if they're assessed. The IRS lets you deduct prepaid property tax only if it was assessed in the year you pay it. Paying a 2027 bill that your town hasn't assessed yet doesn't count for 2026.
4. Don't overshoot. Anything above your limit is simply lost. If you're already at $40,400 (or your reduced cap), prepaying more does nothing.

The workaround for business owners: New Jersey BAIT and New York PTET

Partnerships and S corporations can elect to pay state income tax at the entity level. Under IRS Notice 2020-75, the business deducts that tax, and it doesn't count against any owner's personal SALT cap. The owners then generally claim a credit on their state returns. For owners whose cap has fallen to $10,000, this is often the bigger saving.

New Jersey (BAIT). Partnerships and S corporations with at least one owner who pays New Jersey Gross Income Tax can elect the Pass-Through Business Alternative Income Tax. The New Jersey BAIT election is made electronically by the original due date of the PTE-100 return, which is March 15, 2027 for calendar-year entities electing for 2026. It can't be made retroactively, and single-member LLCs and sole proprietors can't elect.

New York (PTET). The New York PTET election works differently: you elect for the year ahead. The window for 2027 runs Jan. 1 to March 15, 2027, and late elections aren't accepted, even for newly formed businesses. The 2026 window has already closed. The New York City PTET uses the same election window, for businesses that also elect the state PTET.

Whether either election pays off depends on how many owners you have, where they live, and what credits they can use, so run the numbers before you elect.

Related reading: Year-end tax planning 2026: 4 dates that can still lower your tax bill and NJ property tax relief: ANCHOR, Stay NJ and Senior Freeze. For help with your own numbers, see our tax planning and preparation services.