State Tax Cap Planning (SALT)
- Typical userHigh earners in high-tax states
- IRS scrutinyGreen
- Sponsors0
Overview
Planning around the federal cap on state and local tax deductions, including pass-through entity tax elections.
IRS scrutiny
Widely used and generally accepted when the rules are followed.
Rules, risks and sources
Key rules
SALT cap (§164(b)(7)): $40,000 for 2025, $40,400 for 2026, +1%/yr through 2029, reverting to $10,000 in 2030; reduced by 30% of MAGI over $500,000 (2025) / $505,000 (2026), but not below $10,000. PTET: IRS Notice 2020-75 allows entity-level deduction of specified income tax payments; availability, deadlines and credits are state-specific.
Primary sources
- 26 U.S.C. §164(b)(6)-(7) as amended by P.L. 119-21 §70120 (LII)
- IRS Notice 2020-75 (state/local PTET payments deductible at entity level; not counted against owners' SALT cap)
Facts checked 2026-10-20.
Common questions
What is the SALT deduction cap for 2026?
$40,400, reduced by 30% of modified adjusted gross income above $505,000, but not below $10,000. The cap rises 1% a year through 2029 and returns to $10,000 in 2030.
Source: 26 U.S.C. §164(b)(7)
How does a pass-through entity tax election help?
Under IRS Notice 2020-75, state income tax paid by a partnership or S corporation is deducted by the entity and is not counted against the owners' SALT caps. Whether an election is available, and its deadlines and credits, depend on the state.
Source: IRS Notice 2020-75
Sponsors that offer this strategy
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Advisors who offer this strategy
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