SALT Deduction Cap

What it means

When you file your federal income taxes, you can choose to subtract what you paid in state and local taxes from your total income. This rule puts a cap on that deduction. For 2026, the maximum you can subtract is about $40,400.

However, this limit goes down if you earn a high income. Once you earn over $505,000, the amount you can subtract drops. It can fall all the way down to a $10,000 floor. Because stock awards often increase your yearly income, many employees find themselves stuck at that $10,000 limit.

A simple example

Imagine a person named Alex. Alex has a good year and earns $600,000. Alex paid $20,000 in state income taxes and $10,000 in property taxes, totaling $30,000. Because Alex's income is very high, the law reduces the amount they can subtract from their federal taxes. Instead of the full $30,000, Alex is limited to the lower $10,000 floor. This means Alex pays more in federal taxes than they might expect.

Why it matters to you

• High income from selling stocks or exercising options can push you into this lower deduction limit.
• You might pay more in federal income tax if you cannot deduct all the state taxes you paid.
• A tax professional can help you understand how your total income affects your specific deduction limit.

Common mistakes to avoid

• Assuming you can always deduct the full amount of property or state income tax you paid during the year.
• Forgetting that a large payout from stock, like a big RSU vest, could move you into a higher income bracket that triggers the lower deduction floor.

Words used on this page

• Deduction: An amount you are allowed to subtract from your total income to lower the taxes you owe.
• Income tax: A tax paid to the government based on the money you earn from your job or investments.
• Vest: The moment when stock or options officially become yours to keep or sell.
• RSU: A promise from your company to give you shares of stock once you work for them for a certain amount of time.