Federal Tax Code Updates Shift SALT Deduction Rules
The 2026 tax year brings a higher $40,400 state and local tax deduction cap following the One Big Beautiful Bill Act.
Updated on Oct. 30, 2026 in Taxes
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Enacted in July 2025, the One Big Beautiful Bill Act increased the state and local tax (SALT) deduction cap to $40,400 for the 2026 tax year. This federal change introduces new income-based phaseouts and complicates tax planning for many households.
Why it matters
The cap is designed to phase down for taxpayers with modified adjusted gross income exceeding $505,000, creating new hurdles for high-income earners. Additionally, many states are increasingly decoupling from federal tax laws to protect their own revenue streams.
The 2026 SALT deduction cap is set at $40,400, while non-itemizers can now deduct $1,000 in cash charitable gifts for individuals or $2,000 for joint returns. These figures apply until the cap is scheduled to revert to $10,000 after 2029.
The players
One Big Beautiful Bill Act
This federal legislation, P.L. 119-21, modified tax provisions under IRC § 164(b)(7) and IRC § 170(p) to adjust SALT deductions and charitable giving incentives.
The details
Taxpayers can leverage strategies like donor-advised funds to bunch charitable contributions into a single year or sell mutual funds before distributions to avoid taxable capital gains. Increased state-level decoupling from federal rules, such as in Michigan, further complicates year-end planning for residents.
Timeline
The One Big Beautiful Bill Act was enacted in July 2025.
The new SALT cap applies to the 2026 tax year.
December 2026 is the recommended period for fourth-quarter state tax payments.
The deadline for fourth-quarter state and local taxes is January 15, 2027.
The SALT cap is scheduled to revert to $10,000 after 2029.
Market Dynamics
This policy change updates the SALT deduction framework established by the Tax Cuts and Jobs Act of 2017. The new provisions mark a departure from the long-standing $10,000 limit, reflecting a shift in how federal law addresses state and local taxation burdens.
Taxpayers should evaluate whether their modified adjusted gross income exceeds the $505,000 threshold to determine if their SALT deduction will be phased down. Consulting a tax professional regarding state-specific decoupling is essential to managing year-end liability.
The takeaway
Tax planning requires increased attention due to the interaction between federal increases and state-level decoupling. Households should consider bunching charitable gifts or managing mutual fund distributions to maximize potential deductions before the 2029 cap reversion.
Further reading
For more on evolving filing requirements, visit our guide on Taxes.
Source note: This article includes information reported by Thomson Reuters.
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