Real Estate Tax Calc
What changed
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, raised the federal SALT (state and local tax) deduction cap from $10,000 to a base of $40,000. Adjusted for inflation at 1 percent per year, the ceiling for the 2026 tax year is $40,400 — a fourfold increase from the limit that had applied since the 2017 Tax Cuts and Jobs Act.
The expanded cap covers the same types of taxes that have always qualified under Section 164: state income taxes (or state and local sales taxes, at your election), local income taxes, and real property taxes on property you own personally. The cap is scheduled to rise 1 percent per year through 2029, reaching roughly $40,804 in 2027 and $41,616 in 2029, then reverts to $10,000 in 2030 unless Congress extends it.
A phase-down applies for higher earners. Once your modified adjusted gross income (MAGI) exceeds $500,000, the additional benefit above the old $10,000 floor shrinks at 30 cents for every dollar of income above that threshold. The incremental benefit is fully phased out at approximately $600,000 of MAGI — at which point the effective cap returns to $10,000 for that taxpayer.
Why it matters to real estate investors
Real estate investors in high-tax states typically face SALT payments from two directions: property taxes on their personal residence and state income taxes on rental income and capital gains. Under the old $10,000 cap, many investors in states such as New York, New Jersey, California, Illinois, and Massachusetts had long since hit the ceiling, effectively losing the deduction on any state taxes above $10,000.
At $40,400, most itemizing investors in those states can now deduct a materially larger share of what they actually pay. An investor whose personal-residence property taxes are $12,000 and whose state income taxes on rental income total $15,000, for example, could previously deduct only $10,000 total; the new ceiling allows deducting the full $27,000 — a $17,000 increase that translates directly into lower federal taxable income.
One important clarification: the SALT cap does not apply to property taxes on rental or business properties. Those taxes are deductible in full on Schedule E (or Schedule C) as ordinary business expenses, outside the cap entirely. The SALT change is most meaningful for your personal-residence property taxes and state income taxes that would otherwise be bottlenecked on Schedule A.
The deduction is only available to taxpayers who itemize deductions. Because the OBBBA also increased the standard deduction, investors near the itemization threshold should verify with a CPA whether itemizing still produces a better result in 2026 before counting on the expanded SALT benefit.
What to do before year-end
Update your itemized-deduction projection. If you were capped at $10,000 in prior years, run a fresh estimate now. Total your personal-residence property taxes, state income taxes (or estimated Q4 state estimated payments due in January), and any local income taxes. Compare the revised Schedule A total against your standard deduction to confirm itemizing is the better choice for 2026.
Check whether the phase-down affects you. Investors with large rental portfolios, capital gains from property sales, and business income can accumulate MAGI well above $500,000. The SALT cap's incremental benefit above $10,000 starts to shrink once MAGI crosses that threshold and disappears by roughly $600,000. If a major property sale or 1031 exchange is on your calendar for late 2026, model how the resulting gain interacts with this phase-down.
Do not double-count rental property taxes. Property taxes on investment and rental properties belong on Schedule E — not Schedule A — and are not subject to any cap. The SALT change improves only your personal-side tax picture.
Plan for the 2030 sunset. The $40,000-base cap expires after 2029. Investors who plan to generate large capital-gains events or face elevated state income tax in 2030 or beyond should note that the deductibility benefit may not be available unless Congress extends the provision.
A worked example: how much the higher cap actually saves
Consider an investor in New Jersey filing jointly with $350,000 of MAGI in 2026. Their personal-residence property tax is $14,000 and their state income tax on wages and rental income totals $18,000, for $32,000 of combined SALT. Under the old $10,000 cap they could deduct only $10,000 on Schedule A. For 2026 the $40,400 ceiling applies in full because their income is below the phase-down threshold, so they deduct the entire $32,000 — an extra $22,000 of itemized deductions. At a 32 percent marginal federal rate, that additional deduction is worth roughly $7,040 in federal tax savings compared with the prior-law result.
Now raise the same couple’s MAGI to $550,000. The phase-down threshold for 2026 is $505,000 (the base $500,000 is itself indexed 1 percent per year), so they are $45,000 over the line. The phase-down reduces the amount of cap above the old $10,000 floor by 30 cents per dollar: 30 percent of $45,000 is $13,500. Their effective cap falls from $40,400 to $26,900 ($40,400 minus $13,500), never below the $10,000 floor. With $32,000 of SALT they can now deduct $26,900 rather than the full amount — still far more than the old $10,000, but reduced by the phase-down.
The spread between the full cap and the $10,000 floor for 2026 is $30,400. Because the phase-down removes that spread at 30 cents on the dollar, it is fully exhausted once MAGI reaches about $606,333 for joint filers — above that point the effective cap is back to $10,000. The practical lesson: the higher cap is most valuable to investors with meaningful state taxes and MAGI under roughly $505,000, and its value erodes steadily across the $505,000–$606,000 band.
The pass-through entity tax (PTET) workaround still matters
Many states enacted a pass-through entity tax (PTET) after 2017 specifically to sidestep the SALT cap. The idea: a partnership or S corporation elects to pay the state income tax at the entity level, deducts it as an ordinary business expense (which is not subject to the SALT cap), and passes a credit or income exclusion through to the owners on their state returns. The federal deduction happens before income reaches the individual Schedule A, so the $40,400 cap never applies to it.
An earlier version of the OBBBA would have curtailed PTET benefits for certain service businesses, but the enacted law dropped that limitation — the PTET workaround survives intact for 2026 and beyond. For real estate investors who hold rental or commercial property inside a partnership or S corporation, this can be far more powerful than the expanded Schedule A cap, because it is not phased down at higher incomes and does not expire with the 2030 SALT sunset.
The catch is that PTET rules vary widely by state: not every state offers the election, the mechanics and deadlines differ, and the election is often irrevocable for the year once made. Rental activities must generally be operated as a trade or business through an eligible entity to qualify. Because the interaction of entity-level tax, owner-level credits, and your personal SALT position is genuinely complex, confirm the details with a CPA before relying on PTET for a given property.
Watch the alternative minimum tax (AMT)
State and local taxes are not deductible when you compute the alternative minimum tax — they are added back to arrive at alternative minimum taxable income. A taxpayer who lands in AMT therefore captures little or none of the expanded SALT benefit, no matter what the regular-tax Schedule A shows.
This matters more in 2026 because the OBBBA tightened the AMT exemption phase-out beginning that year, reducing the income level at which the exemption starts to disappear and steepening the phase-out rate. The effect is that more high-income households can be pulled back into AMT. If you are a high earner in a high-tax state — exactly the profile the larger SALT cap is meant to help — run both a regular-tax and an AMT projection before assuming the full deduction will stick.
Step by step: estimating your 2026 SALT deduction
First, total only your personal state and local taxes: property tax on your primary residence and any second home you use personally, plus state and local income taxes (or state and local sales taxes if you elect that instead). Exclude every property tax that belongs on Schedule E or Schedule C — those are deducted separately and are not part of this calculation.
Second, compare that total against your filing status’s cap: $40,400 for most filers in 2026. Third, if your MAGI exceeds $505,000, apply the phase-down — subtract 30 percent of the excess over $505,000 from the cap, but not below $10,000 — to find your effective ceiling. Fourth, add your capped SALT figure to your other Schedule A items (mortgage interest, charitable gifts) and compare the itemized total to your standard deduction. You claim the SALT deduction only if itemizing beats the standard deduction for the year.
Common mistakes to avoid
Putting rental property taxes on Schedule A. Property taxes on rentals and other investment or business real estate belong on Schedule E (or Schedule C), where they are fully deductible with no cap. Moving them to Schedule A both understates your rental deductions and wastes cap space.
Assuming the cap is a flat $40,000. The figure is indexed — $40,400 for 2026 — and both the cap and the $505,000 phase-down threshold rise about 1 percent each year through 2029. Using last year’s number can misstate your deduction.
Ignoring the phase-down until it is too late. A large property sale, a big capital gain, or a strong income year can push MAGI past $505,000 and quietly shrink the deduction. Model the income event and the SALT effect together, before year-end, not at filing time.
Forgetting that AMT can erase the benefit. As above, SALT is added back for AMT, so a deduction that looks large on the regular return may deliver little actual savings for a taxpayer in AMT.
Married filing separately and other filing nuances
Married taxpayers who file separately get half of the joint figures: roughly a $20,200 cap for 2026 and a $252,500 phase-down threshold, each indexed on the same schedule. Spouses cannot both claim the full cap by filing apart, so couples in high-tax states should compare joint versus separate outcomes carefully.
The SALT cap applies per return, so it is an individual-level limit — it does not stack across the multiple entities an investor may own. Taxes paid by a trust or estate follow their own rules on the fiduciary return. And because the expanded cap, the phase-down, and the AMT changes all interact, investors with substantial state taxes and fluctuating income are the group most likely to benefit from a professional projection rather than a rule of thumb.
Frequently asked questions
Does the higher SALT cap help with taxes on my rental properties?
Indirectly, yes — but not in the way many assume. Property taxes on rental and business properties are already fully deductible on Schedule E, outside the SALT cap. What the higher cap helps with is your personal-residence property taxes and state income taxes on your individual return. If those costs were previously capped at $10,000, you can now deduct up to $40,400 on a 2026 Schedule A.
When does the $40,400 SALT cap expire?
The elevated cap runs through the 2029 tax year, rising 1 percent per year (to approximately $40,804 in 2027, $41,212 in 2028, and $41,624 in 2029). Under the One Big Beautiful Bill Act's sunset provision, the cap reverts to $10,000 in the 2030 tax year unless Congress passes new legislation to extend it.
Can I use a pass-through entity to get around the SALT cap?
Often, yes. Most states that enacted a pass-through entity tax (PTET) still let a partnership or S corporation pay state income tax at the entity level and deduct it as a business expense, outside the SALT cap entirely. The final OBBBA preserved this workaround — an earlier proposal to limit it for service businesses was dropped. For investors holding rental or commercial property in an eligible entity, PTET can beat the Schedule A cap because it is not phased down at higher incomes and does not expire in 2030. Rules vary by state and the election is often irrevocable, so confirm the mechanics with a CPA.
Does the SALT cap help if I am subject to AMT?
No. State and local taxes are added back when you compute the alternative minimum tax, so a taxpayer in AMT captures little or none of the expanded SALT benefit regardless of the regular-tax Schedule A result. Because the OBBBA tightened the AMT exemption phase-out starting in 2026, more high-income investors in high-tax states could be pulled into AMT. Run both a regular-tax and an AMT projection before counting on the full deduction.
What is the SALT cap for married filing separately in 2026?
Married taxpayers filing separately get half the joint amounts — roughly a $20,200 cap for 2026 with a phase-down threshold near $252,500, both indexed on the same 1-percent annual schedule. Filing separately does not let each spouse claim the full $40,400, so couples in high-tax states should compare the joint and separate results before deciding.
Is the $500,000 phase-down threshold the same every year?
No. The threshold starts at $500,000 for 2025 and is indexed upward about 1 percent per year alongside the cap itself, so it is $505,000 for 2026. For a joint filer in 2026 the expanded benefit phases out completely — returning the effective cap to $10,000 — once MAGI reaches roughly $606,333.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.