Property Tax Deduction (SALT)
$10,000 cap on state and local taxes - what you need to know
🚨 $10,000 SALT Cap (2018-2025)
Since 2018, you can only deduct $10,000 total for ALL state and local taxes combined:
- • Property tax (real estate)
- • State income tax (or sales tax)
- • Personal property tax (vehicles)
Even if you paid $30,000 in property + state income tax, maximum deduction = $10,000
How SALT Cap Works
Example 1: Cap Applies
- Property tax: $12,000
- State income tax: $8,000
- Total SALT paid: $20,000
- SALT deduction allowed: $10,000 (capped)
- Lost deduction: $10,000 (can't deduct)
Example 2: Under Cap
- Property tax: $4,500
- State income tax: $3,200
- Total SALT paid: $7,700
- SALT deduction allowed: $7,700 (full amount)
- Room left: $2,300 (but can't use for anything else)
Example 3: Choose Wisely
- Property tax: $8,500
- State income tax: $6,000
- State sales tax paid: $2,800
- Best strategy: Deduct property ($8,500) + income tax ($1,500) = $10,000
- Can't deduct sales tax AND income tax (choose higher)
What Counts as Property Tax?
✅ Deductible
- ✓ Real estate property tax on primary home
- ✓ Real estate tax on vacation home/rental property
- ✓ Property tax on vacant land
- ✓ Foreign real estate taxes
- ✓ Personal property tax on vehicles (if value-based)
- ✓ State/local income tax withheld
- ✓ State estimated tax payments
- ✓ Mandatory state disability insurance (CA SDI, etc.)
❌ Not Deductible
- ✗ HOA fees (homeowners association)
- ✗ Transfer taxes (when buying/selling home)
- ✗ Service charges (trash, sewer, water - unless based on property value)
- ✗ Special assessments for improvements (sidewalks, streets - add to basis)
- ✗ Federal taxes (income, estate, gift)
- ✗ Vehicle registration fees (unless value-based portion)
State Income Tax vs Sales Tax
You must choose to deduct either state income tax OR sales tax (not both). Most people choose income tax because it's higher.
| Situation | Choose | Why |
|---|---|---|
| Normal income year | State income tax | Usually higher amount |
| Low/no income year | Sales tax | May be higher if you spent a lot |
| Live in no-income-tax state (TX, FL, WA, etc.) | Sales tax | Only option |
| Bought car/boat/RV | Sales tax | Big-ticket sales tax may exceed income tax |
Use IRS Sales Tax Calculator or state tables (IRS Schedule A instructions) to estimate sales tax deduction.
SALT Cap Impact by State
$10,000 cap hurts most in high-tax states:
High-Tax States (Cap Hurts Most)
- • California: 13.3% top rate + high property tax
- • New York: 10.9% state + NYC 3.876%
- • New Jersey: 10.75% + highest property tax in US
- • Connecticut: 6.99% + high property tax
- • Oregon: 9.9% top rate
- • Minnesota: 9.85%
- • D.C.: 10.75%
- • Hawaii: 11%
Typical loss: $5k-$20k in deductions
Low-Tax States (Cap Less Impact)
- ✓ No income tax: TX, FL, WA, NV, TN, SD, WY, AK, NH
- ✓ Low rates + low property tax
- ✓ Often stay under $10k cap
Geographic arbitrage: Moving CA→TX saves $8k-$15k annually
⏰ SALT Cap Expiration: 2026
The $10,000 SALT cap is set to expire December 31, 2025 (part of Tax Cuts and Jobs Act sunset).
After 2025: Full deduction of SALT returns (no cap) unless Congress extends the limit.
Stay tuned: Congress may extend cap or make it permanent. Check for updates in late 2025.
Prepaying Property Tax
Pre-2018 Strategy (No Longer Works)
Before SALT cap, people prepaid next year's property tax in December to get extra deduction. IRS now prohibits this - can only deduct taxes for current year.
Exception: Assessment Received
You CAN prepay if you've received the assessment. Example: November assessment for 2025 tax year, paid in December 2024 = deductible in 2024.
⚠️ Don't Bother If Already at Cap
If you're already at $10,000 SALT limit, prepaying property tax doesn't help (can't exceed cap anyway).
Workarounds & Planning Strategies
1. Pass-Through Entity Tax (PTET)
If you own S-corp or partnership, some states allow business to pay state tax (deductible at entity level, bypasses SALT cap). Check if your state offers PTET election. Available in: CA, NY, CT, and 30+ other states.
2. Home Office Deduction
If self-employed with home office, that portion of property tax goes on Schedule C (not subject to SALT cap). Only works for legitimate business use.
3. Charitable Property Tax Donations
Some states allow "pay property tax to charity" programs (they pay government). IRS has challenged these - risky strategy, consult tax pro.
4. Consider Moving (Seriously)
If you're paying $30k+ in SALT and only deducting $10k, moving to low-tax state saves thousands annually. Especially impactful for retirees and remote workers.
5. Time Income to Low-Tax Years
Defer income to year after moving to low-tax state. Or accelerate deductions into high-tax-state years.
Property Tax Assessment Appeals
If your property is overvalued, appeal to lower your tax bill:
- Get comparable sales: Find recent sales of similar homes that sold for less
- Review assessment: Check for errors (wrong square footage, features you don't have)
- File appeal: Deadline typically 30-90 days after assessment notice
- Attend hearing: Present your evidence to assessment board
- Hire appraiser if needed: Professional appraisal strengthens case ($300-$500)
Success rate: 50-60% of appeals result in reduced assessment. Average savings: $500-$2,000/year.