What the Heck is the “SALT Cap”?

If you're left confused when someone talks about a "SALT cap," you're not alone. It might sound like some trendy new seasoning, but it's actually a tax term that could affect how much money you get to keep in your pocket. Let’s break it down so it’s easy to digest.

What’s the SALT Cap, Anyway?

SALT stands for State and Local Taxes. Usually, you can take an itemized deduction on your federal taxes for the state, local, and foreign taxes you’ve paid. This can include things like:

The $10,000 Limit

Now here’s the kicker: The SALT cap which was put in place as part of the Tax Cuts and Jobs Act (“TCJA”)  limits how much of these taxes you can deduct. As of now, you can only deduct a combined total of $10,000. If you’re married and filing separately, that limit drops to $5,000.

Taxes You Can’t Deduct

Not all taxes are created equal—at least in the eyes of the IRS. There are some taxes and fees that just won’t make the cut when it comes to deductions, including:

Why Does This Matter?

Before the SALT cap, you could deduct all these state and local taxes without a limit, which was a big help if you lived in a high-tax state. Now, with the $10,000 cap, some people are finding they owe more in federal taxes than they used to.

* It is important to note that TCJA ends in 2025, so the SALT cap is likely to change at this time. You can learn more about the SALT cap here.

Bottom Line

The SALT cap might not be the most exciting thing to talk about at dinner, but knowing how it works can help you make better financial decisions. Keep it in mind the next time you’re reviewing your tax situation—and be sure to consult with a tax professional, because tax rules and laws are alway changing!