Contents

• Introduction
• Overview
• History
• Major Components
• Deduction for Real Estate Property Taxes
• Analysis
• Deduction for Income Taxes
• Analysis
• Deduction for Sales and Use Taxes
• Explanation
• Analysis
• Distribution of Activity
• By State and Locality
• By Income Level
• Related Policy Options
• Eliminate the SALT Cap for Some or All Taxpayers
• Raise the SALT Cap
• Modify SALT Cap Changes Across Filing Statuses
• Eliminate Sales and Use Tax Deductibility
• Restrict SALT Deduction Effects on Tax Liability

Summary

Under current law, taxpayers who itemize their deductions can deduct state and local real estate taxes, personal property taxes, income taxes, and sales taxes (in lieu of income taxes) from federal income when calculating taxable income. This federal deduction for state and local taxes (the SALT deduction) shifts the burden for part of these state and local taxes to the federal government through lower tax collections. In assessing taxpayer acceptance, economic theory would suggest that due to the SALT deduction taxpayers are willing to accept higher state and local tax collections because their federal tax deduction mitigates the net effect of such increases. In studies on usage, there is some evidence that state and local governments rely more on these deductible taxes than on nondeductible taxes and fees for services. In examining claimant income, the SALT deduction benefits are disproportionately claimed by high-income taxpayers and taxpayers in areas with high state and local tax rates.

The 2017 tax revision (commonly referred to as the Tax Cuts and Jobs Act [TCJA]; P.L. 115-97) made a number of changes to the SALT deduction. Most notably, the TCJA established a limit, or "SALT cap," on the amounts claimed as SALT deductions, initially scheduled for tax years 2018 through 2025. The SALT cap was $5,000 for married taxpayers filing separately and $10,000 for all other taxpayers. The TCJA also temporarily eliminated the ability to claim real foreign property taxes as a SALT deduction.

P.L. 119-21, the FY2025 reconciliation tax law (commonly referred to as the One Big Beautiful Bill Act [OBBBA]), modified the SALT cap and made it a permanent part of the tax code. For tax year 2025, those changes include (1) increasing the cap to $40,000 for most filers with incomes below $500,000; and (2) lowering the cap for higher-income taxpayers, so that most filers with incomes of $600,000 or greater are subject to a cap of $10,000. Tax years 2026 through 2029 retain that cap structure, with annual 1% increases to the relevant income thresholds. The SALT cap is then scheduled to revert to $10,000 for all taxpayers for tax years after 2029. The OBBBA also made permanent the elimination of real foreign property taxes as an eligible SALT deduction.

The changes enacted in the OBBBA and TCJA have considerably affected SALT deduction activity. The increased value of the standard deduction (roughly doubling from its pre-TCJA value), along with increased limitations on SALT and other itemized deductions, have significantly reduced the number of SALT deduction claims relative to pre-TCJA levels. The Joint Committee on Taxation (JCT) projects that the percentage of returns claiming a SALT deduction will decline from 31% in 2017 (the last year without a SALT cap) to 12% in tax year 2025.

Recent Congresses and Administrations have considered a variety of changes to the SALT deduction in recent years, including eliminating or reducing the SALT cap, raising and extending the SALT cap, eliminating SALT deduction claims for sales taxes, and capping the effect of SALT deductions on tax liability. Limiting the SALT deduction could result in state and local public spending declines, as the SALT deduction effectively makes the federal government "pay for" a portion of state and local taxes. The magnitude of any such decline would be uncertain. Limiting the SALT deduction could also shift some of the federal tax burden away from taxpayers in low-tax states and low-income taxpayers to taxpayers in high-tax states and high-income taxpayers. Expanding SALT deduction benefits could have the opposite effect, placing a greater burden on low-income taxpayers and taxpayers in low-tax states.

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Introduction

Federal deductibility of state and local taxes (the "SALT deduction") is one of the principal ways federal, state, and local tax systems interact. Generally, individual taxpayers who itemize deductions are allowed to deduct real and personal property taxes, state and local income taxes, and sales taxes (in lieu of income taxes) paid from federal taxable income.

The 2017 tax revision (commonly referred to as the Tax Cuts and Jobs Act [TCJA]; P.L. 115-97) made a number of changes to the SALT deduction. Most notably, the TCJA established a limit, or "SALT cap," on the amounts claimed as SALT deductions, initially scheduled for tax years 2018 through 2025. That SALT cap was set to $5,000 for married taxpayers filing separately and $10,000 for all other taxpayers.

P.L. 119-21, the FY2025 reconciliation tax law (commonly referred to as the One Big Beautiful Bill Act [OBBBA]), made the SALT cap permanent and made additional modifications for tax years 2025 through 2029. For tax year 2025, the cap is set to (1) $40,000 for most filers with incomes below $500,000; and (2) $10,000 for most filers with incomes of $600,000 or greater. Tax years 2026 through 2029 retain that cap structure, with annual 1% increases to the relevant income thresholds. The SALT cap is then scheduled to revert to $10,000 for taxpayers of all incomes for all future tax years starting in 2030.

The changes enacted in the OBBBA and TCJA have considerably affected SALT deduction claims activity. The increased value of the standard deduction (roughly doubling from its pre-TCJA value), along with increased limitations on SALT and other itemized deductions, have significantly reduced the number of SALT deduction claims relative to pre-TCJA levels. The Joint Committee on Taxation (JCT) projects that the percentage of returns claiming a SALT deduction will decline from 31% in 2017 (the last year without a SALT cap) to 12% in tax year 2025.

This report summarizes the history of the SALT deduction, reviews each type of eligible state and local tax, and briefly discusses SALT deduction issues of potential interest to Congress.

Overview

Generally, through the SALT deduction, taxpayers may deduct certain state and local taxes paid from income for income tax purposes. Individual taxpayers must itemize deductions, rather than use the standard deduction, on their income tax return to claim the deduction for state and local taxes paid. Business taxpayers, in contrast, generally may deduct state and local taxes as a cost of doing business.

The federal tax savings from the SALT deduction equals the taxpayer's marginal tax rate multiplied by the size of the deduction. Because the federal income tax rate regime is progressive and high-income filers are more likely to itemize, an itemized deduction favors taxpayers in higher income tax brackets.¹ For example, the JCT projects that 78% of all benefits from the SALT deduction will accrue to individuals with adjusted gross incomes of $200,000 and more in tax year 2025.²

The SALT deduction could allow state and local governments to levy more taxes than they otherwise could, as it effectively offsets some of any tax increase. This system represents a form of transfer, however indirect, from the federal government to state and local governments. By limiting the deduction's benefits, the SALT cap increases the cost (or "price") of state and local taxes for affected taxpayers exceeding that limit. For example, for an itemizing taxpayer with a 35% marginal tax rate and $12,000 in eligible SALT payments, the true net price of those taxes, after accounting for the federal SALT deduction but without a SALT cap, is $7,800 (or $12,000*[1-0.35]). With the same tax situation but a $10,000 SALT limitation, the cost of those taxes to the taxpayer rises to $8,500 (or $2,000 + $10,000*[1-0.35]). Research has found that state and local governments respond to changes in the SALT deduction with shifts in their own tax and spending practices.³

History

The deduction from federal income for state and local taxes paid originates from the Revenue Act of 1913, which included a provision that allowed the deduction for "all national, State, county, school and municipal taxes paid within the year, not including those assessed against local benefits."⁴ State sales taxes, however, were not introduced until 1932, and a deduction for those taxes for individuals was not explicitly stated in the tax code until passage of the Revenue Act of 1942 (P.L. 77-753). The deductibility provision was frequently modified over the years, including by the introduction of the standard deduction in lieu of itemizing deductions in 1944, but significant revision did not occur until 1964 with enactment of the Revenue Act of 1964 (P.L. 88-272).

Before the 1964 act, a deduction was allowed for all state and local taxes paid or incurred within the taxable year except those taxes explicitly excluded. After the 1964 act, only taxes explicitly mentioned were deductible. Included in the list of deductible taxes were state and local taxes on real and personal property; income taxes; general sales taxes; and taxes on the sale of gasoline, diesel fuel, and other motor fuels. A new subsection in the 1964 act spelled out the test for deductibility of general sales taxes. First, the tax must be a sales tax (a tax on retail sales), and second, it must be general, that is, imposed at one rate on the sales of a wide range of classes of items. "Items" could refer either to commodities or services.

The deductibility provision remained largely unchanged until the deduction for sales taxes was repealed by the Tax Reform Act of 1986 (TRA 1986; P.L. 99-514). One of the primary goals of TRA 1986 was to broaden the base of the federal income tax. Eliminating the deduction for all state and local taxes paid was one of the policy options considered to broaden the tax base. The final version of TRA 1986 repealed the deduction for general sales taxes but preserved the deduction for ad valorem property taxes and income taxes. The JCT summary of TRA 1986 suggested that Congress chose to repeal the sales tax deduction, and not the deduction for income or property taxes, because

• only general sales taxes were deductible and not selective sales taxes (e.g., tobacco and alcohol taxes), which created economic inefficiencies arising from individuals changing consumption patterns in response to differential taxation;
• the deduction was not allowed for taxes paid at the wholesale level (and passed forward to the consumer, such as for the gasoline tax), thus creating additional inequities and inefficiencies;
• the sales tax deduction was administratively burdensome for taxpayers who chose to collect receipts to justify sales tax deduction claims; and
• the alternative sales tax deduction tables—which calculated the amount of sales taxes that could be a deduction as a function of basic filer characteristics—generated by the Internal Revenue Service (IRS) did not accurately reflect individual consumption patterns, thereby diminishing the equitability of the tax policy.⁵

The American Jobs Creation Act of 2004 (AJCA 2004; P.L. 108-357) reinstated deductible sales tax in lieu of income taxes.⁶ This meant taxpayers had the option of deducting either their state and local sales taxes or income taxes, in contrast to the "in addition to" treatment in pre-TRA 1986 tax law. The concerns noted above still held. A secondary concern—presented during the debate before the repeal of sales tax deductibility in 1986—that states would alter their tax structures in response to the elimination of sales tax deductibility, would not arise. The AJCA 2004 sales tax deductibility provision expired after the 2005 tax year but was extended on multiple occasions: through 2007 by the Tax Relief and Health Care Act of 2006 (P.L. 109-432); through the 2009 tax year by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343); through the 2011 tax year by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312); through the 2013 tax year by the American Taxpayer Relief Act (P.L. 112-240); and through the 2014 tax year by the Tax Increase Prevention Act of 2014 (P.L. 113-295). The Consolidated Appropriations Act, 2016 (P.L. 114-113), permanently incorporated the deduction of state and local sales taxes in lieu of state and local income taxes into the tax code.

The TCJA established a temporary limit, or "SALT cap," on annual SALT deduction claims for tax years 2018 through 2025. In each of those years, the limit was set to $5,000 for married individuals filing separately and $10,000 for all other taxpayers. By limiting the amount of the SALT deduction, the SALT cap increases the tax liability of certain taxpayers, which increases federal tax revenues relative to what otherwise would have been collected. The SALT cap's effect on tax liability varies significantly with taxpayer income and with state and local tax rates. For more detailed information on the SALT cap, see CRS Report R46246, The SALT Cap: Overview and Analysis. The TCJA also prohibited SALT deduction claims on taxes paid on foreign real property for tax years 2018 through 2025.

The TCJA made a number of other changes to the tax code with indirect effects on SALT deduction activity. Most notably, it roughly doubled the value of the standard deduction, which reduced the number of itemizers who are therefore eligible to claim a SALT deduction. The TCJA also limited the value of several other itemized deductions, which further discourages itemized filing and reduces SALT deduction eligibility. As with the direct SALT changes, these indirect modifications are effective for tax years 2018 through 2025 only.

Following enactment of the TCJA, several state governments changed their tax codes to lower their residents' SALT cap exposure. For example, certain states enacted laws that provided taxpayers a credit against state taxes for "charitable donations" to state entities. The IRS subsequently issued a final ruling that eliminated the ability of such laws to reduce exposure to the SALT cap.⁷

Other state actions to provide a so-called "pass-through work around" were determined to be more effective in reducing SALT cap exposure. The SALT cap does not limit SALT deductions associated with the carrying on of a trade or business, and thus taxpayers whose SALT tax payments are associated with pass-through business income (including income from S corporations and partnerships) may not be subject to the SALT cap in the same manner as other individual income tax payments.⁸ Certain state governments have adjusted for this activity by enacting laws that levy or raise taxes on the pass-through business entity itself that are offset (holding total tax rates constant) by tax reductions or tax credits applied to individual income liability for pass-through business owners subject to the tax increase.

IRS regulations issued in November 2020 clarified that pass-through entity businesses may claim SALT deductions in states where the tax burden is shifted from individual owners to the business entity, essentially excluding such income from the $10,000 limitation for affected individual owners.⁹ A 2026 review of state activity indicates that 38 of the 42 states with pass-through entity income taxes had enacted legislation limiting the SALT cap exposure of such tax payments.¹⁰

P.L. 119-21, the FY2025 reconciliation tax law, made additional modifications to the SALT cap, making some version of the cap permanent law by establishing a larger SALT cap for taxpayers with incomes below a certain threshold. All cap and income thresholds apply to all taxpayers except married taxpayers filing separately, whose comparable values are half of the totals listed unless otherwise noted. For tax year 2025, OBBBA set the SALT cap to

1. $40,000 for filers with modified adjusted gross incomes (MAGIs) below $500,000; and

2. (lowering the cap for filers with MAGIs greater than $500,000) the greater of:

(i) $40,000 less 30% of the amount by which the filer's adjusted gross income exceeds $500,000; or

(ii) $10,000.

Tax years 2026 through 2029 retain the 2025 cap structure, with annual 1% increases applied to the relevant income thresholds. The OBBBA also made the elimination of real foreign property taxes as an eligible SALT deduction (temporarily provided for by the TCJA) permanent law.

Major Components

Table 1 tracks the percentage of returns with itemized deductions and various SALT deductions from 1986 through 2023. 1986 tax return data reflect the last year that taxpayers could claim both income and sales taxes paid, with the latter tax being included on 97% of all returns with a SALT deduction. More taxpayers would claim a sales tax deduction because all but five states imposed a sales tax and, in contrast to property taxes, paying the tax is not conditioned on owning property, real or personal. The elimination of the sales tax option in TRA 1986 is reflected in the 2003 data, which also saw a small decline in the overall share of tax returns with any SALT deduction claimed. 2017 tax returns included the reinstatement of a sales tax deduction but only in lieu of income taxes, which is why returns 2017 and 2023 have shares of income tax claims and sales tax claims that combine to represent nearly all SALT claimants.

As shown in Table 1, far fewer taxpayers itemized deductions after enactment of the TCJA—9% in 2023 versus 31% in 2017. This shift was caused both by an increase in the appeal of the standard deduction, which the TCJA roughly doubled for tax years 2018 through 2025, and an overall decline in the net appeal of itemized deductions, including the imposition of the SALT cap over the same time frame. As in earlier years, nearly all (99%) of returns with itemized deductions included SALT deductions in 2023, and the share of claims across tax types was broadly similar to the distribution in 2017.

Table 2 shows the estimated effects of nonbusiness SALT deductions on federal revenues from FY2025 through FY2029. The projections highlight the effect of the tax changes imposed by the OBBBA on the SALT deduction. The estimated revenue loss attributable to SALT deduction claims in FY2029, the last full year that the raised cap (for many taxpayers) from the OBBBA is in effect, is $65.5 billion, more than three times the estimated effect in FY2024, the last full year before those changes took effect.

Deduction for Real Estate Property Taxes

Ad valorem property taxes (taxes levied as a percentage of assessed value) qualify for the SALT deduction.¹¹ For example, an itemizing individual who owns a home with an assessed value of $100,000 and who pays a 1% property tax can deduct the $1,000 in taxes paid from his or her adjusted gross income. If this taxpayer is in the 24% marginal tax bracket, taking $1,000 out of taxable income reduces taxes by $240 ($1,000 multiplied by 24%).¹²

P.L. 110-289 included a provision that allowed nonitemizers to deduct up to $500 ($1,000 for joint filers) of property taxes paid. The special deduction was first available for the 2008 tax year and was extended through 2009 by P.L. 110-343. This special deduction has since expired.

In most cases, both the taxpayer's tax bracket and home value increase with income. Thus, higher-income taxpayers in higher tax brackets can generally deduct more than low-income taxpayers can.

P.L. 115-97 temporarily eliminated the ability to claim real foreign property taxes as an eligible SALT deduction. P.L. 119-21 permanently incorporated that elimination into the federal tax code.

Analysis

Approximately 84% of itemizing taxpayers claimed a real estate property tax deduction in 2023.¹³ Property taxes are a major source of local government revenue, making their deductibility a substantial transfer from the federal government to localities. State governments, in contrast, depend less on property tax revenue than income and sales taxes. Nationally, property taxes comprised 45% ($662 billion in 2023) of all local government general own-source revenue and 1% ($23 billion in 2023) of all state government general own-source revenue.¹⁴

In theory, if the property-tax-paid deduction were eliminated, taxpayers would reduce their level of housing consumption, and thus their property tax bill would also change. This shift would likely be gradual, as housing consumption choices are not as responsive as other expenditures to changes in after-tax price given the relatively illiquid nature of housing assets. As noted earlier, state and local governments may lower tax rates and shift to other revenue sources if the relative tax price of raising revenue through property taxes increases. Local governments would have more at stake than state governments because the real property tax is primarily a local source of revenue. Across taxpayers, high-income property owners in states with relatively high local property values (and taxes) would likely see the greatest increase in total tax burden if property tax deductibility were repealed.

Deduction for Income Taxes

As with property taxes, the federal deduction for state and local income taxes is equal to the taxpayer's individual tax rate multiplied by the amount of state and local income tax paid.¹⁵ The income tax is a source of revenue primarily for states, not local jurisdictions. In 2023, state and local governments collected $673 billion in individual income taxes, with state collections accounting for 91% of that total ($615 billion).¹⁶ Typically, less than half of total state and local income taxes paid are deducted for federal tax purposes. The difference between what was collected and what was claimed on federal returns stems from taxpayers who did not itemize, individuals who were not required to file federal returns, and the SALT cap limitation on federal tax deductions claimed.

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended the sales tax deduction option through 2011, and the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) again extended the provision through 2013. The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the sales tax deduction through the 2014 tax year. The Consolidated Appropriations Act, 2016 (P.L. 114-113), permanently extended the deduction of state and local sales taxes in lieu of state and local income taxes.

Analysis

In 2023, 70% of taxpayers who itemized their deductions included a claim for state and local income taxes paid. The deduction for state and local income taxes affects the distributional burden of both state and federal taxes. First, the deduction could increase the progressivity of state taxes if it causes states to rely more on income tax, which is progressive relative to sales taxes. The cost of the deduction for high-rate taxpayers is effectively "exported" to all federal taxpayers. A state that collects a relatively larger share of revenue through high state income tax brackets would be most effective at exporting a portion of its state tax burden to all federal taxpayers.

The exported tax burden then falls on all federal taxpayers, including those who do not itemize deductions and thus do not benefit from the SALT deduction. During the period when sales taxes were not deductible, this group included taxpayers in states with no income taxes, who were less likely to itemize. Taxpayers in these states bore a relatively higher tax burden than taxpayers in states with an income tax. Letting individuals deduct state and local sales taxes in lieu of income taxes had partially muted this shift in tax burden.

Deduction for Sales and Use Taxes¹⁷

Explanation

The deduction for state and local sales taxes was temporarily reinstated in 2004 with enactment of the AJCA. This provision was extended a number of times before being made permanent by the Consolidated Appropriations Act, 2016. Unlike the pre-TRA 1986 deduction, the most recent version allowed for a deduction of sales taxes in lieu of, as opposed to in addition to, income taxes. Taxpayers who itemized could choose between reporting actual sales tax paid, verified with receipts indicating sales taxes paid, or an estimated amount from tables provided by the IRS.¹⁸ The table amounts do not include the sales taxes paid for cars, motorcycles, boats, aircraft, or homes, and local sales taxes paid. Taxpayers may add taxes paid for these items to the table amount. Taxpayers are asked to calculate the ratio of the local sales tax rate to the state sales tax rate, and then multiply the result by the table amount to arrive at an estimate of local sales taxes paid. The estimated local sales taxes paid are then added to the state sales taxes paid table amount.

The American Recovery and Reinvestment Act (ARRA; P.L. 111-5) included a special deduction for the sales tax and excise tax paid on new vehicle purchases through 2009. This deduction was available only for those taxpayers who chose not to claim a deduction for general sales taxes paid. Thus, both nonitemizers and itemizers claiming a state or local income tax deduction could take this special deduction. The law limited the dollar value of the deduction in two ways. First, only sales and excise taxes paid on the first $49,500 of the purchase price qualified. Second, the deduction phased out for taxpayers with adjusted gross income between $125,000 and $135,000 (for joint filers the phase-out range was $250,000 to $260,000).

Analysis

Allowing the deduction for state and local sales taxes in lieu of income taxes likely diminishes the progressivity of the SALT deduction and the federal tax system more generally. Household consumption tends to change less across levels of ability to pay than does household income, as the vast majority of total saving (or income less consumption) is generated by those with higher incomes. Consumption taxes, therefore, are more likely to place a higher burden on lower-income households than are similarly constructed income taxes.¹⁹ The gradual reduction in allowable itemized deductions for wealthy taxpayers in effect before 2018 and the alternative minimum tax (AMT) limited the benefit at the highest end of the income distribution.

The percentage of 2023 itemizing taxpayers who included claims for sales taxes (25%) was considerably lower than comparable rates for property and income taxes. States without an income tax rely more on sales and property taxes than do states with an income tax. As a result, itemizers in states without an income tax could deduct proportionately more of their state and local taxes than taxpayers in states with both an income and sales tax. As shown in Table 3, in states without an income tax, state and local governments rely on sales and property taxes for 75% of total tax revenue; those tax sources account for only 50% of revenue in other states.

The differential SALT deduction treatment of states based on the reliance on the income tax was likely unintended. Nevertheless, taxpayers in states without an income tax receive considerably more benefit from the sales tax deduction option relative to taxpayers in states with an income tax.

Distribution of Activity

The breadth of economic activity that contributes to SALT deductions can lead to a number of distributional patterns that may be of interest to Congress. This section briefly discusses the distribution of the SALT deduction across states and localities and across taxpayer income levels. Other distributional measures of potential interest to Congress include deduction activity across taxpayer filing statuses, homeownership categories, and family size.

By State and Locality

A taxpayer's potential SALT deduction is directly linked to the level of taxes imposed in their state and local jurisdiction: higher tax rates lead to increased state and local taxes paid and thus greater potential SALT deduction claims. The contribution of state tax levels to SALT deduction activity has generated considerable attention.²⁰ Local tax rates also contribute to SALT deduction exposure, however, with cities and other high-density areas generally levying more taxes per capita than more rural areas.²¹

The direct and indirect SALT deduction changes provided through the TCJA and OBBBA therefore have different levels and types of effects across state and local tax jurisdictions. The SALT cap's limitation on nonbusiness SALT deduction claims affects more people in high tax jurisdictions, as those areas are more likely to have taxpayers with SALT payments exceeding the cap level. While SALT deduction claims are generally more concentrated among high-income taxpayers (discussed below), high tax jurisdictions are also more likely to have middle- and low-income taxpayers affected by the SALT cap, since it would take less income and consumption to reach the cap in those areas.²²

Table 4 provides average SALT deduction tax claims for 2017 (the last year before TCJA changes became effective) and 2023 (before the changes enacted through the OBBBA took effect) across state and local tax levels. The table shows a notable difference in high- and low-tax activity. Taxpayers in the five states with the highest combined tax burden were more likely to claim a SALT deduction than taxpayers in the five states with the lowest tax burden in both tax years 2017 and 2023. The discrepancy in amounts claimed through the SALT deduction following the TCJA was more notable, however. The average SALT deduction claimed in the five highest tax burden states dropped by about $12,400 ($21,500 to $9,100), as compared to a decline of only $200 in the five lowest tax burden states ($7,400 to $7,200).

By Income Level

The benefits of the SALT deduction generally accrue to higher-income taxpayers. This pattern is a product of

• higher incomes directly leading to more state and local income taxes, and being correlated with higher sales and property tax payments stemming from greater consumption;
• high-income taxpayers itemizing more than other taxpayers to take advantage of other itemized deductions to which they disproportionately benefit; and
• taxpayers with higher incomes being subject to higher marginal tax rates, so each dollar deducted from tax liability results in greater tax savings.

As a result, the SALT deduction changes in the TCJA and OBBBA likely have larger effects on high-income taxpayers than on low-income households. The larger direct exposure to income taxes and indirect exposure to consumption taxes for high-income taxpayers means that these taxpayers are disproportionately likely to have nonbusiness SALT deduction claims that are constrained by the SALT cap. That and other changes, moreover, will likely have a greater effect on overall itemization rates for high-income taxpayers more generally.

The modified SALT cap created by P.L. 119-21 for tax years 2025 through 2029 will modify, but not eliminate, some of the income disparity produced by the SALT deduction. More specifically, the $40,000 SALT cap for taxpayers with MAGIs below $500,000 in tax years 2025 through 2029 will mean that many taxpayers who would have been affected by a $10,000 cap will no longer have any tax liability effects from the new, higher cap level. The JCT estimates that 87% of taxpayers claiming a SALT deduction will have less than $500,000 in income in tax year 2025.

Table 5 shows SALT deduction claims in tax years 2017 and 2023 (before and after the TCJA became effective; both are before the OBBBA changes took effect) across taxpayers grouped by adjusted gross income (AGI). SALT deduction claim rates were 57 percentage points lower for taxpayers with more than $200,000 in AGI in 2023 (93%) than they were in 2017 (36%). The comparable drop was 13 percentage points (16% versus 3%) for taxpayers with AGI below $75,000. The TCJA also had an outsized effect on deduction amounts claimed for high-income taxpayers, which dropped by about $34,200 across those years ($44,000 versus $9,800). The average claim amount actually increased in 2023 ($5,900) relative to 2017 ($4,800) for taxpayers with less than $75,000 in AGI; that change is likely attributable to relatively high deduction amounts for the taxpayers that "still" itemized in 2023, rather than any increase in deduction claims attributable to the TCJA for that taxpayer group.

Related Policy Options

Federal policymakers have considered many changes to the SALT deduction in recent years. Below are brief summaries of several broad types of proposals, along with relevant legislation or Administration detail when applicable.

Eliminate the SALT Cap for Some or All Taxpayers

Legislation has been introduced in recent Congresses that would eliminate the SALT cap for all taxpayers or a certain subset of taxpayers. Those proposals include

• H.R. 430 from the 119^th Congress, which would eliminate the SALT cap for all tax years after 2024; and
• H.R. 1326 from the 118^th Congress, which would have (1) eliminated the SALT cap for taxpayers with incomes below $400,000; (2) established a $60,000 SALT cap for most taxpayers with incomes above $400,000; and (3) phased the cap down so that most taxpayers with incomes above $1 million would not have qualified for the SALT deduction (setting the cap to $0).

Raise the SALT Cap

Recent Congresses have also considered proposals that would increase the value of the SALT cap now, in future years, or both. P.L. 119-21 both raised the SALT cap for tax years 2025 to 2029 for certain taxpayers and made the SALT cap permanent.

In the 117^th Congress, for instance, the version of H.R. 5376 that passed the House in November 2021 included a provision that would have extended the SALT cap through 2031 and would have increased the cap value to $72,500 for tax years 2021 through 2031. This provision was not included in the version of H.R. 5376 that was enacted as P.L. 117-169.

Raising the level of the SALT cap for years where the cap is already effective under current law would reduce federal revenues in those years. This change is due to an increase in the number of taxpayers claiming a SALT deduction and the average amounts claimed, as taxpayers limited by the current law cap would be able to claim greater amounts through the SALT deduction. Some taxpayers who would claim the standard deduction under current law may choose to itemize under such proposals.

Extending the SALT cap at a raised value for years where there is no cap under current law would likely increase federal revenues in those years, as it would reduce both the number of SALT deduction claims (and itemizing taxpayers) and the average amount claimed for the SALT deduction. The new cap would have a disproportionate effect on higher-income taxpayers relative to the current cap, as a higher cap level would affect less middle- and low-income taxpayers.

The Congressional Budget Office estimated that the SALT deduction provision in the November 2021 House-passed version of H.R. 5376 would have been roughly budget-neutral over the 10-year budget baseline, raising revenues by a combined $15 billion from FY2022 to FY2031.²³ Future proposals that raise and extend the SALT cap could either increase or decrease future deficits depending on when the change takes effect and the new cap level.

Modify SALT Cap Changes Across Filing Statuses

Under permanent law, the SALT cap is set to a certain level for a married person filing separately and double that value for all other filers, including single filers, married individuals filing jointly, head of household filers, and married surviving spouses. This creates a "marriage penalty" for single or head of household filers, who can deduct twice as much if they remain unmarried as compared to if they marry and file jointly.

Following TCJA enactment, a number of legislative proposals have been discussed that would include modifications to the way the SALT cap changes across these three filing statuses. Examples of such introduced legislation include

• H.R. 339 from the 118^th Congress, which would have increased the cap to $20,000 for joint filers and to $10,000 for married persons filing separately (the $10,000 cap for other filers would have remained unchanged); and
• H.R. 232 from the 119^th Congress, which would include a cap increase for 2025 and all future years to $200,000 for joint filers and to $100,000 for all other filers.²⁴

Such changes to the SALT cap across filing statuses would likely result in shifts in itemization rates, SALT deduction rates, and SALT deduction amounts claimed among affected groups, with the direction and magnitude of the changes dependent on the specific nature of each proposal.

Eliminate Sales and Use Tax Deductibility

Congress may also consider proposals to repeal the option to include sales taxes in lieu of income taxes for the SALT deduction, as was federal law for tax years 1986 through 2004. Such a proposal would increase federal revenues—as seen in Table 1, 25% of SALT deduction claims included a claim for sales taxes paid in tax year 2023.

The effect of such a proposal would likely be larger in states with no income tax (for which general sales taxes comprised 40% of their tax base in 2023, as shown in Table 3) than it would be for other states (for which general sales taxes represented 22% of their 2023 tax base). The share of filers who itemize would likely decrease, as the standard deduction would become relatively more attractive to affected taxpayers.

Restrict SALT Deduction Effects on Tax Liability

President Obama's FY2016 budget plan proposed limiting the tax rate at which itemized deductions would reduce tax liability. This proposal would have reduced the value of the deduction for state and local taxes to 28% multiplied by the amount of the taxes paid for those taxpayers whose marginal income tax rate exceeded 28%.²⁵ Under current law, the value of an itemized deduction is the taxpayer's marginal tax rate multiplied by the amount of the taxes paid. The Obama Administration's proposal would have reduced the value of the deduction for upper-income individuals. For the 2026 tax year, the proposal would have affected taxpayers in the three highest individual marginal income tax rates (32%, 35%, and 37%). The proposal would have had no effect on 2026 taxpayers in the bottom four tax brackets.

Steven Maguire contributed to previous versions of this report.

Footnotes

1.	A progressive tax is one in which the rate of tax increases with income.
2.	Joint Committee on Taxation (JCT), "Estimates of Federal Tax Expenditures for Fiscal Years 2025-2029," December 2025, JCX-45-25, https://www.jct.gov/publications/2025/jcx-45-25/. Statistics use a measure of income as calculated by JCT.
3.	Bradley Heim and Yulianti Abbas, "Does Federal Deductibility Affect State and Local Revenue Sources?" National Tax Journal, vol. 68, no. 1 (2015), p. 33.
4.	The 16th Amendment allowed for the taxation of income without regard to apportionment among the states. With the new constitutional authority, Congress passed The Revenue Act of 1913, initiating the current federal income tax.
5.	For more on the 1986 Act, see U.S. Congress, Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 (H.R.3838, 99th Congress; P.L. 99-514), 100th Cong., 1st sess., JCS-10-87 (GPO, 1987), pp. 47-48.
6.	IRS Publication 600, Optional Sales Tax Tables, provides an explanation of the new sales tax deduction.
7.	U.S. Department of the Treasury, "Treasury Issues Final Regulations on Charitable Contributions and State and Local Tax Credits," press release, June 11, 2019, https://home.treasury.gov/news/press-releases/sm705.
8.	An S corporation is a corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders. C corporations, in contrast, form legal business entities that are taxed separately from their owners.
9.	U.S. Department of the Treasury, Internal Revenue Service, "Forthcoming Regulations Regarding the Deductibility of Payments by Partnerships and S Corporations for Certain State and Local Income Taxes," November 9, 2020, Notice 2020-75.
10.	American Institute of Certified Public Accountants, "State Pass-Through Entity (PTE) Map," June 1, 2026, https://www.aicpa-cima.com/resources/download/state-pass-through-entity-pte-map.
11.	There are two types of property taxes, real estate (e.g., owner-occupied housing) and personal (e.g., cars and boats). The focus of this report is the real estate property tax. For ease of exposition, the modifier "real estate" is not used for the remainder of the report.
12.	Marginal tax rates are sometimes referred to as tax brackets. There are currently seven individual income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
13.	CRS calculations based on U.S. Department of the Treasury, Internal Revenue Service, Statistics of Income Division, "Individual Income Tax Returns 2023," Publication 1304, October 2025.
14.	U.S. Census Bureau, State and Local Government Finances: 2023, https://www.census.gov/data/datasets/2023/econ/local/public-use-datasets.html, accessed September 16, 2026. The property tax in the census data includes both real estate property taxes and personal property taxes.
15.	In some states, taxpayers may also deduct federal income taxes from income when calculating state taxable income. The reciprocal deduction, however, for federal income taxes is practiced in six states. Partial or limited deductibility is available in an additional three states. Because few states offer the reciprocal deduction for federal income taxes paid, the focus here is limited to the deductibility of state income taxes when calculating federal taxable income.
16.	U.S. Census Bureau, 2023 Census of Government: State & Local Finances.
17.	A use tax is a tax on the use of a product. In the early years of the sales tax, states began with general sales then added the use tax. The intent of the use tax is to capture the sales tax due on purchases made out-of-state yet used in-state. Eventually, states adopting a sales tax included the use tax in the enacting legislation.
18.	See IRS Publication 600.
19.	For further discussions, see Alan J. Auerbach, "The Choice Between Income and Consumption Taxes: A Primer," NBER Working Paper 12307, 2006, https://www.nber.org/papers/w12307.
20.	Emily Cochrane and Alan Rappeport, "Democrats Hope to Doff 'SALT' Cap," The New York Times, November 3, 2021.
21.	Tracy Gordon, "The Price We Pay for Capping the SALT Deduction," TaxVox, Tax Policy Center, February 15, 2018.
22.	CRS Report R46246, The SALT Cap: Overview and Analysis, by Grant A. Driessen and Joseph S. Hughes.
23.	JCT, Estimated Budget Effects of the Revenue Provisions of Title XIII—Committee on Ways and Means, of H.R. 5376, the "Build Back Better Act," as Passed by the House of Representatives, JCX-46-21, November 21, 2021, p. 5, https://www.jct.gov/publications/2021/jcx-46-21/.
24.	The legislation would index 2024 and 2025 cap values to inflation.
25.	The interaction with the alternative minimum tax (AMT) would further reduce the value of the deductions that are preference items under the AMT, such as the deduction for state and local taxes.