Updated March 1, 2019
2019 Tax Filing Season (2018 Tax Year): The State and Local
Certain taxpayers can reduce their taxable income—and
ultimately their federal income tax liability—by claiming
the deduction for state and local taxes (SALT) they have
paid. Recent changes to the SALT deduction made by the
2017 tax revision, often referred to as the “Tax Cuts and
Jobs Act” (P.L. 115-97), have stimulated public discussion
of the tax, its incidence, and potential responses from state
and local governments. This In Focus summarizes current
law and policy issues; a more extended discussion of the
SALT deduction can be found in CRS Report RL32781,
Federal Deductibility of State and Local Taxes.
Summary of Current Law
Taxpayers may deduct state and local taxes paid from
income when calculating their federal income tax liability.
Individual taxpayers must itemize deductions (rather than
use the standard deduction) on their income tax return to
claim the SALT deduction. The tax savings from the
deduction on state and local taxes paid is equal to the
taxpayer’s marginal tax rate multiplied by the size of the
deduction, though may be limited by a cap on the total
amounts that can be deducted in certain years (see below).
Income taxes, sales taxes (claimed in lieu of income taxes),
personal property taxes, and real property taxes are all
eligible to be claimed under the SALT deduction.
For tax years 2018 through 2025, SALT deduction claims
for taxes paid not in the carrying on of a trade or business
may not exceed $10,000, and payments for foreign real
property taxes are not eligible for the deduction. SALT
deduction amounts for taxes paid in the carrying on of a
trade or business are not limited. Under current law the cap
on SALT deductions not related to the carrying on of a
trade or business is scheduled to be eliminated after 2025,
and foreign real property taxes are to be eligible for the
deduction in those years.
Comparison to Prior Law
There was no limit to the deduction amounts available for
the SALT deduction before 2018. No distinction was made
for whether taxes were paid in the carrying on of a trade or
business, though business payments made toward sales and
property taxes were removed from calculations of business
economic income. Foreign real property taxes were eligible
for the SALT deduction before tax year 2018. The rate of
deductions available were reduced for taxpayers with
adjusted gross income above certain thresholds ($313,800
for married taxpayers filing jointly and $261,500 for single
filers in 2017).
P.L. 115-97 also increased the value of the standard
deduction, making it more appealing to taxpayers and
thereby reducing the proportion of taxpayers that itemize
their deductions (and are eligible to claim the SALT
deduction). That change combined with the new restrictions
on payments eligible for the SALT deduction is expected to
substantially reduce the number of SALT deduction claims
in tax years 2018 through 2025. The Joint Committee on
Taxation (JCT) estimates that 16.6 million SALT deduction
claims will be made for the 2018 tax year, well under half
the number of claims reported by the IRS for tax year 2016
Economic and Budgetary Impact of
The SALT deduction effectively reduces the after-tax cost
of state and local public services. That reduction not only
benefits the taxpayers claiming the deduction (whose aftertax incomes increase) but also state and local governments,
whose residents are willing to pay higher taxes than they
would with no deduction. Restrictions on the SALT
deduction such as those enacted by P.L. 115-97 may
therefore provide state and local governments with
incentive to either reduce the taxes they levy (and
subsequently services they provide) or to modify their tax
structure to be more reliant on other taxes with federal tax
Amounts claimed from the SALT deduction are directly
dependent upon taxable income. Since the federal income
tax rate regime is progressive (where the rate of tax
increases with income), a tax deduction, in contrast to a tax
credit, favors taxpayers in higher-income tax brackets
because the value of benefits (aside from those restricted by
the cap on overall benefits) is directly proportional to a
taxpayer’s marginal income tax rate.
Table 1 shows JCT’s forecasted number of SALT
deduction claimants and amounts claimed by income level
in tax year 2018. Under those projections households with
incomes less than $75,000 will represent under 10% of the
households claiming the SALT deduction in tax year 2018,
and more than half of amounts claimed will be by
households with income exceeding $200,000.
2019 Tax Filing Season (2018 Tax Year): The State and Local Tax Deduction
Table 1. Projected Distribution of SALT Deduction
Claims by Income Level, Tax Year 2018
(Returns in thousands, amounts in millions of dollars)
The value of the state and local tax deduction (and the
effect of the changes enacted through P.L. 115-97) varies
significantly across taxpayers, as income levels and other
factors that may influence federal rates of tax itemization
will also affect the relative benefit of the SALT deduction
to a given household. A February 2019 Treasury Inspector
General report estimated that 11 million taxpayers would
have been subject to the $10,000 cap had it been effective
for tax year 2017, though many of those households may
claim the larger standard deduction for the 2018 tax year.
Localities with higher state and local tax rates are also
likely to have more taxpayers whose SALT deductions are
limited by the $10,000 cap on nonbusiness tax payments.
Figure 1 shows the average SALT deduction claimed per
resident across select states in tax year 2016 (before the cap
took effect). The average taxpayer claiming a SALT
deduction in New York claimed a deduction that was more
than four times greater than the deduction claimed by a
SALT claimant in Alaska. The $10,000 limitation is
therefore likely to affect a much greater share of taxpayers
in New York than it will for Alaskan taxpayers.
Source: Joint Committee on Taxation report JCX-81-18.
Figure 1. Average Amount Deducted Per Claimant By State, Tax Year 2016
Source: Internal Revenue Service, SOI Historic Table 2.
Notes: Claims made before the $10,000 limitation on nonbusiness deductions took effect. States listed using their postal abbreviations.
Joseph S. Hughes, Research Assistant
Grant A. Driessen, Analyst in Public Finance
2019 Tax Filing Season (2018 Tax Year): The State and Local Tax Deduction
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11098 · VERSION 2 · UPDATED