The SALT Cap Is $40,400 Unless You're Married

Two people. Same jobs. Same pay. Same state taxes.

One files single. She keeps $40,400 in SALT deductions. The other files jointly with her spouse. They keep $10,000.

Not a typo.

Congress raised the SALT cap last summer. The One Big Beautiful Bill. That is what they called it. The 2025 reconciliation package bumped it from $10,000 to $40,400 for 2026. SALT is "state and local taxes." Your state income tax. Your property tax. If you live in New York or California or New Jersey, you could write off those bills again. Up to $40,400.

But Congress added a phase-out.

If your income tops $505,000, the cap starts to shrink. For every dollar above that line, you lose 30 cents of your SALT cap. Earn $606,333? Your cap hits the floor. Ten thousand bucks. Same as the old law.

That $505,000 trigger is the same number for a single filer and a married couple filing jointly.

I mean. Read that again.

A single person earning $505,000 starts losing the cap. A married couple earning $505,000 combined starts losing it at the exact same dollar. Congress did not double the threshold for two people. They just copied the number.

Take two people. Each earns $400,000. Each lives in a high-tax state. Each pays $50,000 in state and local taxes. Neither one tops $505,000.

Each keeps the full $40,400 cap.

Combined? They shelter $80,800 in SALT deductions between them.

Same jobs. Same pay. Same taxes. One new piece of paper.

Their combined income is $800,000 on one return. The phase-out starts at $505,000. That is $295,000 of excess. Multiply by 30 cents on the dollar. The cap falls by $88,500. But the cap was only $40,400 to begin with. So it crashes to the $10,000 floor.

The couple went from $80,800 in deductions to $10,000. That is $70,800 in deductions gone. At the 37% bracket, the gap costs $26,196 in extra federal tax. For a marriage license.

The Congressional Research Service looked at this. They pegged the marriage penalty at $14,140. Sure. They only counted half the damage. They measured the cap gap. They skipped the phase-out. Stack both and you land at $26,196.

Sure. File separately. Married Filing Separate. That fixes it, right?

It does not. When you file MFS, both the threshold and the cap get cut in half. Your threshold drops to $252,500. Your cap drops to $20,200. At $400,000 of income each, you are still way past the floor.

You cannot split your way out of this. (lol)

There is one door. It is narrow.

You need a business. S-corp, partnership, or LLC. 38 states let the entity pay your state tax before the money hits your personal return. This is called a Pass-Through Entity Tax election. Your S-corp writes the check to the state. That payment becomes a business deduction. Business deductions are not subject to the SALT cap. The income that flows to you on your K-1, your share of the business profits, shows up smaller. The phase-out never fires.

The IRS blessed this in Notice 2020-75. It works.

But look. This only works if you have pass-through income to run through it. You pull $400,000 from a hospital or a law firm or a tech company as a salaried employee? You are a W-2 earner. There is no entity. There is no election.

There is no door.

Two people at dinner. Same careers. Same money. One couple. One pair of singles.

The singles keep $80,800 in deductions. The couple keeps $10,000. The tax code did not forget married couples. It just did not bother to count to two.