SALT (State and Local Tax)

What Is SALT (State and Local Tax)?

The acronym SALT stands for state and local tax and generally is associated with the federal income tax deduction for state and local taxes available to taxpayers who itemize their deductions. In 2017, a $10,000 ceiling on the previously unlimited SALT deduction was enacted and made applicable for tax years beginning in 2018 and continuing through 2025.

The limitation on the deduction has prompted continuing political debate, with high-income individuals and officials in states with high taxes leading intense opposition.  

Understanding SALT: Which State and Local Taxes Are Deductible?

Individual taxpayers who itemize their personal deductions can deduct up to $10,000 of their aggregated state and local taxes per return annually ($5,000 for married people fling separately). The limitation does not apply to taxes paid or accrued in carrying on a trade or business or incurred as expenses in an income-producing activity.

Deductible taxes include state, local, and foreign taxes on income, war profits, and excess profits; and state and local (but not foreign) taxes on personal property and real property, including amounts paid by tenant-stockholders to cooperative housing corporations with respect to such corporations’ real estate taxes. Taxpayers can elect to deduct state and local general sales taxes in lieu of claiming a deduction of income taxes. Deductible state and local sales taxes include taxes on retail sales, similar “compensating use” taxes for the use, storage, or consumption of items, and taxes on motor vehicles.

Taxes imposed on certain generation-skipping transfers by trusts and estates are also deductible if the transfer is included in the taxpayer’s income.

Federal Revenue Impact

Opponents of the SALT deduction limitation face a significant issue: the impact of the limit on federal revenue. The $10,000 limit on SALT deductions has a significant, measurable revenue impact affecting the federal budget.

Prior to the limit’s enactment, the cost in lost revenue for the federal government for the SALT deduction was estimated at $78 billion and $82 billion in fiscal years (FYs) 2019 and 2020, respectively. After the limit became effective, the SALT cost in lost federal revenue was lowered to an estimated $56.5 billion for FY 2019 and $58.9 billion for FY 2020, thus resulting in a revenue “savings” of $44.6 billion over just two fiscal years. Any increase in the ceiling, and especially its repeal, would decrease federal revenues.

Efforts to Alleviate or Eliminate SALT Ceiling

Shortly after the ceiling on the SALT tax deduction passed, efforts began to restore the previous unlimited deduction, which hit taxpayers in states with high income and property taxes particularly hard. Here are some of the approaches that have been proposed.

Recharacterization as Charitable Contribution

States reacted quickly to the ceiling on SALT deductions and undertook various steps to reduce its federal tax cost for their citizens and the negative political environment that it created for state and local taxation. Initial efforts by several states to allow their residents to contribute to a state charitable fund instead of paying income taxes were thwarted by final regulations issued by the U.S. Treasury Department to countermand this approach.


Connecticut, Maryland, New Jersey, and New York filed a lawsuit challenging the SALT ceiling as unconstitutional. The case was dismissed by a federal district court, and the states are appealing the decision.  

Special Relief for Pass-Throughs

Owners of pass-through entities (also known as flow-through entities)—principally partnerships and S corporations—received indirect relief from the SALT ceiling in Internal Revenue Service (IRS) Notice 2020-75, issued on Nov. 9, 2020. The notice stated that forthcoming regulations would allow partnerships and S corporations to claim SALT deductions at the entity level without applying the SALT ceiling. This will allow income to pass through to partners and shareholders on an after-tax basis, without having to take into account their share of the SALT deductions previously claimed by the entity, in determining the SALT cap for their tax returns.

Legislative Repeal

Repeal would be the one clearly effective method for eliminating the SALT cap, but its prospects are uncertain. Although some members of both parties favor repeal, most proponents are Democrats representing states with higher state and local taxes. Republicans—who more commonly represent lower-tax states—generally do not support repeal.

In November 2020, the U.S. House of Representatives passed a partial repeal of the SALT cap by a vote of 218–206, with five Republicans voting for the bill and 16 Democrats—mainly progressives who considered it inadequate—voting against it. The bill would have raised the cap to $20,000 for joint returns for 2019 and eliminated it for 2020 and 2021 for taxpayers with incomes below $100 million. It would have left the $10,000 cap in place for 2023 through 2025.

Already in early 2021, bills to eliminate the SALT cap were introduced in both houses of Congress. In the House of Representatives, proposed legislation already had more than 106 co-sponsors before March. In the Senate, Majority Leader Sen. Charles Schumer, D-N.Y., introduced a total-repeal bill, while Sen. Susan Collins, R-Maine, introduced legislation to increase the limit to $20,000 for joint returns.  

Because the present law about the ceiling on SALT deductions expires after Dec. 31, 2025, the SALT cap will disappear in 2026 unless it is extended by legislation in the interim.

Article Sources
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  2. U.S. Congress. “Public Law 115-97, Sec. 11042.”

  3. Internal Revenue Service. "Topic No. 503 Deductible Taxes."

  4. U.S. Congress, Joint Committee on Taxation. “JCS-1-18, General Explanation of Public Law 115-97,” Pages 67–69 (Pages 81–83 of PDF).

  5. U.S. Congress, Joint Committee on Taxation. “JCX-81-18, Estimates Of Federal Tax Expenditures For Fiscal Years 2018–2022.” 

  6. U.S. Congress, Joint Committee on Taxation. “JCX-3-17, Estimates Of Federal Tax Expenditures For Fiscal Years 2016–2020.”

  7. Cornell Law School, Legal Information Institute. “26 CRF § 1.164-3 — Definitions and Special Rules,” Subsection (j).

  8. U.S. Government Publishing Office. “26 CFR Part 1: Treatment of Payments to Charitable Entities in Return for Consideration,” Federal Register, Vol. 85, No. 155.

  9. U.S. Court of Appeals, 2nd Circuit via Courthouse News Service. “State of New York et al. v. Mnuchin et al., Case 19-3962.”

  10. Internal Revenue Service. “Forthcoming Regulations Regarding the Deductibility of Payments by Partnerships and S Corporations for Certain State and Local Income Taxes: Notice 2020-75.”

  11. The Hill. “House Votes to Temporarily Repeal Trump SALT Deduction Cap.”

  12. U.S. Congress. “House Bills HRs 202, 613, 946, and 2439, and Senate Bills S.85 and S.804.”

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