SALT Tax Deduction: How to Write Off State And Local Tax
Paying state and local income taxes and sales taxes can eat into your paycheck. Fortunatel, there’s a way to reclaim some of this money—the SALT tax deduction lets you deduct either state and local income taxes or state and local sales taxes from your federal income tax. Understanding the SALT deduction can help you decide whether you want to claim the standard or itemized deductions so you can maximize your tax benefits. Learn about how the SALT deduction works, which taxes you can claim, and how SALT can benefit you.
- SALT, or State and Local Tax, is a tax relief that allows you to claim state and local income or state and local sales tax on your federal income tax return.
- In order to claim SALT, you need to itemize your tax deductions on Schedule A (Form 1040).
- SALT includes state and local income taxes, sales tax, real estate tax, and personal property tax
- The SALT deduction cap is $10,000, or $5,000 for married couples filing separately.
Table of Contents
- What Is SALT?
- How Does the SALT Deduction Work?
- Which Taxes Are Covered By SALT Deductions?
- Which Taxes Are Not Covered By SALT Deductions?
- SALT Deduction Cap
- SALT Deduction Benefits
- Freshbooks: Your Partner for Smooth Tax Preparation
- Frequently Asked Questions
What Is SALT?
SALT, or the State And Local Tax deduction, is a tax deduction where you can claim back some of the sales taxes paid to state and local governments when you file your federal income taxes. Throughout the year, you pay local and state income taxes and/or local and state sales taxes. SALT allows you to claim some of these expenses as a deduction on your federal taxes—you can claim either state and local income tax deductions or state and local sales tax deductions, but not both.
How Does the SALT Deduction Work?
The SALT deduction allows you to claim either income taxes or sales taxes at the state and local level. High-income earners often find that the income tax deduction is most beneficial, whereas those who live in high sales-tax states and have made many purchases often benefit from claiming sales tax. This can also change from year to year, depending on how much you earn or if you’ve made major purchases.
All US taxpayers have the option to either claim the standard deduction or to itemize their taxes to claim an assortment of tax deductions. The SALT deduction is one of the deductions that can be claimed if you itemize—meaning if you claim the standard deduction, you can’t make use of SALT. It’s a good idea to add up all of your itemized deductions, including SALT, and if that amount exceeds the standard deduction for your filing status, then you should file your taxes as itemized.
Which Taxes Are Covered By SALT Deductions?
There are several different options for what you can claim from the SALT tax. These are divided into 4 categories:
SALT Deduction For Income Taxes
If a state imposes income tax on individuals, , and you’re an employee, it’s easy to see how much you’ve paid in state income taxes—you’ll receive your W-2 wage and tax form from your employer which will list this amount. Self-employed people can calculate or estimate the state income taxes they’ve paid over the year. You can use these amounts to determine whether you’ll benefit more from claiming the SALT income tax deduction or one of the other SALT deductions.
SALT Deduction For Sales Taxes
There are 2 ways to calculate your sales taxes paid: through careful recordkeeping or through estimates with the IRS tax tables. If you keep meticulous records and copies of your receipts, you can add up all of your actual sales tax paid to calculate your total SALT sales tax deduction. If you don’t have these records available, you can also estimate your sales tax amounts with the IRS tax calculator tool.
If you made certain major purchases during the year (like a car or boat) and elect to use the Optional State Sales and Local tax tables, you may also be able to add sales taxes paid on these items to the estimated deduction amount.
SALT Deduction For Real Estate Taxes
If you own real estate, you pay state and local real estate taxes on your property. SALT offers the option to claim these property taxes back when you file your federal income taxes. These deductible real estate taxes can be especially beneficial if you live in an area where you pay a high property tax, or if you own multiple pieces of real estate.
SALT Deduction For Personal Property Taxes
Some personal property like boats and cars are taxed based on their value. If you’re taxed on higher-value personal property items, you may find it helpful to claim the SALT deduction for your personal property taxes.
Looking for more tips on filing your annual income taxes? Discover how FreshBooks takes the pain out of tax preparation for guidance on filing and claiming deductions.
Which Taxes Are Not Covered By SALT Deductions
There are some taxes, as well as certain services, that you can’t claim under the SALT deduction. These include:
- Federal income taxes: you can claim state and local income taxes under SALT, but not federal income taxes
- Social Security taxes
- Transfer taxes on property sales: you can claim your annual real estate taxes, but not taxes associated with the transfer of real estate
- Homeowners association fees: although these are related to your real estate, they’re not state or local taxes so they can’t be claimed under SALT
- Estate and inheritance taxes
- Services for water, sewer, and trash: although you may pay a sales tax on these services, they don’t fall under the list of municipal taxes that you can claim
SALT Deduction Cap
The current (2022) cap for the SALT deduction is set at $10,000, or $5,000 for married couples who are filing separately. This means that you can add your property taxes plus either state or local income taxes and deduct up to $10,000 of this amount from your federal income taxes.
The SALT deduction cap may impact your choice to itemize or claim the standard deduction if you don’t have many other itemized deductions. For most single filers the 2023 standard deduction is $13,850, though this varies slightly depending on age and filing status. If you’re only planning to claim SALT you’re better off taking the standard deduction, however, if you intend to claim the maximum amount of SALT plus at least $3,850 in other itemized deductions it’s beneficial for you to itemize.
SALT Deduction Benefits
There are a number of scenarios where the SALT deduction may be very beneficial:
- If you’re a high earner and have paid a large amount in state and local income taxes
- If you’ve made major purchases and want to claim back a large amount of sales tax
- If you own multiple pieces of real estate, or if you pay high property taxes on your real estate
- If you’re claiming many itemized deductions
In general, the SALT deduction is beneficial for those planning to itemize their deductions. Even if you’re not claiming the full $10,000, if you have a number of other itemized deductions, then adding SALT can still help you reduce your total tax liability.
Freshbooks: Your Partner for Smooth Tax Preparation
The State and Local Tax deduction lets you claim state and local income or sales tax back when you file your federal income taxes, helping you reduce your overall tax liability. It’s one of a number of deductions that can be claimed when you itemize your taxes. It’s especially helpful if you pay high local income taxes, or have made major purchases and want to reclaim your sales tax.
FreshBooks accounting software makes it easy to keep track of your income and expenditures so you can make the most of the SALT deduction. Try FreshBooks free to get started claiming your tax deductions today.
FAQs About Salt Tax Deduction
Looking for more information on the SALT deduction? Browse frequently asked questions on SALT deduction limits, benefits, and more.
Is the SALT deduction limit permanent?
The current SALT deduction limit is set to expire in 2025. This doesn’t guarantee that the limit will disappear, but it does mean that the SALT deduction limit may change. You can elect to claim the standard deduction or itemize each year, so you can always reevaluate if the limit changes.
Is the SALT deduction available for married filing jointly?
Yes, married couples filing jointly are eligible to claim the SALT deduction. However, married couples filing separately are at a disadvantage for the deduction limit—single filers and married couples filing jointly can claim up to $10,000. In contrast, married couples filing separately can only claim $5,000 each.
What is the SALT deduction cap for 2025?
The SALT deduction limit for 2025 has not yet been determined. The current SALT deduction cap is $10,000, or $5,000 for married couples filing separately. This limit is set to expire in 2025, when the deduction cap may be revisited.
Is mortgage interest included in salt?
Mortgage interest is not included in the SALT deduction. However, mortgage interest is eligible to be claimed on Schedule A. FreshBooks accounting software helps you track and organize your expenses so you can claim all eligible deductions.
What is the SALT deduction limit for married filing jointly?
Married couples filing jointly are subject to the $10,000 SALT deduction limit. If a married couple files separately, they can each claim a maximum of $5,000. Therefore when it comes to SALT, there’s no advantage to filing either jointly or separately.
Can small business owners benefit from the Salt Tax Deduction?
Yes, the SALT deduction can be beneficial for small business owners. Particularly if you are already itemizing your deductions, you can claim SALT to increase your overall deductions. SALT can also be beneficial if you’ve made large purchases with sales tax, or have paid high income tax and want to claim one of those back.
About the author
Sandra Habiger is a Certified Public Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Learn more about her work at http://www.sixfiguresaccounting.com/ .