Deducting Property Taxes: The SALT Cap Explained

For 2026 you can deduct up to $40,400 of state and local income and property taxes combined ($20,200 if married filing separately), but only if you itemize. If your modified adjusted gross income is over $505,000, the cap shrinks by 30% of the excess, down to a floor of $10,000.

That is a big change from the $10,000 cap that applied from 2018 through 2024. For New York City homeowners, who pay state and city income tax on top of property tax, the higher cap can make itemizing worth it again.

What the SALT deduction covers

Section 164 of the Internal Revenue Code lets itemizers deduct state and local taxes (SALT). One combined cap applies to:

• State and local income taxes (New York State and NYC income tax), or general sales taxes instead if you choose.
• Real estate taxes on your home, including a co-op owner's share of the building's taxes.
• Personal property taxes based on value.

Foreign real estate taxes are not deductible federally. Taxes on rental or business property are not subject to the cap, because the law exempts taxes paid in a trade or business or an income-producing activity; landlords deduct those against rental income instead.

How the cap has changed

1. 2018–2024

   $10,000 cap

   Set by the 2017 tax law; $5,000 if married filing separately.

2. 2025

   $40,000 cap

   Raised by the 2025 federal tax law (Public Law 119-21). Phase-down above $500,000 MAGI.

3. 2026

   $40,400 cap

   Phase-down threshold $505,000 MAGI.

4. 2027–2029

   Up 1% a year

   Both the cap and the threshold rise to 101% of the prior year (about $40,804 in 2027).

5. 2030 onward

   Back to $10,000

   Unless Congress changes the law again.

The income phase-down

If your modified adjusted gross income (MAGI) is above the threshold, the cap drops by 30 cents for every dollar over. For most people, MAGI here is simply adjusted gross income; it adds back certain foreign-income exclusions. The cap can't fall below $10,000. For a joint return in 2026, it reaches the floor at about $606,333 of MAGI.

Married couples filing separately get half the cap ($20,200) and half the threshold ($252,500), with a $5,000 floor.

Why it matters so much in NYC

NYC residents pay New York State income tax and New York City income tax. For many households, income taxes alone used up the old $10,000 cap, so property taxes gave no federal benefit at all. Under the higher cap, a household can deduct both, up to $40,400. Whether that saves money still depends on whether your total itemized deductions beat the 2026 standard deduction: $32,200 for married couples filing jointly, $16,100 for single filers.

Co-op owners

You don't get a property tax bill, but part of your maintenance pays the building's real estate taxes. IRS Publication 530 says your share is the building's deductible real estate taxes times your shares divided by all outstanding shares, and the co-op usually tells you the amount. That share counts as real estate tax under the SALT cap. If the co-op gets a tax refund (for example after a successful assessment challenge), your deduction is reduced by your share. Estimate it with the co-op maintenance tax deduction calculator.

Condo and house owners

Deduct the real estate tax you actually paid in the year, whether directly to the Department of Finance or through your mortgage escrow (check your lender's year-end escrow statement). The Schedule A instructions say only taxes that were both paid in the year and assessed before the following year count, so you can't deduct prepayments of taxes not yet assessed. See how to read your NYC property tax bill.

Worked example: a NYC condo owner

A married couple files jointly with $350,000 of MAGI. They paid $25,000 of NY State and NYC income tax (assumed) and $9,000 of condo property tax. They also paid $30,000 of mortgage interest.

Their MAGI is under $505,000, so they get the full cap. The higher cap lets them deduct all $34,000 they paid, increasing the value of itemizing by $5,760 a year. Their taxable income stays in the 24% bracket (which starts at $211,400 for joint filers in 2026). With MAGI of $575,000 instead, their cap would fall to $19,400, and they could deduct only that much.

New York State return

New York computes itemized deductions under the pre-2018 federal rules. According to the IT-196 instructions, your NY deduction for state and local taxes is not subject to the federal limit. However, New York does not let you deduct state and local income taxes on your NY return, so they are subtracted back out. In practice, NY itemizers can count their full property tax (or co-op tax share) with no SALT cap, although New York separately trims itemized deductions for higher-income filers. You can itemize on your NY return even if you take the federal standard deduction. See the mortgage interest deduction for the rest of the NY rules.

Before you file

1. Total your state and city income tax withheld and paid, plus property tax actually paid in the year.
2. For a co-op, get the building's letter showing your share of real estate taxes and mortgage interest.
3. Check your MAGI against $505,000 ($252,500 if married filing separately) and apply the phase-down if needed.
4. Add mortgage interest and other itemized deductions. Compare with the standard deduction.
5. Do your NY return separately. Property taxes are not capped there.

This is general information, not tax advice. See the full monthly picture in the true monthly cost of owning in NYC.