The SALT Deduction Cap for High Earners After the 2025 Tax Law

The short answer: the 2025 tax law raised the cap on deducting state and local taxes (SALT) from $10,000 to $40,000 for 2025 and $40,400 for 2026. But the higher cap is reduced for high earners. Once modified adjusted gross income (MAGI) passes $505,000 in 2026, the cap starts shrinking, and it falls back to the $10,000 floor by roughly $606,000 of income. For many business owners, that means the personal SALT deduction looks the same as it did before the law changed, and a pass-through entity tax election is still the main way to get a federal deduction for state income tax on business profit.

Here is how the new cap works, who it actually helps, and why the Oklahoma PTE election still deserves a look every year.

What changed under the 2025 tax law

The 2017 tax law capped the itemized deduction for state and local income, sales, and property taxes at $10,000 ($5,000 if married filing separately). The 2025 reconciliation law, P.L. 119-21, kept a cap in place permanently but raised it for 2025 through 2029:

If you are married filing separately, the cap, the income threshold, and the floor are each half of the amounts above. For 2026 that means a $20,200 cap, a $252,500 threshold, and a $5,000 floor. The cap is the same for single filers and married couples filing jointly.

Two things haven’t changed. First, the SALT deduction is an itemized deduction, so it only helps if your itemized deductions add up to more than the standard deduction, which is $32,200 for married couples filing jointly in 2026. Second, the cap covers the state and local taxes you pay personally: state income tax (or sales tax instead), and property tax on your home.

How the phase-down works for high earners

For each dollar of MAGI above the threshold, the cap drops by 30 cents. It stops dropping once it reaches $10,000. For most people, MAGI is simply adjusted gross income; it adds back certain foreign income that was excluded from tax.

Here is how that plays out for 2026, using hypothetical numbers for a married couple filing jointly:

• MAGI of $450,000: below the threshold, so the full $40,400 cap applies.
• MAGI of $550,000: $45,000 over the threshold. The cap drops by $13,500 (30% of $45,000), to $26,900.
• MAGI of $650,000: $145,000 over the threshold. A 30% reduction would be $43,500, so the cap stops at the $10,000 floor.

For 2026, the cap reaches the floor at about $606,000 of MAGI. For 2025, it was $600,000. In other words, the people the higher cap was meant for are mostly households with income under about $500,000 who pay a lot of state income and property tax. A business owner whose S corporation or partnership profit pushes household income well past $600,000 gets the same $10,000 cap as before.

That is why the phase-down matters so much for planning. Business income is often what pushes owners over the threshold, and business income is also what a pass-through entity election can address.

Why PTE elections still matter

Many states, including Oklahoma, now let S corporations and partnerships elect to pay state income tax at the business level. In Notice 2020-75, the IRS said state income taxes paid by the entity under these elections are deductible by the entity when it figures its income. That deduction happens before the profit reaches your personal return, so the SALT cap doesn’t limit it.

For owners in or above the phase-down range, the PTE election can help in three ways:

1. State tax on business profit becomes a business deduction. Instead of competing for room under a $10,000 personal cap, it reduces the income passed through to you on your K-1.
2. It can lower your MAGI. Because the entity’s deduction reduces the income that flows to your return, your AGI drops. For an owner whose income sits near the phase-down range, a lower MAGI can mean a larger personal SALT cap for the property taxes and other state taxes you still pay yourself.
3. It helps even if you don’t itemize. Owners who take the standard deduction get no federal benefit from personal state income tax at all. At the business level, the deduction doesn’t depend on itemizing.

Our guide to the Oklahoma PTE election walks through how it works step by step, and you can test rough numbers with our Oklahoma PTE calculator.

How the Oklahoma election works

Under Oklahoma’s Pass-Through Entity Tax Equity Act of 2019, businesses that file an Oklahoma partnership or S corporation return can elect to pay Oklahoma income tax at the entity level. A few points from the Oklahoma Tax Commission’s Form 586:

• Who can elect: partnerships and S corporations, including LLCs taxed as either. A sole proprietorship or single-member LLC taxed as a sole proprietor can’t elect, which is one more reason to look at the S corp election once profit grows.
• How to elect: on Form 586 during the prior year or within two months and 15 days after the year begins, or, starting with tax year 2024, on the business’s Oklahoma return (with Form 586 attached) by its due date, including extensions.
• How long it lasts: once made, the election remains in place until the business revokes it.
• No double tax: income the business already paid Oklahoma tax on isn’t used to figure the owners’ Oklahoma taxable income.

Keep the two layers of tax separate when you plan. The Oklahoma tax the business pays under the election is a business-level tax, paid by the entity, with its own estimated payments. Your personal federal and Oklahoma income tax is figured on your own return. The election shifts which return the Oklahoma tax on business profit lands on; it doesn’t merge the two.

Planning points for 2026 and beyond

• Project your MAGI before year end. If your household income will land near the $505,000 to $606,000 range, deductions that lower AGI, such as retirement plan contributions or the PTE election, can also raise your personal SALT cap.
• Check whether itemizing still pays. With a $10,000 cap and a $32,200 standard deduction for joint filers, many high earners still take the standard deduction unless they have large mortgage interest or charitable gifts.
• Weigh the PTE election’s trade-offs. The business makes the payments, which affects cash flow and distributions, and the entity-level deduction slightly reduces qualified business income for the QBI deduction.
• Remember the higher cap is temporary. It is scheduled to return to $10,000 for everyone starting in 2030, so a long-range plan shouldn’t depend on it.

How we help

At Cannon & Brown Tax Advisors, we model the SALT cap and the Oklahoma PTE election together each year, using your projected income, and we show your business-level tax and your personal tax separately in your tax plan. Our technology keeps your numbers current, so we can test more options against your real figures, and your tax strategist reviews every recommendation. If you’d like to see how these rules apply to you, start with a free tax analysis.

Illustrative example. The people and figures in this article are hypothetical, used to explain how the rules work. They are not a client and not a promise of results.

This article is educational and is not tax advice for your situation. Tax law may change, which may change these rules and numbers.

Sources

• IRS: Correction to state and local income tax deduction amount in the 2026 Form 1040-ES
• IRS: Instructions for Schedule A (Form 1040) (2025)
• IRS: 2026 Form 1040-ES, Estimated Tax for Individuals
• IRS: Notice 2020-75
• Congressional Research Service: Federal Deductibility of State and Local Taxes
• Oklahoma Tax Commission: Form 586, Pass-through Entity Election Form