If you live in a high-tax state, big changes are coming. Beginning in 2025, the One Big Beautiful Bill Act (OBBBA) raises the State and Local Tax (SALT) deduction cap from $10,000 to $40,000, increasing slightly each year through 2029, with the cap set at $40,400 for 2026. This means many taxpayers will finally get back deductions they lost in 2017.

This change is especially helpful for real estate investors, business owners, and high-income earners. And when combined with PTET (Pass-Through Entity Tax) strategies, it can create major tax savings.

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Why the 2026 SALT Cap Adjustment Matters?

Good tax planning looks forward, not backward. Because the new SALT cap applies from 2025 through 2029, planning now helps you:

• Understand whether you should itemize

• Decide how PTET fits into your entity structure and income profile

• Prepare for higher tax rates after 2025

• Time deductions in the smartest way

A little planning now can mean thousands of dollars saved later.

For the official IRS guidance on State and Local Tax deductions, visit the IRS SALT Deduction Explanation Page.

What’s Changing with the SALT Cap ?

The old $10,000 cap made it hard for people in high-tax states to deduct what they actually paid. For 2026, you can deduct up to $40,400 in state and local taxes.

This is especially helpful if you live in:

• California

• New York

• New Jersey

• Massachusetts

• Connecticut

Who benefits the most:

• Homeowners with large property tax bills

• High-income earners

• S-Corp or partnership owners

• Remote workers with taxes in more than one state

PTET Bypass Strategies for Pass-Through Owners PTET lets your S-Corp or partnership pay state income tax at the entity level.

Why does this matter?

Entity-level state income taxes are fully deductible for federal purposes and are not subject to the individual SALT cap. This makes PTET one of the most powerful tools for maximizing deductions, especially when combined with the expanded SALT limits available from 2025 to 2029.

What to do for 2026:

• Elect PTET early in the year

• Check your state’s specific PTET rules

• Plan your income if you work in multiple states

• Stack PTET deductions with the new SALT cap for even bigger savings

PTET continues to be one of the best tools for keeping more of your income.

Itemized Deduction Planning for Higher Brackets

• With several TCJA-era provisions now extended or made permanent under OBBBA, the value of your deductions will depend more than ever on your marginal tax rate, income thresholds, and phaseouts. For many higher-income taxpayers, careful planning can significantly increase the benefit of itemizing.

• The expanded SALT cap from 2025 to 2029 creates new opportunities to strengthen your itemized deduction strategy by coordinating SALT, charitable giving, mortgage interest, and other deductible expenses.

Action steps:

• Use a Donor-Advised Fund (DAF) to bundle charitable giving

• Understand whether the AMT affects you

• Re-evaluate mortgage interest planning

• Make sure your itemized deductions exceed the standard deduction

Need free resources to start planning? Visit the INVESTOR FRIENDLY CPA® Resources Page for guides, checklists, and strategy tools.

State-Specific Tax Strategy Packages ($150 Each)

INVESTOR FRIENDLY CPA® provides customized State Tax Strategy Kits for high-tax states. These resources help you understand residency planning, PTET elections, and how to time deductions effectively.  

Available for:

• California

• New York

• New Jersey

• Massachusetts

• Connecticut

Each package includes a PTET election guide, deduction timing checklist, and local tax-saving strategies designed for real estate investors and business owners.

Plan Ahead for 2026 and Beyond

The end of the year is the best time to get ahead.

Before December 31st:

• Review estimated taxes

• Elect PTET if applicable

• Organize property tax and income tax payments

• Confirm your entity structure supports your goals

Small planning steps now lead to big savings next year.

If you have complex income, own multiple businesses or properties, or expect to owe six figures in taxes, contact with a CPA to ensure your strategy is optimized and compliant.

Watch Big Beautiful Bill 2025: Bonus Depreciation, SALT, QBI & More, a breakdown of the most impactful parts of the new 800-page tax bill, including bonus depreciation, credits, QBI, and SALT changes.

Frequently Asked Questions

1. ‍Who benefits most from the higher SALT cap?

People in high-tax states who itemize deductions, especially homeowners and business owners.

2. ‍Does the $40,400 cap apply to everyone?

No. The enhanced SALT deduction begins to phase out once modified AGI exceeds about $500,000 for most filers (single and married filing jointly), and $250,000 for those filing married filing separately. As income rises above these thresholds, the benefit is gradually reduced, but it never drops below the original $10,000 cap ($5,000 for MFS).

3. Will PTET still exist after 2026?

Yes. PTET remains a strong planning tool for S-Corps and partnerships.

4. ‍Should I change my residency?

It depends. Residency planning can reduce taxes, but it needs to be done correctly. Our state kits walk through the key factors.

5. ‍What should I do before the year ends?

Meet with your CPA to plan PTET, track deductions, and prepare for the new 2026 rules.  

Get your Year End Guide to unlock quick strategic moves that boost deductions lower taxes and keep you compliant.

Ready to Maximize Your Tax Savings? This Is Your One Chance Before 2026.

The new $40K SALT cap brings a rare chance to save big, especially if you plan now.

INVESTOR FRIENDLY CPA® will guide you through PTET decisions, deduction timing, entity structuring, and your full 2026 strategy. Our team specializes in real estate investors, high-income earners, and business owners who cannot afford to miss these deductions.

Don’t wait until tax season. High-income earners lose the most when they delay.

Schedule Your FREE Consultation Call Today and start preparing before the year ends.

Call: (800) 522-6091
Email: clients@investorfriendlycpa.com