State and Local Tax (SALT) Deduction Limits: Strategies and Compliance Guide

As a Certified Public Accountant with over 15 years of experience in tax advisory, I've witnessed firsthand how the State and Local Tax (SALT) deduction limitations impact taxpayers across different jurisdictions. The Tax Cuts and Jobs Act of 2017 introduced a $10,000 annual cap on SALT deductions ($5,000 for married filing separately), fundamentally altering tax planning strategies for millions of Americans. This cap applies to the sum of state and local income taxes, sales taxes, and property taxes. For high-net-worth individuals in states like California, New York, and New Jersey, where combined state income and property taxes often exceed $30,000 annually, this limitation has resulted in significantly higher federal tax liabilities. The deduction specifically includes: state income taxes (or sales taxes in lieu thereof), local income taxes, and real property taxes. However, it's crucial to understand that foreign income taxes and homeowner association fees are not deductible under SALT. Strategic considerations include evaluating the benefits of itemizing versus taking the standard deduction, which for 2025 is projected to be $15,800 for married couples filing jointly. Taxpayers should maintain meticulous records of all property tax payments and state tax withholdings, as the IRS requires substantiation for all claimed deductions. For those approaching the cap, consider prepaying state estimated taxes or property taxes where permissible, though beware of the Alternative Minimum Tax implications. Business entities may explore entity-level tax elections in certain states to circumvent individual SALT caps. Recent legislative proposals to increase or eliminate the SALT cap have stalled in Congress, making long-term planning essential. Consult with a qualified tax professional to develop a personalized strategy that considers your specific financial situation, state residency, and future tax law changes.