Real Estate Tax Calc
What changed
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, raised the federal SALT (state and local tax) deduction cap from $10,000 to a base of $40,000. Adjusted for inflation at 1 percent per year, the ceiling for the 2026 tax year is $40,400 — a fourfold increase from the limit that had applied since the 2017 Tax Cuts and Jobs Act.
The expanded cap covers the same types of taxes that have always qualified under Section 164: state income taxes (or state and local sales taxes, at your election), local income taxes, and real property taxes on property you own personally. The cap is scheduled to rise 1 percent per year through 2029, reaching roughly $40,804 in 2027 and $41,616 in 2029, then reverts to $10,000 in 2030 unless Congress extends it.
A phase-down applies for higher earners. Once your modified adjusted gross income (MAGI) exceeds $500,000, the additional benefit above the old $10,000 floor shrinks at 30 cents for every dollar of income above that threshold. The incremental benefit is fully phased out at approximately $600,000 of MAGI — at which point the effective cap returns to $10,000 for that taxpayer.
Why it matters to real estate investors
Real estate investors in high-tax states typically face SALT payments from two directions: property taxes on their personal residence and state income taxes on rental income and capital gains. Under the old $10,000 cap, many investors in states such as New York, New Jersey, California, Illinois, and Massachusetts had long since hit the ceiling, effectively losing the deduction on any state taxes above $10,000.
At $40,400, most itemizing investors in those states can now deduct a materially larger share of what they actually pay. An investor whose personal-residence property taxes are $12,000 and whose state income taxes on rental income total $15,000, for example, could previously deduct only $10,000 total; the new ceiling allows deducting the full $27,000 — a $17,000 increase that translates directly into lower federal taxable income.
One important clarification: the SALT cap does not apply to property taxes on rental or business properties. Those taxes are deductible in full on Schedule E (or Schedule C) as ordinary business expenses, outside the cap entirely. The SALT change is most meaningful for your personal-residence property taxes and state income taxes that would otherwise be bottlenecked on Schedule A.
The deduction is only available to taxpayers who itemize deductions. Because the OBBBA also increased the standard deduction, investors near the itemization threshold should verify with a CPA whether itemizing still produces a better result in 2026 before counting on the expanded SALT benefit.
What to do before year-end
Update your itemized-deduction projection. If you were capped at $10,000 in prior years, run a fresh estimate now. Total your personal-residence property taxes, state income taxes (or estimated Q4 state estimated payments due in January), and any local income taxes. Compare the revised Schedule A total against your standard deduction to confirm itemizing is the better choice for 2026.
Check whether the phase-down affects you. Investors with large rental portfolios, capital gains from property sales, and business income can accumulate MAGI well above $500,000. The SALT cap's incremental benefit above $10,000 starts to shrink once MAGI crosses that threshold and disappears by roughly $600,000. If a major property sale or 1031 exchange is on your calendar for late 2026, model how the resulting gain interacts with this phase-down.
Do not double-count rental property taxes. Property taxes on investment and rental properties belong on Schedule E — not Schedule A — and are not subject to any cap. The SALT change improves only your personal-side tax picture.
Plan for the 2030 sunset. The $40,000-base cap expires after 2029. Investors who plan to generate large capital-gains events or face elevated state income tax in 2030 or beyond should note that the deductibility benefit may not be available unless Congress extends the provision.
Frequently asked questions
Does the higher SALT cap help with taxes on my rental properties?
Indirectly, yes — but not in the way many assume. Property taxes on rental and business properties are already fully deductible on Schedule E, outside the SALT cap. What the higher cap helps with is your personal-residence property taxes and state income taxes on your individual return. If those costs were previously capped at $10,000, you can now deduct up to $40,400 on a 2026 Schedule A.
When does the $40,400 SALT cap expire?
The elevated cap runs through the 2029 tax year, rising 1 percent per year (to approximately $40,804 in 2027, $41,212 in 2028, and $41,624 in 2029). Under the One Big Beautiful Bill Act's sunset provision, the cap reverts to $10,000 in the 2030 tax year unless Congress passes new legislation to extend it.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.