How the SALT Deduction Affects Homeowners

SALT doesn’t have anything to do with adding flavor to food. As it relates to real estate, SALT stands for “State and Local Tax” deduction. In simple terms, it’s a break on a federal tax return because a homeowner has already paid their state and city taxes. Property tax is one tax that homeowners can claim for a SALT deduction. 

Here’s a little background. The 1913 Congress established the SALT deduction. It has been passed around like a hot potato in the U.S. Congress in recent years. In 2017, under the “Tax Cuts and Jobs Act” (TCJA), the SALT deduction was limited to $10,000 for both individuals and married couples who file together. It was limited to $5,000 for those married and filing separately. 

Before that, taxpayers had no cap on the SALT deduction, meaning that they could deduct up to 100 percent of their city and state taxes on their returns. Fast forward to the present day and as of less than a few weeks ago (July 2025), the SALT cap has been raised to $40,000 per household. Let’s look at everything you should know about SALT.

Simplifying SALT

Typically, a taxpayer pays federal, state, and local taxes through their income tax on a paycheck if they are on a W-2. State and local taxes are deductible under SALT if a person itemizes their tax returns. Self-employed filers can also itemize their tax returns and estimate the taxes they will owe. 

Besides income taxes, what other taxes qualify for the SALT deduction? 

• State income taxes or state sales taxes (not both) 
• Local income taxes 
• Property taxes on real estate 
• Personal property taxes on vehicles

SALT Deduction Pros and Cons Analysis

Possible Pros of SALT Deduction 

The biggest pro of the SALT deduction is that it can be viewed as preventing double taxation, avoiding federal tax on money that has already been paid to state or local services. In areas with higher state and local taxes, taxpayers benefit slightly more, as they can deduct more on their returns. There is also a benefit for homeowners, as they can deduct real estate property taxes.  

Some people also view this deduction as helping states maintain a higher tax rate for their services—meaning the money goes directly to the state, rather than to the federal government. 

Possible Cons of SALT Deduction

Some see the SALT deduction as a regressive tax considering that higher-income taxpayers benefit more in absolute dollars. Also, the federal government loses money the higher the SALT deduction. This can add to the country’s fiscal deficit. Another big con can be that there’s some interstate inequality, meaning SALT creates advantages for high-tax state residents but not lower-taxed states. It can also complicate the tax filing process as opposed to a simple tax filing with a standard deduction.

Urban vs. Rural Impact:

Cities and High-Tax Areas

Typically, in urban areas in the United States, houses have higher property taxes—meaning they benefit more from a SALT deduction. This also means cities in high-tax states do not benefit from a cap on the deduction. A higher overall tax burden makes the deduction more valuable. This means, in general, that urban areas are more likely to support the repeal of the SALT cap. Think of high-tax cities like New York City, San Francisco, and Los Angeles. 

Rural and Low-Tax Areas

In more rural areas of the United States, property taxes are often lower. This means they typically fall below the $10,000 SALT cap. This cap is less likely to affect rural taxpayers. Many rural taxpayers benefit more from a higher standard deduction than from itemizing. This is because rural incomes tend to be lower than those in urban areas. Itemizing their tax returns may not be worth it. Many rural regions rely more on sales tax than other types of taxes to support their services. Think of low-tax states like Texas, Wyoming, and Tennessee.

Potential Economic Impacts

When the SALT deduction is capped, it can make home ownership more burdensome, especially for first-time homeowners. This increases the after-tax cost of owning a home. Reducing tax credits for new homeowners sometimes makes urban areas less appealing. This, in turn, could slow down home price growth in the area.  

One of the largest impacts of SALT is that it can create an imbalance between what states contribute to the federal government and what they receive in return. States could contribute significantly more to the federal government than what they receive in program expenditures. 

Maximizing SALT Deduction Benefits

Whether or not SALT benefits a taxpayer is up to them and their unique situation. Those living in higher-taxed states benefit more, while those in lower-taxed states see little to no benefit. Homeowners may also benefit more from the SALT deduction than renters, as they typically pay property taxes. 

The future of SALT is currently undecided but is likely to be debated in the coming year. The discussion will focus on changing the cap from $10,000 to $40,000. While lawmakers debate the SALT deduction, REMAX will continue to monitor changing market trends. If a taxpayer doesn’t know if the SALT deduction is for them, it may be a good idea to chat with a tax professional. They will explain the pros and cons of the SALT deduction and if it’s a good choice for a taxpayer’s situation.