State And Local Tax Deduction or SALT

The SALT deduction stands for state and local taxes; in other words, S-A-L-T. 

For example, if you pay state and local taxes in the amount of $15,000, then you are allowed to take a federal tax deduction up to $40,000 on your IRS tax return if you itemize. 

You can deduct property taxes and state and local income taxes or you can deduct property taxes and sales taxes if you itemize your deductions. You cannot deduct state and local income taxes and sales taxes in the same year.

• If you live in a state that has high income taxes, such as California, New Jersey, Maryland, or New York, you might opt to deduct state and local income taxes.
• If you live in a state that has high sales taxes, such as Arkansas or Louisiana, you might choose to deduct sales taxes.
• Most taxpayers decide to deduct income taxes since they are usually higher than sales taxes.

See how state taxes compare.

The SALT deduction has been a part of our federal income tax since 1913. The SALT deduction is one of the largest federal tax expenditures as it costs the federal government trillions of dollars in lost revenue opportunities which is why it was limited to $40,000 $40,000 (Singles, married filing jointly) ($20,000 for married individuals filing separately) (increase by 1% until 2029) annually.  Wealthier taxpayers or those with incomes of over $100,000 benefit the most from the SALT deduction.

See more tax history.

If you live in a state and/or locality with income taxes, then this is withheld from your salary or pay and is listed on Forms W-2, 1099-G, 1099-R, or other tax form. If your total itemized deductions are greater than your standard deduction and you don't deduct sales taxes, then you should deduct your state and local income taxes.

You may have made estimated tax payments this year; these could be taxes paid for a prior year or for the current tax year. If your total itemized deductions are greater than your standard deduction and you don't deduct sales taxes, you can deduct prior and current year estimated tax payments made.

State and local sales tax that you paid on items such as food, clothing, medical supplies, a new car, or other expense can be considered for your deduction. If you saved your receipts throughout the year, you could add up the total amount of sales taxes you actually paid and claim that amount.

You should consider deducting sales taxes paid if you made a big purchase during the year, such as a new car or large home improvement.

If your total itemized deductions are greater than your standard deduction and you don't deduct state and local income taxes, then you can deduct sales taxes.

You can deduct real estate property taxes that you paid on a property that you owned that wasn't for a business and personal property taxes you paid if the tax was based on the item’s annual value. For most people, this be would a large item such as a car or a boat. Claim these on your taxes if your total itemized deductions are greater than your standard deduction.

You can also deduct home mortgage interest paid on the federal level.

Mandatory contributions you made to any state-related disability funds, unemployment or workmen's compensation funds, or family leave programs (this only applies to certain states such as California, Alaska, New Jersey, or Pennsylvania) are generally deductible. Claim them if your total itemized deductions are greater than your standard deduction.

A state or local income tax refund (or credit or offset) should be included as income if you deducted the tax in an earlier year. The state or payer of the refund payer should send Form 1099-G to you by January 31 following the tax year in question.

If you itemized deductions last year and deducted state and local taxes paid (not sales taxes), then you should report the refund as income.

The IRS will also receive a copy of the Form 1099-G. When you e-file your taxes on eFile.com, the tax app will calculate the amount for you and add it to Schedule 1.

We make all these decisions easy for you when it comes to SALT. When you prepare and e-file your return on eFile.com, you can enter your SALT deduction on the Taxes Paid screen. You can report state and local income taxes, sales taxes, real estate taxes, or personal property taxes there. We will calculate the deduction amount for you and report it on your return.

Based on your tax situation, we will determine what is most tax advantageous to you and whether you should itemize or use the standard deduction.

The eFile Tax App is updated with the IRS tax code every year so you always claim the right SALT deduction you are entitle to plus applicable tax deductions and tax credits.