One of the changes implemented with the Tax Cuts and Jobs Act (TCJA) of 2017 was a $10,000 cap, or limitation, on the state and local tax (SALT) deduction for both individual and married taxpayers. But this cap will not apply in tax year 2026 if Congress does not act to extend or raise it beyond the scheduled sunset on Dec. 31, 2025. If you have claimed the SALT deduction, before or after the TCJA, are you prepared for the financial implications when it changes in 2026?
This article is part of a series of informational articles to help you better understand which TCJA laws are scheduled to sunset and how the changes may impact your tax planning strategies. Each article that delves into the specifics of a certain tax provision is intended to educate as well as offer suggestions that can help minimize any negative tax implications. Articles in this series include:
What is the SALT deduction?
The SALT deduction can be claimed by taxpayers whose itemizations total a greater amount than the standard deduction. State and local taxes that are deductible on Schedule A include state income taxes or state sales taxes, real estate taxes, and personal property taxes. Historically, these taxes were deductible without limit, but the TCJA instituted the $10,000 cap, which, in addition to the much higher standard deduction, has freed most taxpayers from itemizing.
What’s changing in 2026?
The SALT cap is set to expire at the end of 2025, which will allow these taxes to be deductible once again. Before the TCJA implemented the SALT cap, the actual tax benefit received for high income taxpayers was limited by the alternative minimum tax (AMT) and the Pease limitation on overall itemized deductions. The AMT applies to taxpayers whose income is higher than a specified threshold amount and it was created to ensure higher-income taxpayers couldn’t eliminate their tax bill through large, itemized deductions, while the Pease limitation reduces the value of itemized deductions for high income taxpayers.
For residents of states with higher taxes, such as New York or California, an uncapped SALT deduction can be seen as important for reducing taxable income significantly. Remember, many other tax codes that changed with the TCJA are due to expire with the SALT deduction cap. They can impact each other and your tax filing results. Here are some laws to consider that are being sunset along with the SALT deduction cap:
- Standard deduction. The standard deduction nearly doubled under the TCJA. For 2024, it is $14,600 for single filers and $29,200 for married couples filing jointly; for 2017, it was $6,350 and $12,700, respectively. This is expected to be sunset and revert to 2017 amounts which will be adjusted for inflation.
- Mortgage interest deduction. The TCJA limited mortgage interest deductions to $750,000 mortgage debt for homes purchased after Dec. 15, 2017. In 2026, it could revert to deductions of the first $1 million in home mortgage debt and $100,000 in a home equity loan.
- Miscellaneous itemized deductions. The TCJA eliminated itemized deductions subject to the 2% adjusted gross income (AGI) floor, like unreimbursed employee expenses, brokerage and IRA fees, and tax return preparation fees. In 2026, these deductions will be allowed again according to previous rules, if they are more than 2% of the taxpayer’s AGI.
- Alternative minimum tax (AMT). Exemption amounts were increased with the TCJA. For 2024, an individual taxpayer’s exemption is $85,700; married and filing jointly is $85,700; and married and filing separately is $66,650. When this law sunsets, the AMT exemption will go back to pre-TCJA levels and adjust for inflation: individual $54,300; married and filing jointly $84,500; and married filing separately $42,250.
Prepare for tax changes
We recommend consulting with tax professionals familiar with your overall financial situation to prepare for the 2026 tax year changes, with the expectation that Congress may not act to extend the 2025 expiration of the capped SALT deduction along with the higher standard deduction.
At Mercer Advisors, we offer an integrated wealth management solution that includes tax planning, estate planning, insurance, financial planning, investment management, and more. If you’re not a Mercer Advisors client and want to know more about our tax optimization strategies and how they can help now and beyond the 2025 expiration date for TCJA laws, let’s talk.
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