If you own a home in a high-tax state like New York, California, or New Jersey, you’ve likely spent the last seven years feeling the sting of the "SALT cap." Since the Tax Cuts and Jobs Act (TCJA) of 2017 took effect, millions of American taxpayers have been limited to a maximum $10,000 deduction for state and local taxes, regardless of whether they paid $15,000 or $150,000. For many of our clients at Zenith Financial Advisors, this has meant losing out on tens of thousands of dollars in potential tax savings every single year. But the landscape is about to shift dramatically. On December 31, 2025, the TCJA provisions are scheduled to sunset. According to the Tax Foundation, unless Congress intervenes, the $10,000 SALT cap will disappear in 2026, restoring the full deductibility of state and local income taxes and real estate taxes. For a homeowner with a $25,000 tax bill, this isn't just a policy change—it’s a massive financial opportunity that requires immediate planning.
Key Takeaways
- The $10,000 SALT deduction limit is set to expire on December 31, 2025, reverting to pre-2018 rules.
- In 2026, homeowners can likely deduct the full amount of their state income (or sales) taxes and property taxes on Schedule A.
- The standard deduction is expected to be cut nearly in half, making itemized deductions more advantageous for most high-earners.
- Expats and cross-border professionals may see the return of deductibility for foreign real property taxes, which were barred under the TCJA.
- Strategic timing of property tax payments between 2025 and 2026 could result in five-figure tax differences.
The Great Reversion: Why 2026 Changes Everything for Homeowners
The Tax Cuts and Jobs Act of 2017 was the most significant overhaul of the US tax code in three decades. While it lowered marginal rates, it paid for those cuts by scaling back popular deductions—most notably the State and Local Tax (SALT) deduction. Under Internal Revenue Code Section 164(b)(6), taxpayers were restricted to a $10,000 aggregate deduction ($5,000 if married filing separately) for state and local income, sales, and property taxes.
According to IRS Statistics of Income (SOI) data, in 2017 (the last year before the cap), nearly 47 million taxpayers claimed the SALT deduction, with an average deduction of approximately $15,500. In high-cost jurisdictions, that average was significantly higher. For our clients in the tri-state area or the West Coast, property taxes alone often exceed $20,000. When the clock strikes midnight on December 31, 2025, the legal "sunset" clause triggers a return to the 2017 rules.
Per the Congressional Research Service (CRS), this expiration means that starting in the 2026 tax year, there will no longer be a dollar limit on the SALT deduction. If you pay $30,000 in state income tax and $15,000 in local real estate tax, your total itemized deduction for SALT could potentially be $45,000. This shift is particularly impactful because it coincides with the reduction of the standard deduction. Currently, for 2024, the standard deduction is $29,200 for married couples. In 2026, it is projected to drop back to approximately $15,000 (adjusted for inflation), making it much easier for homeowners to exceed the threshold where itemizing on Schedule A (Form 1040) becomes more beneficial than taking the standard deduction.
Source: IRS.gov - SOI Tax Stats
Analyzing the Numbers: The SALT Cap vs. Unlimited Deductions
To understand the magnitude of this change, we must look at how it interacts with the projected 2026 tax brackets. Not only is the SALT cap disappearing, but the marginal tax rates are also scheduled to increase. The current 12%, 22%, 24%, 32%, 35%, and 37% brackets will revert to 15%, 25%, 28%, 33%, 35%, and 39.6%.
Consider a married couple in California earning $400,000. They currently pay roughly $35,000 in state income tax and $12,000 in property taxes. Under the current $10,000 cap, they lose $37,000 in deductions. In 2026, they would be able to deduct the full $47,000. When you combine a higher deduction with a higher marginal tax rate (reverting to 33% or 35% for this income level), the actual cash savings in their pocket could exceed $12,000 annually compared to the TCJA era.
| Tax Component |
2024/2025 (TCJA Rules) |
2026 (Projected Sunset) |
| SALT Deduction Limit |
$10,000 |
Unlimited |
| Standard Deduction (MFJ) |
~$29,200 |
~$15,000 (Adjusted) |
| Top Marginal Rate |
37% |
39.6% |
| Foreign Property Tax |
Not Deductible |
Potentially Deductible |
According to the U.S. Department of the Treasury’s Office of Tax Analysis, the SALT cap disproportionately affected households in the top 20% of earners. As we move toward 2026, our team is focusing on "deduction clustering." If you have the flexibility to defer certain state tax payments or property tax installments from late 2025 into early 2026, you may be able to move a non-deductible expense (anything over $10,000 in 2025) into a year where it is 100% deductible. However, this must be balanced against the Alternative Minimum Tax (AMT), which is also set to expand in 2026, potentially clawing back some of these SALT benefits.
Source: Treasury.gov - Office of Tax Analysis
Cross-Border Implications: A Windfall for US Expats in Canada
For our clients living in Canada or other high-tax foreign jurisdictions, the sunset of the TCJA brings an even more nuanced benefit. Prior to 2018, U.S. citizens living abroad could often deduct foreign real property taxes on their Schedule A. The TCJA specifically amended Section 164 to state that "foreign real property taxes... shall not be taken into account" unless they were incurred in a trade or business.
If the TCJA expires fully, this restriction on foreign property taxes also disappears. For a US expat in Toronto or Vancouver paying $8,000 CAD in property taxes, this could represent a significant new deduction. While many expats rely on the Foreign Tax Credit (Form 1116) or the Foreign Earned Income Exclusion (Form 2555) to mitigate double taxation, itemizing deductions remains a critical tool for those with high US-source income or those whose foreign taxes don't perfectly offset their US liability.
Our team notes that per IRS Publication 514, foreign taxes used as a credit cannot also be taken as a deduction. However, property taxes are rarely eligible for the Foreign Tax Credit (which covers income taxes). Therefore, the return of the property tax deduction on Schedule A provides a "double benefit"—you can use the Foreign Tax Credit for your Canadian income taxes while simultaneously using the itemized deduction for your Canadian property taxes. This interaction is complex and requires careful coordination between your CRA filings and your IRS Form 1040.
Source: IRS Publication 514 (Foreign Tax Credit)
The Return of the AMT Trap
While the "death" of the SALT cap sounds like a universal win, there is a technical dragon lurking in the 2026 tax code: the Alternative Minimum Tax (AMT). The TCJA significantly increased the AMT exemption amounts and the phase-out thresholds, which effectively shielded most middle-to-high-income families from the AMT since 2018. According to the Tax Policy Center, the number of AMT taxpayers fell from 5 million in 2017 to just 200,000 in 2018.
In 2026, the AMT exemption thresholds are scheduled to revert to their much lower pre-2018 levels. This is critical because under AMT rules, state and local tax deductions are *not* allowed. This means that even if the SALT cap is gone for "regular" tax purposes, the AMT might step in and take those savings away for high-income earners. Per FinCEN and Treasury research on tax compliance, this "shadow tax system" was originally designed to ensure the wealthy paid a minimum amount of tax, but before the TCJA, it frequently hit families in high-tax states who had large SALT deductions.
We are advising our clients to run dual projections for 2026. If your projected income exceeds $200,000 (single) or $400,000 (married), you may find that while your SALT deduction is unlimited on Schedule A, your actual tax liability is dictated by the AMT, which ignores that deduction entirely. This makes 2025 a pivotal year for proactive income smoothing and legislative monitoring.
Source: Tax Policy Center - AMT Analysis
PRO TIP: The "Prepayment" Trap
Be careful with prepaying 2026 property taxes in late 2025. While it might seem smart to "load up" on deductions, the IRS has historically ruled (and the TCJA codified) that prepayments of state income taxes for a future year are not deductible in the year paid if the tax hasn't been assessed. However, for real estate taxes, if the tax is assessed in 2025 but due in 2026, you may have a window of opportunity. Always consult with us before sending a check to your county treasurer early.
Common Mistakes to Avoid in 2026 Tax Planning
- Ignoring the Standard Deduction Cliff: Many taxpayers have spent years not tracking their property tax or charitable receipts because the $29,200 standard deduction was so high. In 2026, you must return to diligent record-keeping, as the lower standard deduction makes every receipt valuable again.
- Overlooking Sales Tax Election: Remember that you can choose to deduct either state income tax OR state sales tax. If you live in a state with no income tax (like Florida or Washington) and are planning a major purchase in 2026 (like a car or boat), the unlimited sales tax deduction could be significant.
- Miscalculating the "Marriage Penalty": Under the TCJA, the $10,000 cap was the same for singles and married couples ($10k total). In 2026, the reversion may provide different relief levels based on filing status. Ensure your withholding is adjusted accordingly to avoid underpayment penalties (Form 2210).
- Forgetting About Pass-Through Entity (PTE) Taxes: Many states enacted "SALT cap workarounds" for business owners. When the federal cap disappears, these state-level PTE elections may no longer be optimal and could actually complicate your filings.
Frequently Asked Questions
Will Congress extend the SALT cap before it expires?
It is possible. The SALT cap is a highly political issue. Republicans generally favor the cap as a revenue raiser, while Democrats from high-tax states (NY, CA, NJ) have fought to repeal it. The outcome of the 2024 elections will likely determine if the cap is extended, modified, or allowed to expire as scheduled.
Does this change affect my self-employed business expenses?
No. Taxes paid in connection with a trade or business (reported on Schedule C, E, or F) were never subject to the $10,000 SALT cap. This change specifically impacts personal itemized deductions for homeowners and high-income employees.
Can I deduct foreign income taxes on Schedule A in 2026?
Yes, you have the option to either take a credit (Form 1116) or a deduction (Schedule A) for foreign income taxes. In 99% of cases, the credit is more valuable because it is a dollar-for-dollar reduction of tax, whereas a deduction only reduces your taxable income. However, for foreign property taxes, the deduction is the primary path.
What happens if I itemize in 2026 but don't have enough deductions?
You always have the choice to take the higher of the two: your total itemized deductions or the standard deduction. In 2026, with the standard deduction dropping, most homeowners with even a modest mortgage and state taxes will find that itemizing is the clear winner.
Maximize Your 2026 Tax Strategy
The sunset of the TCJA is the biggest tax planning event of the decade. Don't leave your deductions to chance. Our team at Zenith Financial Advisors specializes in navigating complex US/Canada cross-border regulations and high-net-worth tax planning.
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