The Higher SALT Cap: What It Means for New Jersey Homeowners and Business Owners

What changed

For 2018 through 2024, you could deduct at most $10,000 of combined state and local taxes. The 2025 law raised that limit to $40,000 for 2025 and $40,400 for 2026 ($20,000 and $20,200 if you are married filing separately). It then rises about 1% a year through 2029 and is scheduled to return to $10,000 in 2030. The cap covers your property tax plus either state income tax or sales tax, added together.

Who gets the full benefit

The cap is reduced by 30 cents for every dollar of modified adjusted gross income above $500,000 for 2025 ($505,000 for 2026), but it never falls below $10,000. Households below that line get the full amount. Those above it get less, and very high earners are back near the old limit.

An illustration for a New Jersey household

Take a household that paid $18,000 in property tax and $9,000 in New Jersey income tax, a combination that is not unusual here. That is $27,000 of state and local tax. Under the old cap, $10,000 of it counted. Under the new one, all $27,000 can count, if the household itemizes. Add mortgage interest and charitable gifts, and itemizing may now beat the standard deduction where it did not before. This is an illustration, not a prediction: your numbers decide it.

Check the standard deduction first

You only get any of this if your itemized total exceeds the standard deduction for your filing status. Renters and homeowners with modest property tax bills often still do better taking the standard deduction. The reliable approach is to prepare the return both ways and compare, which is how we handle it. Our homeowner deductions guide covers the other pieces, such as mortgage interest.

If you own a pass-through business

New Jersey's Business Alternative Income Tax (BAIT) lets eligible partnerships and S-corporations pay state income tax at the entity level, which can be deducted federally as a business expense and so works around the cap. With a $40,000 cap, owners whose total state and local tax now fits under it may gain less from electing in. Owners above the cap, or phased down toward $10,000, can still benefit. See how your entity type affects this in our article on S-corp reasonable compensation in New Jersey, and our page on business tax preparation.

Timing matters before year-end

New Jersey property tax is billed in quarterly installments, due February 1, May 1, August 1 and November 1. Whether paying earlier or later changes your deduction depends on where you stand relative to the cap and the standard deduction, so check before you move any payment. A planning conversation now is cheaper than a correction in April. Our tax planning and consulting service is built for exactly this kind of decision.

Still filing a 2025 return?

The $40,000 cap applies to 2025 returns. If you filed an extension, the deadline is October 15, 2026. See our page on the October 15 extension deadline for how to file on time, or catch up if you miss it.

This article is for general informational purposes and isn't personalized tax advice. Tax rules and thresholds change, and this law is scheduled to change again after 2029. Confirm current figures with your preparer or directly at IRS.gov and nj.gov/treasury/taxation before filing.