NEWS
Homeowners entering the 2026 tax year will face a revised federal tax framework, as changes to the SALT deduction take effect under the Inflation Reduction Act. The updated rules alter how state and local tax payments and home mortgage interest reduce taxable income, with results that vary widely based on income level, filing status, and location.
The One Big Beautiful Bill Act, a reconciliation bill signed into law in 2025, introduced a series of tax changes affecting individuals who claim deductions beyond the standard amount on their federal returns. For homeowners, the most consequential update is the temporary expansion of the SALT deduction cap, which determines the amount of state and local taxes that can be claimed as a federal deduction.
For tax years 2025 through 2029, the SALT deduction limit increases to $40,000 for joint filers and married individuals filing jointly. The cap applies to a combination of state income taxes, eligible sales taxes, and real estate taxes paid to state and municipal governments. Under prior law, the $10,000 cap imposed by the Tax Cuts and Jobs Act sharply limited the value of these deductions, particularly for households in high-tax areas.
The higher SALT deduction cap is not available to all taxpayers. Homeowners with a modified adjusted gross income above $500,000 are subject to a phase-out that reduces the allowable deduction as income increases. At higher income levels, the benefit declines until it effectively reaches the prior $10,000 limit.
This structure means the SALT deduction 2026 framework primarily benefits upper-middle-income households rather than the highest earners. For taxpayers near the threshold, relatively small income changes can significantly impact the size of the federal deduction they can claim.
Despite the expanded SALT cap, the standard deduction remains a significant factor in determining filing outcomes for most households. For the 2026 tax year, the standard deduction is $32,200 for joint filers and $16,100 for separate filers. Homeowners only benefit from claiming itemized deductions if their total eligible write-offs exceed these thresholds.
To benefit from claiming individual tax deductions, homeowners must exceed these thresholds. In practice, many households with moderate tax bills or smaller mortgages may still find that the standard deduction results in a lower taxable income than itemizing.
Amounts claimed for state and local taxes, mortgage interest, charitable giving, and certain medical expenses are reported as itemized deductions on Schedule A and then carried over to Form 1040. Tax professionals caution that the expanded SALT cap does not automatically make itemizing advantageous and that calculations must be revisited each year.
While the SALT rules changed, the law preserved the existing limit on deductible home mortgage interest. Homeowners may continue to deduct interest on up to $750,000 of qualified mortgage debt used to buy, build, or substantially improve a primary residence.
Beginning in 2026, private mortgage insurance premiums will become deductible as part of mortgage interest. This provision had previously expired and now returns as a meaningful factor for certain homeowners.
The PMI provision primarily affects buyers who made smaller down payments and are required by lenders to carry private mortgage insurance. For these households, deductible PMI premiums can add several thousand dollars to total deductions, increasing the likelihood that claiming deductions produces a benefit over the standard amount.
Homeowners who no longer carry PMI or who made larger down payments are less likely to see a direct impact.
Location remains one of the most essential variables under the new rules. Homeowners in high-tax areas such as New York State and City, California, New Jersey, and Connecticut are more likely to approach or reach the expanded SALT cap due to higher combined state and local tax burdens.
In those states, the difference between the former $10,000 limit and the temporary $40,000 cap can materially increase the amount eligible for deduction. In contrast, homeowners in states with no income tax or relatively low real estate taxes may still fall below the standard deduction threshold.
Policy analysts note that this uneven distribution mirrors prior debates over the SALT deduction, with benefits concentrated in a limited number of states.
For higher-income taxpayers, the SALT phase-out is only one of several limitations. Certain filers are also subject to caps on how much deductions can reduce taxable income, regardless of the dollar amount claimed.
As a result, homeowners with significant tax payments and substantial mortgage interest may see a smaller reduction in federal tax liability than expected. Certified financial planners warn that overlapping limits make outcomes less predictable for households with fluctuating income.
The expanded SALT deduction cap is scheduled to expire after the 2029 tax year. If Congress does not act, the cap will revert to $10,000 beginning in 2030.
This temporary window creates planning challenges for homeowners making long-term decisions. Choices involving home purchases, refinancing, or relocation may look different once the current provisions sunset.
Some taxpayers may consider adjusting the timing of deductible expenses while the higher cap remains in effect. These strategies depend on local rules and Internal Revenue Service requirements and must be supported by proper documentation.
Failure to maintain accurate records for taxes paid, mortgage interest, and PMI premiums can result in disallowed deductions during an audit.
As the 2026 filing season approaches, homeowners should review their property tax bills, mortgage interest statements, and PMI disclosures, where applicable. Filing status, whether as joint filers or separate filers, also affects how deductions are calculated.
Tax professionals emphasize that the updated rules increase complexity rather than simplify the filing process. A careful review is essential for homeowners seeking to understand how the 2026 SALT deduction changes apply to their specific circumstances.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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