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DEEPYIELDTAX STRATEGIES

The SALT Cap After the 2025 Tax Law: What Changed for High Earners and Landowners

Short answer: The state and local tax (SALT) deduction cap still applies after the 2025 tax law, but at a higher level. Section 70120 of Public Law 119-21 raised the cap to forty thousand dollars for 2025 (half that if married filing separately), with small step-ups through 2029 and a return to ten thousand dollars starting in 2030. For higher incomes the cap phases down, but not below ten thousand dollars (five thousand if married filing separately). The cap applies to the taxes you itemize on Schedule A. Under section 164(b)(6), it doesn't apply to real estate and personal property taxes paid in carrying on a trade or business, so property taxes on farm or ranch business assets belong on Schedule F instead. How each piece of land is used and reported decides which side of that line its taxes fall on.

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1. What the SALT cap covers

The 2025 Schedule A instructions say the deduction for state and local taxes is generally limited, and that the taxes subject to the limit "are the taxes that you include on lines 5a, 5b, and 5c":

  • Line 5a: state and local income taxes, or general sales taxes if you choose to deduct those instead.
  • Line 5b: state and local taxes on real estate you own "that wasn't used for business."
  • Line 5c: state and local personal property taxes based on value alone and imposed yearly.

Line 5d adds them up, and line 5e is the capped amount that actually counts. If line 5d is more than line 5e, the difference isn't deducted.

What to check: line 5d against line 5e on Schedule A, and which taxes were put on lines 5a through 5c in the first place.

2. What the 2025 tax law changed

Section 70120 of Public Law 119-21, commonly known as the One Big Beautiful Bill Act, amended section 164(b)(6) and added section 164(b)(7), for tax years beginning after December 31, 2024:

  • No end date. It struck "and before January 1, 2026," so the cap no longer expires after 2025.
  • A higher cap, set by year. The fixed ten-thousand-dollar cap was replaced with an "applicable limitation amount": forty thousand dollars for 2025, forty thousand four hundred dollars for 2026, then a small increase each year through 2029 (the statute sets each year's amount from the year before). For tax years beginning after 2029, the amount is ten thousand dollars again.
  • Married filing separately. The cap is half the applicable limitation amount.
  • Foreign real estate taxes. The same struck end date applies to the rule that foreign real property taxes don't count as deductible real property taxes, so that rule no longer expires either. The Schedule A instructions say not to include "Foreign taxes you paid on real estate" on line 5b.

The 2024 return was the last one under the old fixed cap. Publication 550 (2025) notes that in the prior year the limit was ten thousand dollars (half that if married filing separately).

What to check: whether the 2025 return used the higher cap, and that the 2024 return used the old one.

3. The phase-down for high earners

For tax years beginning before 2030, section 164(b)(7)(B) reduces the cap as income rises:

  • Threshold. The reduction starts when modified adjusted gross income passes five hundred thousand dollars for 2025 and five hundred five thousand dollars for 2026, with a small increase each year after that (half the threshold if married filing separately).
  • Rate. The cap drops by thirty cents for each dollar of modified adjusted gross income over the threshold.
  • Floor. The statute says the reduction can't take the cap below ten thousand dollars. The Schedule A instructions put it the same way: the limit "will not be reduced below" ten thousand dollars (five thousand if married filing separately).
  • Modified AGI. The statute defines it as adjusted gross income plus any amount excluded under sections 911, 931 or 933 (foreign earned income and income from certain U.S. territories).

On the return, this runs through the State and Local Tax Deduction Worksheet in the Schedule A instructions for line 5e. The worksheet starts from Form 1040, line 11b, adds back any excluded income, compares the total with the threshold, and ends with "the larger of" the reduced amount or the floor.

What to check: whether the line 5e worksheet was completed when line 11b was over the threshold, and whether any excluded foreign or territory income was added back.

4. Taxes on business property aren't under the cap

Section 164(b)(6) itself carves out business taxes. After the cap, it says the limit "shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212." Paragraphs (1) and (2) are state and local real property taxes and personal property taxes.

The IRS forms follow that line:

  • Schedule A line 5b covers real estate "that wasn't used for business."
  • Publication 225 (2025): "You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings."
  • Schedule F instructions (2025), line 29: you can deduct "Real estate and personal property taxes on farm business assets," but not "Taxes on your home or personal-use property."
  • Schedule E instructions (2025): for rental and royalty property, "You can deduct all ordinary and necessary expenses, such as taxes, interest, repairs, insurance." Schedule A is for interest, taxes and casualty losses "not related to your business."
  • Publication 225: a landowner who receives crop-share rent and doesn't materially participate in operating the farm reports that income on Form 4835 and carries the net income or loss to Schedule E.

Taxes deducted on Schedule F or Schedule E reduce the profit (or add to the loss) reported there, so they don't depend on whether you itemize. If the schedule shows a loss, other IRS limits on losses, such as the at-risk and passive activity rules, can still limit how much of it you can use that year.

One limit on the carve-out: state income tax. The business exception covers property taxes, not state income tax on business profit. Publication 225 says: "Individuals can't deduct state and federal income taxes as farm business expenses. Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040)." Publication 17 says the same, even if your only income is from business, rents or royalties.

What to check: whether property taxes on farmland, farm buildings, equipment and livestock were deducted on Schedule F line 29, rather than added to Schedule A line 5b where the cap applies.

5. How the land is used and reported

The split depends on facts, parcel by parcel.

  • The farm home. Publication 225: "The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes." Those go on Schedule A. To find the nonbusiness part, Publication 225 says to "allocate the taxes between the farm assets and nonbusiness assets," which "can be done from the assessed valuations."
  • A ranch that isn't run as a business. Publication 525 describes "a farm you operate mostly for recreation and pleasure" as an activity not for profit. Publication 225 says that if you don't carry on your farming activity to make a profit, "You can no longer deduct expenses of carrying on the activity, even if you itemize your deductions on Schedule A (Form 1040)." Taxes are the exception: Publication 225 lists them among the deductions "you can take for personal as well as for business activities," so property taxes on a ranch that isn't a business can still be itemized on Schedule A, where the cap applies. So the business carve-out depends on the ranch being a business. Our page on how the IRS looks at a ranch covers that question.
  • Rental property with personal use. Publication 527 says that if you sometimes use your rental property for personal purposes, "you must divide your expenses between rental and personal use." The personal-use share of the property tax is a Schedule A item.
  • Land you just bought. Publication 225 says that if you pay real estate taxes the seller owed and the seller doesn't reimburse you, those taxes are part of your basis rather than a deduction. If you reimburse the seller for taxes the seller paid for you, you can generally deduct that amount in the year of purchase. See our page on tax questions to raise before buying a ranch.
  • Land held for investment. The statute's carve-out also names "an activity described in section 212" (property held to produce income). How that applies to a particular parcel, and where it's reported, is a question to take to your CPA.

What to check: each property tax bill, matched to the parcel and the schedule it was reported on, and whether the home share of the farm tax bill was split out by assessed valuation.

6. State pass-through entity taxes

Some states tax a partnership or S corporation on its own income, in some cases by an election the entity makes. The IRS addressed this in Notice 2020-75. The Treasury Department and the IRS said they "intend to issue proposed regulations" clarifying that "Specified Income Tax Payments" are "deductible by partnerships and S corporations in computing their non-separately stated income or loss," and that such a payment "is not taken into account in applying the SALT deduction limitation to any individual who is a partner in the partnership or a shareholder of the S corporation." The notice says taxpayers "may rely on the provisions of this notice" before the proposed regulations are issued. As of October 2026, we haven't found any proposed regulations published under the notice, so the notice itself remains the IRS guidance on this point.

Two cautions. The notice is about income taxes a state imposes on the entity itself, as it defines "Specified Income Tax Payment"; whether a particular state's tax and your entity's election fit that definition is a state-law question for your CPA. And the 2025 tax law left this alone: section 70120 doesn't mention these entity-level taxes, the change it made is to the individual cap, and the enacted law doesn't add any other limit on them.

What to check: any Schedule K-1 showing a state entity-level tax paid for you, and whether the same state tax was also claimed on your own Schedule A.

7. Itemizing or the standard deduction

The cap only matters if you itemize. The 2025 Schedule A instructions say: "In most cases, your federal income tax will be less if you take the larger of your itemized deductions or your standard deduction." Publication 17 says you "should itemize deductions if your total deductions are more than your standard deduction amount," and that you can elect to itemize even when itemized deductions are lower, for example when itemizing on your state return gives a greater benefit. The standard deduction also increased for 2025 (see the 2025 Form 1040 instructions).

A higher cap can move a household from the standard deduction to itemizing, or the other way, from one year to the next.

What to check: whether the 2025 return compared both choices with the higher cap in place, and whether that choice matched your state return where your state ties the two together.

8. What to check on your last two returns

  • Schedule A, lines 5a through 5e, on both years: the 2024 return under the old fixed cap and the 2025 return under the new one.
  • The line 5e worksheet on any 2025 return with Form 1040 line 11b over the threshold, or with excluded foreign or territory income (Form 2555, Form 4563 or Puerto Rico).
  • Property tax bills for every parcel, and whether the business share went on Schedule F line 29, Schedule E or Form 4835 rather than Schedule A.
  • The farm-home allocation: the home, furnishings and surrounding land not used for farming on Schedule A, the farm assets on Schedule F.
  • Sales tax on farm equipment: the Schedule F instructions say to treat it "as part of the cost of the property," not as a deductible tax.
  • Prepaid property tax: the Schedule A instructions say "Only taxes paid in 2025 and assessed prior to 2026 can be deducted for 2025."
  • Schedule K-1s from partnerships or S corporations that paid a state entity-level tax.
  • Itemized deductions against the standard deduction for each year.

Where DeepYield fits

DeepYield is a second set of eyes, not a replacement for your CPA. A free two-year look-back is a review of your last two years of tax returns, done for you, then a 30-minute call to walk through what we found. For the SALT cap, that means checking where each tax landed: Schedule A against Schedule F or Schedule E, the line 5e worksheet, and the farm-home allocation. We go looking for what's missing, and we share what we see with you and your CPA, who can review it line by line. Sometimes the review ends with nothing to change.

Related: Tax Planning for High-Income Earners · Can a Ranch Loss Offset Your W-2 Income? The IRS Limits That Apply, in Order · RSUs, Stock Options and ESPP Shares: How They're Taxed and What to Check on Your Return · Charitable Giving Under the 2026 Rules: Bunching, Donor-Advised Funds and Gifts of Stock · Hobby or Business? How the IRS Looks at a Ranch · Buying a Ranch or Farmland: Tax Questions to Raise Before Closing · Year-End Tax Planning for Farmers and Ranchers · Can You Get a Second Opinion on Your Tax Return?

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Frequently asked questions

What is the SALT deduction cap for 2025?

Forty thousand dollars, or half that if married filing separately, under section 164(b)(7) as added by section 70120 of Public Law 119-21. For 2026 it's forty thousand four hundred dollars. For higher incomes, the cap phases down, but not below ten thousand dollars (five thousand if married filing separately).

Is the higher SALT cap permanent?

The cap itself no longer has an end date, but the higher amount doesn't last. The statute sets the amount for 2025 and 2026, increases it slightly each year through 2029, and sets it at ten thousand dollars for tax years beginning after 2029. The income-based phase-down also applies only to tax years beginning before 2030.

How does the SALT cap phase down for high incomes?

The cap drops by thirty cents for each dollar of modified adjusted gross income over the threshold: five hundred thousand dollars for 2025 and five hundred five thousand dollars for 2026 (half if married filing separately). It can't go below ten thousand dollars. Modified adjusted gross income is adjusted gross income plus any income excluded under sections 911, 931 or 933. The Schedule A instructions include a worksheet for line 5e.

Are property taxes on farmland subject to the SALT cap?

Not when they're taxes on farm business assets. Section 164(b)(6) says the cap doesn't apply to real or personal property taxes paid in carrying on a trade or business. Publication 225 says you can deduct real estate and personal property taxes on farm business assets as a farm business expense, and the Schedule F instructions put them on line 29.

Is state income tax on farm or business income subject to the cap?

Yes. Publication 225 says individuals can deduct state and local income taxes only as an itemized deduction on Schedule A, and Publication 17 says this holds even if your only income is from business, rents or royalties. The business carve-out in section 164(b)(6) covers property taxes, not income taxes.

How are property taxes on a farmhouse handled?

Publication 225 says the taxes on the part of your farm you use as your home, including furnishings and surrounding land not used for farming, are nonbusiness taxes that may be deductible on Schedule A. You allocate the tax bill between farm assets and nonbusiness assets, which can be done from the assessed valuations.

Do state pass-through entity taxes count against my SALT cap?

Notice 2020-75 says the IRS intends to issue proposed regulations under which a state income tax paid by a partnership or S corporation on its own income is deductible by the entity and is not taken into account in applying the SALT limit to its individual owners, and that taxpayers may rely on the notice in the meantime. As of October 2026, we haven't found proposed regulations published under the notice, and the 2025 tax law didn't change this treatment. Whether a given state tax fits the notice's definition is a question for your CPA.

Should I itemize or take the standard deduction?

The Schedule A instructions say that in most cases your federal income tax will be less if you take the larger of the two. With a higher SALT cap and a higher standard deduction, the answer can change from one year to the next, so it's worth comparing both on each return.

Sources

Results depend on your specific facts. No outcome is guaranteed. This is general information, not tax advice; advice is provided only under a signed engagement.

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