The 2026 SALT Cap Falls 30 Cents per Dollar: Between $505,000 and $606,333 of Income an Extra Dollar Costs 45.5% in Tax

The 2025 reconciliation act raised the cap on the deduction for state and local taxes from $10,000 to $40,000 for 2025 and $40,400 for 2026, and most of the commentary stops there. The part that matters at higher incomes is a second rule in the same paragraph of the statute: the cap shrinks as income grows. It is not a bracket and it is not on the tax table, but for a filer who is up against the cap it works exactly like a higher rate. This guide puts numbers on it with the engine behind the standard vs. itemized deduction calculator.

How the cap is worked out

For 2026 the "applicable limitation amount" in 26 U.S.C. 164(b)(7) is $40,400 for state and local income tax (or sales tax) and property tax together. It is then reduced by 30% of the excess of your modified adjusted gross income (AGI plus income excluded under sections 911, 931 or 933) over $505,000, and the reduction cannot take the cap below $10,000. The Schedule A instructions have a worksheet for this with the 2025 figures ($40,000 and $500,000); the 2026 form will use the new ones. At $550,000 of income the cap is $26,900: $40,400 less 30% of the $45,000 over the threshold.

Both figures rise 1% a year for 2027 to 2029 ($40,804 and $510,050 for 2027), and from 2030 the cap is $10,000 for everyone, with no phase-down at all. The 2026 to 2029 window is the only one in which any of this applies.

Why it behaves like a tax rate

Take a dollar more income inside the range. Your tax goes up by your bracket rate on that dollar, and your deduction goes down by 30 cents, which makes 30 cents more income taxable. The dollar and the 30 cents are both taxed: 1.30 times the bracket rate. At 35% that is 45.5%; at 32% it is 41.6%. The same arithmetic runs in reverse, so a dollar less of AGI saves the higher figure too.

The joint filer pays 41.6% first because a joint return with this much income and only the capped taxes to deduct is still in the 32% bracket; it reaches the 35% bracket ($512,450 of taxable income) at an income of $541,808. The single filer is in the 35% bracket ($256,225 of taxable income) throughout. The rows below and above the range are the bracket rates that apply there (the next bracket, 37%, starts at $640,600 of taxable income for a single filer and $768,700 for a joint one). Every rate here is the bracket rate on ordinary income: capital gains, qualified dividends, the 3.8% investment income tax and state tax are not in it.

What the phase-down adds in total

The deduction lost between $505,000 and $606,333 is $30,400, and by the end of the range it is taxed at 35% for both single and joint filers: $10,640 of extra tax a year, spread over about $101,333 of income, which is 10.5% of that income on top of the ordinary tax. The cap only costs you what you would otherwise have deducted, so it matters less if you pay less in these taxes:

A filer who pays $25,000 gets the full $25,000 deduction until the cap drops below it, at $556,333, and then loses the other $15,000 in a span of $50,000 of income: the same 45.5% per dollar, just in a shorter stretch.

Where it shows up in planning

• Pre-tax contributions are worth more inside the range. A $24,500 deferral to a 401(k) (the 2026 limit, IRS Notice 2025-67) lowers AGI by the same amount. For a single filer at $600,000 that saves $11,148, not the $8,575 the 35% bracket alone would suggest, because the lower AGI also gives back $7,350 of cap and that deduction is taxed too. The same is true of anything that lowers AGI before the cap is worked out; it is not true of deductions taken after it, such as mortgage interest or gifts to charity.
• Income that can move is worth timing. A bonus, a stock sale or a Roth conversion that lifts income from just below $505,000 into the range costs the extra bracket tax and the lost deduction together. The reverse also holds: income pushed from inside the range to a year above $606,333 costs only the bracket rate, whatever the year's cap.
• It stops being a factor at $606,333. From there the cap is $10,000, and more income costs the ordinary bracket rate (and, from $640,600 of income for a single filer, a second effect, the 2/37 cutback on itemized deductions, covered in the calculator's FAQ).

What this guide leaves out

The alternative minimum tax; married couples filing separately, for whom the cap and the threshold are halved; a filer with other itemized deductions (they change where the brackets start but not the 30-cent rule); income taxed at the capital-gains rates; state tax; and the QBI deduction, which is computed from taxable income and so moves the points at which a bracket starts. The 2026 Schedule A and its worksheet are not published yet: the statute is the source for the 2026 figures, and the 2025 worksheet confirms the arithmetic. Estimates, not tax advice: your return decides, and a tax professional can check the numbers for your own situation.