Property Tax Rates by State
Average effective rates and exemptions
Key Numbers
National Avg
~1.1%
Highest
NJ (2.23%)
Lowest
HI (0.29%)
SALT Cap
$10,000
Property taxes are deductible as part of the State and Local Tax (SALT) deduction if you itemize on Schedule A. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raised the SALT cap from $10,000 to $40,000 through 2029, with 1% annual inflation indexing starting in 2026.
| Tax Year | SALT Cap (MFJ / Single) | SALT Cap (MFS) |
|---|---|---|
| 2018–2024 | $10,000 | $5,000 |
| 2025 | $40,000 | $20,000 |
| 2026 | $40,400 | $20,200 |
| 2027 | $40,804 | $20,402 |
| 2028 | $41,212 | $20,606 |
| 2029 | $41,624 | $20,812 |
| 2030+ | $10,000 | $5,000 |
What Counts Toward SALT
Deductible
Real estate property taxes, state income taxes or general sales taxes (not both), personal property taxes (vehicles, boats), and local income taxes.
Not Deductible
Local benefit assessments (sidewalks, sewers), transfer taxes and recording fees, foreign property taxes, and HOA fees.
Must itemize to claim SALT. For 2026, the standard deduction is $16,100 (single), $32,200 (MFJ), or $24,150 (HoH). Itemize only if your total Schedule A deductions exceed these amounts.
Escrow timing rule: If you pay property taxes through a mortgage escrow account, you can only deduct the amount your lender actually remitted to the taxing authority during the tax year — not the monthly amounts collected and held in escrow. Check your year-end mortgage statement (Form 1098) for the amount disbursed, not the amount collected.
Income Phase-Out Rules
The OBBBA phases out the higher SALT cap for high earners. The cap is reduced by 30% of MAGI above the threshold, but never falls below $10,000. Both the cap and the threshold are indexed at 1% per year starting in 2026.
| Year | Phase-Out Starts (MAGI) | Full Phase-Out ($10K floor) |
|---|---|---|
| 2025 | $500,000 | $600,000+ |
| 2026 | $505,000 | $606,333+ |
| 2027 | $510,050 | $612,717+ |
| 2028 | $515,151 | $619,188+ |
| 2029 | $520,302 | $625,715+ |
MFS thresholds are half: $250,000 phase-out start in 2025, increasing 1% annually.
Phase-Out Formula
Reduction = 30% × (MAGI − threshold)
Your Cap = base cap − reduction (minimum $10,000)
Example (2025): MAGI of $560,000 → excess $60,000 × 30% = $18,000 reduction → SALT cap of $22,000.
The "SALT torpedo" (MAGI $500K–$600K): Within this band, each additional dollar of income costs you regular income tax plus a $0.30 reduction in your SALT cap — which itself has a tax value of up to $0.37 (at the 37% rate). The effective marginal rate on income inside this range can exceed 50% before state taxes. Consider deferring income, accelerating deductions, or maximizing pre-tax retirement contributions to stay below the $500,000 threshold.
Sales tax option: Taxpayers in no-income-tax states (TX, FL, WA, NV, WY, SD, AK, TN, NH) should deduct sales taxes instead. The IRS provides a calculator to estimate the deduction without tracking receipts.
AMT interaction: SALT is not deductible when calculating the Alternative Minimum Tax. A large SALT deduction could trigger AMT liability, especially for taxpayers with MAGI between $200K–$600K.
37% bracket cap (2026+): Starting in tax year 2026, taxpayers in the 37% federal bracket can only use itemized deductions at a 35-cents-per-dollar rate — not the full 37 cents. On a $40,000 SALT deduction, this means the maximum federal tax benefit is $14,000 rather than $14,800. The cap applies to all itemized deductions on Schedule A, not just SALT.
Property Types & Deduction Rules
Property taxes on second homes count toward the same SALT cap as your primary residence. Investment properties follow different rules — their property taxes are fully deductible as business expenses.
| Property Type | Deductible? | SALT Cap Applies? | Where to Deduct |
|---|---|---|---|
| Primary Residence | Yes | Yes | Schedule A |
| Second / Vacation Home | Yes | Yes (combined with primary) | Schedule A |
| Rental / Investment | Yes | No — exempt | Schedule E |
| Mixed-Use Property | Yes | Allocated by days of use | Schedule A + E |
Rental Property Bypass
Property taxes on rental properties are deducted as a business expense on Schedule E and are not subject to the SALT cap. Landlords deduct the full amount regardless of income level.
Mixed-Use Allocation
If you rent out a second home part of the year, allocate property taxes between personal use (Schedule A, capped) and rental use (Schedule E, uncapped) based on days of personal vs. rental use.
Combined cap example: A homeowner paying $18,000 in property taxes on a primary residence, $4,000 on a vacation home, and $15,000 in state income tax has $37,000 in total SALT — fully deductible under the $40,000 cap if MAGI is below the phase-out threshold.
Who Benefits Most
| State | Avg. Annual SALT Burden | Note |
|---|---|---|
| New Jersey | ~$13,000+ | Highest effective property tax rates in the U.S. |
| New York | ~$12,700 | High state income tax + high property taxes in metro areas |
| California | ~$10,300 | 47.9% of San Jose homeowners pay over $10K in property taxes alone |
| Connecticut | ~$9,700 | High property taxes; most itemizers previously hit the $10K cap |
| Massachusetts | ~$9,000 | Combined income + property taxes frequently exceed prior $10K cap |
Source: Bipartisan Policy Center analysis of IRS data. Figures represent average per-capita SALT deduction amounts and vary by income and property value.
Planning Strategies
With the expanded SALT cap available through 2029, several strategies can help maximize the property tax deduction and reduce overall tax liability.
| Strategy | How It Helps | Key Consideration |
|---|---|---|
| Prepay Property Taxes | Captures more deduction in the current year if SALT is under cap | Taxes must be assessed — estimates don't qualify |
| PTET Election | S-corp/partnership pays state tax at entity level, bypassing SALT cap entirely | Available in 36+ states; OBBBA did not restrict PTET |
| Manage MAGI Near Phase-Out | Each dollar above $500K reduces SALT cap by $0.30 | Maximize 401(k)/HSA, defer income, harvest capital losses |
| Convert to Rental | Moves property taxes from Schedule A (capped) to Schedule E (uncapped) | Must report rental income; gains depreciation deductions |
| Appeal Assessment | Lower assessed value means lower property taxes paid | Success rates average 30–50% in many jurisdictions |
| Bunch Deductions | Pay two years of property taxes in one calendar year to clear the standard deduction threshold, then take the standard deduction the following year | Taxes must be officially assessed before payment; can be combined with donor-advised fund contributions |
Should You Itemize? (2026)
| Filing Status | Standard Deduction | Itemize If Total Exceeds |
|---|---|---|
| Single | $16,100 | SALT + mortgage interest + charity > $16,100 |
| Married Filing Jointly | $32,200 | SALT + mortgage interest + charity > $32,200 |
| Head of Household | $24,150 | SALT + mortgage interest + charity > $24,150 |
| Married Filing Separately | $16,100 | SALT + mortgage interest + charity > $16,100 |
2030 sunset: The $40,000 SALT cap reverts to $10,000 in 2030 unless Congress acts. Homeowners in high-tax states should maximize deductions during the 2025–2029 window and plan for reduced deductions afterward.
Sources
- 1.IRS — State and Local Taxes Deduction (Topic No. 503)
- 2.IRS — Revenue Procedure 2025-32 (2026 Inflation Adjustments)
- 3.IRS — Sales Tax Deduction Calculator
- 4.Bipartisan Policy Center — SALT Deduction Changes in the One Big Beautiful Bill Act
- 5.Venable LLP — SALT Alert: Final OBBBA Temporarily Expands SALT Cap
- 6.IRS — Form 6251 Instructions (Alternative Minimum Tax)
- 7.Fidelity — How the New SALT Deduction Cap Could Affect Your Taxes
This content is for educational and informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for guidance tailored to your situation.