The landscape · Home and life
Property tax and the state and local tax cap
State and local taxes paid, including property tax and either state income tax or sales tax, can be itemized, but the total is capped at a figure set in law.
Who this exists for. This applies when a person itemizes and pays state income tax, local income tax, sales tax, or property tax. Ticks that show it: I own my home; My household income is well above average; I am married.
How it works
The deduction combines property taxes on a home and other property with either state and local income taxes or state and local general sales taxes, whichever the filer picks. The total is capped at this year's official salt cap (not yet verified here; see the official source below) per return, and the cap for a married person filing separately is half that, so the cap is not doubled for a couple. The cap can shrink for higher incomes under conditions the IRS lists. Property tax paid through an escrow account counts in the year the lender pays it, which the lender reports. Taxes on a rental property do not go here and are deducted against rental income instead. Because the cap holds this piece down, many homeowners in high tax states find their itemized total stays under the standard deduction.
What it gives
Property tax and state income tax both count toward the same deduction.
A filer in a state with no income tax can use sales tax instead, with an IRS table that needs no receipts.
Rental property taxes are deducted separately and are not capped.
What it costs, or where the catch is
The cap applies per return, so a married couple gets the same cap as a single filer.
Taxes above the cap earn nothing.
The cap keeps many households below the itemizing line, which makes the mortgage interest deduction moot too.
A worked example
Esme and Fitz pay $11,000 in property tax and $9,000 in state income tax, a total of $20,000. If the cap were $10,000, only $10,000 of it counts, and the other $10,000 earns nothing. With $8,000 of mortgage interest their itemized total is $18,000, which is $10,000 plus $8,000, and that is below their married standard deduction, so they take the standard deduction and the taxes change nothing.
Where it goes wrong
The common miss is adding up the full property and income tax bills in a tax estimate without applying the cap.
Who confirms it for you
For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.
The official source
IRS Tax Topic 503, Deductible taxes. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.
Ask about Property tax and the state and local tax cap
A model reads this page and answers from it. It will say when the answer is not on the page. Education, not personalized advice.
Nearby doors
- After tax contributions and the mega backdoor Roth
This exists for a worker whose plan allows after tax contributions above the deferral cap and allows them to be moved into a Roth account.
- Nonqualified deferred compensation
This exists for higher earners, usually executives and senior staff, whose employer offers a plan to defer salary or bonus beyond what a 401(k) allows.
- Group life and disability insurance through work
This exists for a worker whose employer offers group term life insurance and short or long term disability coverage as benefits.
- The backdoor Roth and the pro rata rule
This exists for a person whose income is above the Roth IRA phase out and who has no pretax money in any traditional IRA.
- The spousal IRA
This exists for a married couple filing jointly where one spouse has little or no earned income and the other spouse earns enough to cover both contributions.
- The early withdrawal penalty and its exceptions
This applies when a person under 59 and a half takes money out of an IRA, since the withdrawal is taxed and usually carries a 10 percent addition unless one of the listed exceptions fits.
Education, not advice. Wealthy Habitat explains how rules work and never recommends what to do with your money. The No Advice Disclosure.