The SALT Cap Went From $10,000 to $40,400: What Changed for a Freelancer Who Itemizes

Published: September 15, 2026 · Reading time: 11 min

TL;DR: The One Big Beautiful Bill Act (Pub. L. 119-21, §70120, signed July 4, 2025) quadrupled the personal deduction cap for state and local taxes under IRC §164(b)(6)-(7) — from a flat $10,000 (2018-2024) to $40,000 in 2025 and $40,400 in 2026, rising 1%/year through 2029, then reverting to $10,000 starting in 2030. There's a catch for higher earners: the cap is reduced by 30% of MAGI over $505,000 (2026), fully flooring back at $10,000 around $606,333 of MAGI. Business property tax was never subject to this cap — the statute's own trade-or-business carve-out already covers it, separate from Schedule C entirely. And if your freelance S-corp already runs a PTET election to route around the SALT cap, this doesn't obsolete it — it just changes when it's still worth doing.

Every freelancer who owns a home in a state with real income tax has heard "the SALT cap is $10,000" for so long it stopped sounding like a rule that could change. It changed. For 2026 the number is $40,400, and for a lot of freelancers who gave up on itemizing back in 2018, that's enough to flip the standard-deduction-vs-itemizing decision entirely — while quietly reducing the value of a workaround some of you are already paying a CPA to run.

What the Statute Actually Says

The Tax Cuts and Jobs Act's original SALT cap sits in IRC §164(b)(6): a flat limitation on "the aggregate amount of taxes taken into account" for real property, personal property, and state/local income tax combined, for tax years 2018 through 2025. OBBBA didn't repeal that structure — it amended paragraph (6)(B) and added a brand-new paragraph (7) that replaces the flat $10,000 figure with a schedule. Fetched directly from the statute:

"(A) In general For purposes of paragraph (6), the term 'applicable limitation amount' means— (i) in the case of any taxable year beginning in calendar year 2025, $40,000, (ii) in the case of any taxable year beginning in calendar year 2026, $40,400, (iii) in the case of any taxable year beginning after calendar year 2026 and before 2030, 101 percent of the dollar amount in effect under this subparagraph for taxable years beginning in the preceding calendar year, and (iv) in the case of any taxable year beginning after calendar year 2029, $10,000."

That's the whole schedule in the government's own words: $40,000 → $40,400 → +1%/year through 2029 → back to a flat $10,000 starting in 2030. Cornell's own amendment notes trace the change directly to its source: Pub. L. 119-21, title VII, §70120(a), (b), enacted July 4, 2025, 139 Stat. 169 — the One Big Beautiful Bill Act.

The Phase-Down for Higher Incomes

Immediately after the schedule, §164(b)(7)(B) claws part of it back for higher earners:

"(i) In general Except as provided in clause (iii), in the case of any taxable year beginning before January 1, 2030, the applicable limitation amount shall be reduced by 30 percent of the excess (if any) of the taxpayer's modified adjusted gross income over the threshold amount... (iii) Limitation on reduction The reduction under clause (i) shall not result in the applicable limitation amount being less than $10,000."

The threshold is $500,000 for 2025 and $505,000 for 2026 (also indexed 1%/year through 2029, half for married-filing-separately). "Modified adjusted gross income" is defined narrowly — AGI plus a handful of foreign-income exclusions under §911, §931, and §933 — so for a freelancer with no foreign income, MAGI is simply AGI.

node -e "
const cap2026 = 40400, threshold2026 = 505000, floor = 10000;
const magiFloorPoint = threshold2026 + (cap2026 - floor) / 0.30;
console.log('MAGI at which the cap fully floors back to \$10,000 (2026):', magiFloorPoint.toFixed(2));

const partial = 550000;
const partialReduction = (partial - threshold2026) * 0.30;
console.log('At MAGI 550,000 -- reduction:', partialReduction.toFixed(2), '| effective cap:', Math.max(floor, cap2026 - partialReduction).toFixed(2));

const full = 650000;
const fullReduction = (full - threshold2026) * 0.30;
console.log('At MAGI 650,000 -- reduction:', fullReduction.toFixed(2), '(exceeds the \$30,400 available) | effective cap:', Math.max(floor, cap2026 - fullReduction).toFixed(2));
"

MAGI at which the cap fully floors back to $10,000 (2026): 606333.33
At MAGI 550,000 -- reduction: 13500.00 | effective cap: 26900.00
At MAGI 650,000 -- reduction: 43500.00 (exceeds the $30,400 available) | effective cap: 10000.00

The shape is worth sitting with: between $505,000 and about $606,333 of MAGI, the cap phases down linearly from $40,400 to $10,000. Above $606,333, you're back to exactly the pre-OBBBA number — the entire increase is worth nothing to you. A freelance consultant or S-corp owner whose income is climbing toward that range is exactly the person who should run this calculation before assuming the higher cap applies.

What Counts Toward the Cap — and What Never Did

§164(a) lists three categories of state and local tax an individual can deduct at all: (1) real property taxes, (2) personal property taxes, and (3) income taxes. §164(b)(6)(B) is the actual cap provision, and the very next sentence after it sets the cap amount carries an exception that predates OBBBA entirely and that a lot of freelancers with a home office never learn about:

"...the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a)... for any taxable year shall not exceed the applicable limitation amount... The preceding sentence 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."

Read carefully, that second sentence is a double negative that adds up to: real and personal property taxes paid in carrying on a trade or business are exempt from the cap altogether — the cap simply doesn't reach them. That's why the business-use percentage of your home's property tax already flows through Form 8829 into your home-office deduction — see the corpus's home-office carryover guide — with no cap, before your Schedule A total is ever computed. The exception is narrower than it sounds, though: it covers only real and personal property tax (paragraphs (1) and (2)), and it also doesn't reach foreign income tax under (a)(3) — but ordinary domestic state/local income tax isn't mentioned in the carve-out at all, so it's never exempt regardless of whose business generated it. State income tax on your self-employment profit is always a personal Schedule A item, capped along with everything else, even though the income it's taxing came from your business.

A Full Worked Example: Does the Higher Cap Actually Flip Someone to Itemizing?

A freelance UX/product designer — non-SSTB, no employees — files Schedule C, single, in a state with real income tax, and owns a home.

Facts: Net profit $225,000. State income tax paid for the year: $16,800. Personal-use share of property tax: $11,200. Mortgage interest: $12,400. Charitable giving: $4,600.

Step 1 — AGI

node -e "
const netProfit = 225000;
const wageBase = 184500; // 2026 SS wage base, per the Federal Register (SSA determination, doc. 2025-19763), up from $176,100 in 2025
const netSE = netProfit * 0.9235;
const ssTax = Math.min(netSE, wageBase) * 0.124;
const medicareTax = netSE * 0.029;
const seTax = ssTax + medicareTax;
const halfSE = seTax / 2;
const AGI = netProfit - halfSE;
console.log('netSE', netSE.toFixed(2));
console.log('seTax', seTax.toFixed(2));
console.log('halfSE (deductible)', halfSE.toFixed(2));
console.log('AGI', AGI.toFixed(2));
"

netSE 207787.50
seTax 28903.84
halfSE (deductible) 14451.92
AGI 210548.08

AGI of $210,548.08 is nowhere near the $505,000 phase-down threshold, so the full $40,400 cap applies — and this designer's actual SALT total ($16,800 + $11,200 = $28,000) doesn't even reach it.

Step 2 — Itemize or take the standard deduction, under both cap regimes

node -e "
const AGI = 210548.08;
const saltTotal = 16800 + 11200; // 28,000
const mortgageInterest = 12400, charitable = 4600;
const stdDeduction2026 = 16100; // 2026 single filer, per Rev. Proc. 2025-32 (IRB 2025-45)

function scenario(cap, label) {
  const saltDeductible = Math.min(saltTotal, cap);
  const itemizedTotal = saltDeductible + mortgageInterest + charitable;
  const deductionUsed = Math.max(itemizedTotal, stdDeduction2026);
  console.log(label + ': SALT deductible \$' + saltDeductible.toFixed(2) + ', itemized total \$' + itemizedTotal.toFixed(2) + ', itemizing wins: ' + (itemizedTotal > stdDeduction2026));
  return { AGI, deductionUsed };
}

scenario(40400, '2026 law (\$40,400 cap)');
scenario(10000, 'Pre-OBBBA counterfactual (\$10,000 cap)');
"

2026 law ($40,400 cap): SALT deductible $28000.00, itemized total $45000.00, itemizing wins: true
Pre-OBBBA counterfactual ($10,000 cap): SALT deductible $10000.00, itemized total $27000.00, itemizing wins: true

In this example itemizing wins either way — but the size of the itemized deduction is very different ($45,000 vs. $27,000). The designer's actual SALT bill is $28,000 either way; what changes is how much of it the cap lets through — all of it under the 2026 law, only $10,000 under the pre-OBBBA counterfactual. For a designer with a smaller SALT bill or lighter mortgage interest, the pre-OBBBA cap would often have pushed the total itemized deduction below the standard deduction entirely, forcing the standard deduction by default. That's the more common real-world flip this cap increase causes: not "itemizing gets bigger," but "itemizing becomes worth doing at all."

Step 3 — The QBI clawback

A bigger itemized (or standard) deduction lowers taxable income before the QBI deduction — and §199A(e)(1) caps the QBI deduction at 20% of that same pre-QBI taxable income. A larger SALT deduction can therefore shrink the QBI deduction that follows it:

node -e "
const AGI = 210548.08;
const mortgageInterest = 12400, charitable = 4600, saltTotal = 28000;
const qbiBase = AGI; // no other above-the-line items in this example

function fullScenario(saltCap, label) {
  const saltDeductible = Math.min(saltTotal, saltCap);
  const itemizedTotal = saltDeductible + mortgageInterest + charitable;
  const taxableBeforeQBI = AGI - itemizedTotal;
  const qbi20 = qbiBase * 0.20;
  const cap20 = taxableBeforeQBI * 0.20;
  const qbiDeduction = Math.min(qbi20, cap20);
  const taxableFinal = taxableBeforeQBI - qbiDeduction;
  console.log('--- ' + label + ' ---');
  console.log('taxableBeforeQBI', taxableBeforeQBI.toFixed(2));
  console.log('20% of QBI', qbi20.toFixed(2), '| 20%-of-taxable-income cap', cap20.toFixed(2));
  console.log('QBI deduction (lesser of the two)', qbiDeduction.toFixed(2));
  console.log('taxableFinal', taxableFinal.toFixed(2));
  return taxableFinal;
}

const newLaw = fullScenario(40400, '2026 law');
const oldLaw = fullScenario(10000, 'Pre-OBBBA counterfactual');

const delta = oldLaw - newLaw;
console.log('---');
console.log('Taxable income is lower under the new cap by', delta.toFixed(2));
console.log('Both endpoints inside the 24% bracket (\$105,700-\$201,775 single, 2026)?', newLaw > 105700 && newLaw <= 201775, oldLaw > 105700 && oldLaw <= 201775);
console.log('Federal tax saved at the 24% marginal rate', (delta * 0.24).toFixed(2));
"

--- 2026 law ---
taxableBeforeQBI 165548.08
20% of QBI 42109.62 | 20%-of-taxable-income cap 33109.62
QBI deduction (lesser of the two) 33109.62
taxableFinal 132438.46
--- Pre-OBBBA counterfactual ---
taxableBeforeQBI 183548.08
20% of QBI 42109.62 | 20%-of-taxable-income cap 36709.62
QBI deduction (lesser of the two) 36709.62
taxableFinal 146838.46
---
Taxable income is lower under the new cap by 14400.00
Both endpoints inside the 24% bracket ($105,700-$201,775 single, 2026)? true true
Federal tax saved at the 24% marginal rate 3456.00

The extra $18,000 of SALT the new cap allows ($28,000 vs. $10,000) doesn't translate into an $18,000 reduction in taxable income. In this example the 20%-of-taxable-income cap on QBI was already binding in both scenarios, so $3,600 of the extra deduction — exactly 20% of it — is clawed back through a smaller QBI deduction, leaving a net taxable-income reduction of $14,400.00. Both endpoints land inside the 2026 single filer's 24% bracket ($105,700-$201,775 per Rev. Proc. 2025-32, IRB 2025-45), so the marginal-rate comparison is clean: the SALT cap increase is worth $3,456.00 in federal tax for this designer in 2026, not the $4,320 a naive 24%-of-$18,000 estimate would suggest.

Does This Change Anything for a PTET-Electing S-Corp?

Freelancers who've already grown into an S-corp and elected the pass-through entity tax (PTET) workaround got there specifically to route around the old $10,000 cap: the entity deducts state income tax at the business level, with no cap, under Notice 2020-75 — a mechanism §164's SALT-cap language never touched, because it applies to the individual, not the entity. OBBBA didn't change that mechanism, and the corpus's PTET guide's core claim still holds. What changed is the personal alternative sitting next to it.

• MAGI comfortably under $505,000: the $40,400 personal cap likely already covers most or all of your actual state income tax directly, without needing an entity-level election, K-1 coordination, or a separate state PTET return. PTET isn't wrong here, but it may no longer be buying you a bigger deduction — only administrative convenience.
• MAGI at or above roughly $606,333: the personal cap has fully floored back to $10,000, exactly where it sat before OBBBA. PTET is worth precisely what it was worth in 2024 for you, because the entity-level deduction was never subject to the personal cap or its new phase-down in the first place.
• MAGI in the $505,000-$606,333 phase-down band: the personal cap is partially reduced (see "The Phase-Down for Higher Incomes" above), so PTET recovers whatever the phase-down took away. This is the range where running both numbers actually matters, rather than defaulting to either answer.

None of this is a reason to drop an existing election reflexively — only a reason to recompute it against your actual current-year MAGI rather than the $10,000-cap assumption the strategy was originally built on.

Common Mistakes to Avoid

• Assuming the $10,000 SALT cap still applies. It's $40,400 for 2026, not $10,000 — a stale assumption here silently pushes some freelancers back onto the standard deduction when itemizing would now win.
• Forgetting the MAGI phase-down exists at all. A freelancer or S-corp owner with income climbing past $505,000 who assumes the full $40,400 applies can overstate their itemized deduction; the actual number requires the 30%-of-excess computation above.
• Treating business property tax as subject to this cap. The business-use share of home-office property tax, and tax on business equipment or vehicles, was never a personal SALT item — it's a Schedule C deduction with no dollar limit, unaffected by any of this.
• Assuming state income tax on Schedule C profit is a "business" tax exempt from the cap. Only real and personal property tax get the trade-or-business carve-out under §164(b)(6)(B)'s flush language; domestic income tax under paragraph (3) never does, no matter whose income it's taxing.
• Computing the tax benefit as a flat percentage of the extra SALT deduction. If the QBI taxable-income cap is already binding, part of the benefit is clawed back through a smaller QBI deduction — the naive calculation overstates the real number.
• Dropping an existing PTET election just because the personal cap went up. Whether PTET still adds value depends entirely on where your MAGI sits relative to the $505,000-$606,333 phase-down band, not on the cap increase alone.

Frequently Asked Questions

What is the SALT deduction cap for 2026, and how much did it go up from?

$40,400 for single filers and married couples filing jointly ($20,200 MFS) under IRC §164(b)(7)(A)(ii), added by the One Big Beautiful Bill Act (Pub. L. 119-21, §70120(b), signed July 4, 2025) — up from $40,000 in 2025 and from the flat $10,000 cap ($5,000 MFS) that applied for 2018 through 2024. The figure rises to $40,804 for 2027 and continues at 101% of the prior year's amount through 2029, then reverts to a flat $10,000 starting in 2030 as the statute currently reads.

Does the SALT cap increase phase out at higher income?

Yes. Under §164(b)(7)(B), the $40,400 cap is reduced by 30% of the amount your modified adjusted gross income exceeds $505,000 for 2026 ($252,500 MFS), and the reduction can't take the cap below $10,000. That floor is fully reached around $606,333 of MAGI for 2026 — above that, the cap is effectively back to the pre-OBBBA $10,000 figure and the increase provides no benefit at all. Between $505,000 and $606,333 the cap phases down linearly.

Does the SALT cap increase mean my freelance S-corp should drop its PTET election?

Not automatically. PTET's entity-level state-tax deduction (Notice 2020-75) was never subject to the personal SALT cap, so it remains exactly as valuable as before for anyone whose MAGI sits at or above roughly $606,333, where the personal cap has fully floored back to $10,000. Below about $505,000 MAGI, the $40,400 personal cap may already cover most of your state tax directly, making PTET more about convenience than unlocking additional deduction. Run both numbers for your actual MAGI before changing an existing election.

Does property tax on my home office count toward the $40,400 cap, or is it already fully deductible as a business expense?

The business-use share is already fully deductible as a Schedule C expense (via Form 8829) and was never subject to the SALT cap — the flush language in IRC §164(b)(6)(B), right after the cap amount itself, exempts real and personal property taxes paid in carrying on a trade or business from the cap entirely. Only the personal-use share of your property tax, plus your state and local income tax, counts toward the $40,400 cap. This carve-out covers property tax specifically; it does not extend to state income tax on your self-employment profit, which is always a personal Schedule A item regardless of where the income came from.

Is the $40,400 cap permanent, or will it go back down?

It is not permanent as written. IRC §164(b)(7)(A) schedules $40,000 for 2025, $40,400 for 2026, a 1% annual increase through 2029, and a flat $10,000 for every year beginning after 2029 — the reversion is already written into the statute, not a future decision. Congress could extend the higher cap again before then, the way it revisited the original TCJA version in 2025, but as the law stands today a freelancer's planning window for the increase runs through the 2029 tax year.

Does any of this change my Schedule C business deductions?

No. The $40,400 cap lives entirely in IRC §164(b), which governs the personal itemized deduction on Schedule A and has never applied to Schedule C. Business license fees, franchise tax, and the business-use share of property tax were fully deductible before OBBBA and remain fully deductible after it, with no dollar limit either way — only the personal SALT deduction changed.

Authoritative References

• IRC §164 — Taxes — subsection (a) (categories of deductible tax) and (b)(6)-(7) (the SALT cap schedule, the trade-or-business property-tax carve-out, and the MAGI phase-down)
• IRC §199A — Qualified Business Income — the 20%-of-taxable-income cap referenced in the worked example
• IRS Notice 2020-75 — confirming entity-level PTET payments are deductible without regard to the personal SALT cap
• IRS Rev. Proc. 2025-32 — 2026 inflation-adjusted standard deduction and tax bracket figures reused in the worked example, as cited elsewhere in this corpus (e.g., Trump Accounts under OBBBA)

Related reading: Pass-through entity tax (PTET) for freelancers · Standard vs. itemized deduction for freelancers · QBI deduction for freelancers · Home-office carryover deduction · Schedule C Line 23 — Taxes and licenses · S-corp election for freelancers

Track Every Deduction the New Cap Makes Worth Claiming

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This article is educational and not tax or financial advice. Consult a qualified tax professional about your specific situation, especially where the MAGI phase-down or a PTET election is involved.