State and local taxes you paid: Are they tax deductible?

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If you itemize, strategize.

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Government services like roads, schools, and social programs don’t come free. To fund these necessities, federal, state, and local governments rely on taxes. Whether it’s income, property, or sales taxes, you and everyone else must contribute their share.

Because you pay taxes at the state and local level, the Internal Revenue Service (IRS) allows you to deduct state and local taxes (SALT) from your taxable income when filing your federal tax return. You can deduct state and local taxes only if you itemize your deductions using Form 1040 Schedule A.

Most filers take the standard deduction, which allows you to subtract a specific amount (for the 2025 tax year, it’s $15,750 for single filers; $31,500 for those married filing jointly) from your taxable income. But if you’ve run the numbers and determined that you would pay less in tax by itemizing, you have that option.

SALT allowed as itemized deductions include state and local income taxes (or state and local sales tax), state and local real property taxes, and state and local personal property taxes.

Most states tax their residents’ income. If you’re a worker who receives a W-2, state and local taxes are typically deducted directly from your paycheck.

Twelve states tax personal income at flat rates (no matter how high or low your income, you pay one rate):

Other states use a combination of marginal tax brackets, tax credits, and other methods that may or may not result in lower-income workers paying less tax. New Hampshire taxes investment income, not wages, while Washington State imposes a capital gains tax solely on amounts exceeding $250,000 annually.

In addition to being taxed at the state level, you may also pay local income tax, depending upon your municipality or county. Some local jurisdictions in these states levy local taxes:

All state and local income taxes paid during the year, either through payroll deductions or payments made directly to your state or local government, are included in the federal SALT deduction.

If your state has no income tax or it is low, you may choose to deduct sales taxes you paid during the year instead of deducting state and local income taxes.

You can total the sales tax you paid throughout the year by saving each receipt. A simpler way is to use the IRS sales tax deduction calculator—just enter your ZIP code and answer a few quick questions.

The federal SALT deduction includes all state and local taxes paid for property you own.

The Tax Cuts and Jobs Act (TCJA)—signed into law by then-President Donald Trump in 2017—placed a $10,000 cap on state and local tax deductions. (Those married and filing separately can each deduct up to $5,000.) This cap was increased by the One Big Beautiful Bill Act (OBBBA) in 2025. For the 2025 tax year, the state and local tax deduction limit is $40,000. (Those married and filing separately can each deduct up to $20,000.) The limits will increase 1% for each year from 2027–29. The SALT deduction limit is set to revert to $10,000 in 2030.

You might pay several types of taxes and fees each year that aren’t considered state and local taxes. The IRS says none of these are deductible:

Even if your state and local taxes total less than the $40,000 cap, these taxes and fees can’t be included in your SALT deduction calculation.

If itemizing gives you the lowest taxable income, consider it when filing your federal tax return. Itemizing allows you to deduct the state and local taxes you paid during the year—up to $40,000 for individuals or married couples filing jointly. (If married filing separately, each spouse can take $20,000.)

To claim the state and local taxes (SALT) deduction, keep receipts for real estate and personal property taxes you paid, along with records of any other state or local taxes you paid. When filing your taxes, use these records to calculate the total deduction. Don’t include payroll deductions, which are listed on your W-2. If your state doesn’t have an income tax, you can still claim a deduction for sales tax. Either add up the sales tax paid using your saved receipts or use the IRS calculator to estimate the amount based on your income and location.

Staying informed about tax legislation can help you know which records to keep and how changes might affect your tax return. Your tax software or tax preparer can guide you, and for the latest updates, visit Britannica Money’s tax portal.