Understanding SALT: What You Need to Know

By Tax&Facts | Published on Feb 4, 2025 | Read: 3 Mins

SALT stands for State and Local Taxes. These are taxes imposed by state or local governments on income, property, or goods and services. SALT includes a wide range of taxes that can vary significantly depending on where you live.

In the U.S., SALT taxes are an important part of your overall tax obligations, and understanding them can help you make informed financial decisions. In this blog, we will explore what SALT is, how it affects you, and the key considerations when dealing with these taxes.

What is SALT?

SALT taxes refer to taxes levied by state or local governments, including income, property, and sales taxes. The amount you owe depends on where you live, your income, and the value of your property. These taxes are crucial in funding local services, infrastructure, and education systems.

SALT taxes can be broken down into three main categories:

• State Income Taxes: Taxes on the income you earn, such as wages, salaries, and business income.
• Local Income Taxes: Taxes that may be imposed by cities, counties, or other local jurisdictions based on your income.
• Property Taxes: Taxes based on the value of your property, typically used to fund local services like schools and emergency services.
• Sales Taxes: Taxes on goods and services, which vary by state and locality.

How Does SALT Affect You?

• State and Local Tax Deductions: Before 2017, you could deduct your SALT taxes from federal returns. The TCJA capped this deduction at $10,000.
• Impact on High-Income Earners: If you live in a high-tax state like California or New York, you may pay more in SALT taxes than you can deduct federally.
• State-Specific Rates: The rates and rules vary by state, so understanding your state’s tax laws is essential.

States with High SALT Taxes

Some states are known for having high SALT taxes, particularly for property and income taxes. These include:

• California: High income tax rates (up to 13.3%) and high property taxes.
• New Jersey: Known for high property taxes.
• New York: High property and local income taxes, especially in NYC.
• Connecticut: High property and income taxes.

If you live in one of these states, the SALT deduction cap may limit your federal tax benefit.

How to Minimize the Impact of SALT Taxes

• Itemize Deductions: If your total deductions exceed the standard deduction, itemizing might offer some tax relief — but SALT is still capped at $10,000.
• Relocate: Consider moving to a no-income-tax state like Florida, Texas, or Washington to reduce your SALT burden.
• Contribute to Charitable Funds: In some states, you can contribute to state-approved charitable funds and receive a credit to reduce your SALT liability.

Conclusion

SALT taxes are an essential part of your financial planning, and understanding how they work can help you make informed decisions. While the SALT deduction cap can be limiting for high-income earners, there are strategies you can use to minimize your tax burden. Always consult a tax professional for advice tailored to your unique situation.