The SALT deduction allows taxpayers who itemize to reduce their federal taxable income by deducting state and local taxes they’ve already paid, including property taxes plus either income or sales taxes. The current cap is $10,000 for 2024, but under the One Big Beautiful Bill Act (OBBBA), it temporarily increases to $40,000 in 2025 and gradually adjusts through 2029 before returning to $10,000 in 2030. Higher-income taxpayers may see a phased-down once their modified adjusted gross income exceeds certain thresholds. The deduction exists to help prevent double taxation, especially benefiting individuals in high-tax states. While not all taxes qualify—such as federal taxes, Social Security, transfer taxes, HOA fees, and utility charges—the SALT deduction can still meaningfully reduce federal tax liability for those who itemize. States have also introduced pass-through entity tax (PTET) elections, allowing certain business owners to bypass the cap by paying state tax at the entity level. Despite legal challenges, the SALT cap remains in place, with its structure made permanent under the OBBBA.
The SALT Deduction Explained: What Contractors and Real Estate Businesses Should Know
For many small business owners—especially those in construction, real estate development, and property-related trades—the state and local tax (SALT) deduction can make a meaningful difference on your federal tax bill. The SALT deduction allows taxpayers, such as contractors and real estate developers, who itemize to reduce theirfederal taxable income by deducting certain state and local taxes they already paid.
If you run a contracting business, a real estate development company, or a property management firm in California, Nevada, Arizona, Utah, Washington, Oregon, or Idaho, understanding the SALT deduction can help you keep more of what you earn and plan ahead for future tax years.
What Is the SALT Deduction?
The SALT deduction gives itemizing taxpayers the ability to deduct:
- State and local income taxes or state and local sales taxes (you must choose one)
- Property taxes
These deductions reduce your federal taxable income. For business owners in states with higher taxes—like California, Washington, and Oregon—this deduction often provides real relief.
Current SALT Deduction Limits
The SALT deduction cap has changed several times in recent years:
- 2024: Deduction capped at $10,000 ($5,000 if married filing separately)
- 2025: Cap temporarily increases to $40,000 ($20,000 MFS) under the One Big Beautiful Bill Act (OBBBA)
- 2026: Cap becomes $40,400
- 2027–2029: Cap increases by 1% each year
- 2030: Cap reverts back to $10,000
A phase-down applies once a taxpayer’s modified adjusted gross income passes certain thresholds—$500,000 in 2025 and $505,000 in 2026, with 1% increases in later years. Once phased down, the cap returns to $10,000.
Why the SALT Deduction Matters for Construction & Real Estate Businesses
If you own a construction company, manage rental properties, or operate in trades like plumbing, electrical, or HVAC, you may:
- Pay significant property taxes
- Be subject to high state income taxes
- Have projects or assets in multiple states with varying tax rules
The SALT deduction helps ensure you’re not taxed twice on the same income and can soften the impact of living in a higher-tax region.
How the SALT Deduction Works
If you choose to itemize instead of taking the standard deduction, you can deduct:
- Property taxes, plus
- Either income taxes or sales taxes
Not both.
Many California and Washington business owners choose income taxes, while those in states with no income tax may opt for sales tax deductions.
These deductions are claimed on Schedule A (Form 1040).
Example: How a SALT Deduction Affects Your Bottom Line
Imagine a business owner filing their 2025 return who chooses to itemize. They paid:
- $20,000 in property taxes
- $25,000 in state income taxes
That totals $45,000, but the SALT cap for 2025 is $40,000.
If their tax rate is 24%, the deduction saves:
$40,000 × 24% = $9,600
in federal income taxes.
For many construction and real estate companies with high property tax bills, this can provide substantial savings.
Taxes and Fees That Do NOT Qualify for SALT Deduction
Some items can’t be deducted as SALT, including:
- Federal income taxes
- Social Security taxes
- Transfer taxes (like taxes on property sales)
- Stamp taxes
- HOA fees
- Estate or inheritance taxes
- Utility service fees (water, sewer, trash)
Knowing what counts—and what doesn’t—helps avoid mistakes and plan more effectively.
Why the SALT Cap Was Created
The federal government capped SALT deductions to increase federal revenue. Before the cap, the SALT deduction was one of the largest federal tax breaks nationwide.
For business owners in higher-tax states, this cap drastically changed long-term tax planning, especially for those with larger property holdings.
Who Benefits the Most?
The SALT deduction is most valuable for:
- High-income taxpayers
- Business owners with sizeable property tax bills
- Individuals living in high-tax states (like CA, WA, OR)
- Owners of S corps, LLCs, and partnerships with multi-state income
Historically, taxpayers earning over $100,000 claimed the bulk of SALT deductions, especially in states like California, New York, and New Jersey.
The SALT Cap Workaround (PTET)
To help business owners offset the impact of the cap, many states created an optional pass-through entity tax (PTET). More than 30 states now offer this option.
A PTET election allows certain business owners—such as owners of S corporations, LLCs, and partnerships—to pay state taxes at the entity level, which can allow the business to bypass the individual SALT cap.
Benefits can include:
- Potentially larger deductions
- Possible reductions in self-employment tax
- Ability to take advantage of higher standard deductions while still benefiting from state tax payments
However, PTET rules differ by state and can create additional complexities, so planning is important.
Did the SALT Cap Expire?
No. The OBBBA made the SALT cap permanent but changed the dollar amount over time. After brief increases from 2025–2029, the cap returns to $10,000 beginning in 2030.
Need Guidance on SALT Deductions for Your Construction or Real Estate Business?
As a local Enrolled Agent (EA) firm based in Van Nuys, CA, our team specializes in helping:
- Contractors
- Electricians
- Plumbers
- Developers
- Property management companies
- Real estate brokerages
and other closely held businesses (typically $1M–$15M in revenue) navigate complex tax rules—including SALT deductions and PTET strategies.
We work with clients throughout California, Nevada, Arizona, Utah, Washington, Oregon, and Idaho, and we understand the tax challenges that construction and real estate businesses face every day.
If you want a practical, straight-talk explanation of how the SALT deduction impacts your specific business, we’re here to help.
For personalized guidance, please schedule a consultation appointment with a Partner at Bernstein Financial Services to help you determine your optimal planning strategies.
The information provided in this blog post is for general informational purposes only and is not intended as legal advice. Every business and financial situation is unique, and the strategies discussed may not be applicable to your specific circumstances.