For the 2026 tax year, New York taxpayers can deduct up to $40,400 in combined state and local taxes on their federal return, a sharp increase from the $10,000 ceiling that applied from 2018 through 2024. The cap covers your New York State income tax, any New York City income tax, and your property taxes all together under one limit. Higher earners lose part of that benefit: the cap phases down once modified adjusted gross income passes $505,000, and it bottoms out at $10,000 around $606,333. The SALT tax deduction for NY taxpayers only helps if you itemize, so the first question is whether your total deductions beat the standard deduction for your filing status.
Which New York Taxes You Can Deduct
Four categories of New York taxes qualify under Section 164 of the Internal Revenue Code:1Internal Revenue Service. Topic No. 503, Deductible Taxes
- New York State income tax withheld from your wages plus any estimated payments you made during the year.
- New York City income tax, which city residents pay on top of state tax at rates reaching about 3.876%.
- Real property taxes on your primary home and any other real estate you own for personal use.
- Personal property taxes assessed by value, though these are uncommon in New York.
Special assessments charged for local improvements that increase your property’s value, such as new sidewalks or sewer connections, do not count. Those get added to your property’s cost basis instead.
Federal law also forces a choice between deducting state and local income taxes or state and local general sales taxes. You cannot take both.1Internal Revenue Service. Topic No. 503, Deductible Taxes For almost every New Yorker, income tax wins by a wide margin. The state’s top rate sits well above 8%, city residents add nearly 4% more, and your withholdings will dwarf anything you paid in sales tax. If you want to confirm, the IRS publishes a sales tax calculator that estimates your sales tax from income and zip code.2Internal Revenue Service. Use the Sales Tax Deduction Calculator
The $40,400 Cap and How It Shrinks for Higher Earners
The base cap enacted in mid-2025 was $40,000, inflation-adjusted to $40,400 for 2026 ($20,200 for married filing separately). It rises 1% each year through 2029, then reverts to $10,000 in 2030.3Office of the Law Revision Counsel. 26 USC 164 – Taxes
The full $40,400 is available only if your modified adjusted gross income stays at or below $505,000 in 2026 ($252,500 for married filing separately). Above that threshold, the cap shrinks by 30 cents for every dollar of excess income until it hits a $10,000 floor at roughly $606,333 of MAGI.3Office of the Law Revision Counsel. 26 USC 164 – Taxes
A quick example. Your 2026 MAGI is $555,000. That’s $50,000 over the threshold. Multiply by 30%, and your cap drops by $15,000, leaving $25,400 instead of $40,400. For many high-income New York professionals, the phasedown recreates much of the old $10,000 squeeze.
Does Itemizing Beat the Standard Deduction?
The SALT deduction only matters if you itemize on Schedule A. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and married filing separately, and $24,150 for head of household.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 With the higher cap, more New Yorkers will clear that bar. A married suburban homeowner paying $12,000 in property taxes and $15,000 in state income tax already has $27,000 in deductible SALT before adding mortgage interest or charitable giving.
The Pass-Through Entity Tax Workaround
If you own a share of a partnership, S corporation, or LLC taxed as a partnership, New York’s Pass-Through Entity Tax lets your business sidestep the cap on its share of your state tax. The entity pays New York income tax at the business level under Article 24-A of New York Tax Law, which turns it into a deductible business expense not subject to the individual SALT limit.5New York State Senate. New York Tax Law Article 24-A – Pass-Through Entity Tax Owners then claim a corresponding credit on their personal New York returns so the tax isn’t paid twice.6New York State Department of Taxation and Finance. Pass-Through Entity Tax The net result is that business owners effectively recover the federal benefit of their state tax payments regardless of the cap.
The timing matters. Eligible entities must opt in online by March 15 of the tax year, and the election is irrevocable after that date.6New York State Department of Taxation and Finance. Pass-Through Entity Tax Miss the deadline and you wait until next year. If you think your business might benefit, raise it with your accountant well before March.
The entity-level rates run from 6.85% on income up to $2 million to 10.90% on income above $25 million, with brackets in between.7New York State Senate. New York Tax Law Section 862 – Imposition and Rate of Tax The entity also makes quarterly estimated payments throughout the year.
Watch Out for the Alternative Minimum Tax
Even if you qualify for the full $40,400, the alternative minimum tax can claw back part of the benefit. AMT disallows state and local tax deductions entirely, adding every dollar back to your taxable income for the parallel calculation. If AMT exceeds your regular tax, you lose some or all of the SALT advantage.
For 2026, the AMT exemption is $140,200 for married couples filing jointly and $90,100 for single filers, with phaseouts beginning at $1,000,000 and $500,000. The exposure tends to peak at income levels where SALT is large enough to swing the itemized total but not high enough for other provisions to dominate. If your itemized deductions are heavily SALT, run both calculations before deciding on year-end moves like prepaying property taxes.
How to Claim It on Your Federal Return
You claim the deduction on IRS Schedule A, in the section titled Taxes You Paid. Line 5a holds state and local income taxes (or sales taxes if you made that choice), 5b holds real estate taxes, and 5c holds personal property taxes. Line 5d totals the three. Line 5e applies the cap, where you enter the smaller of the total or your applicable limit.8Internal Revenue Service. Schedule A (Form 1040)
If your 2026 MAGI exceeds $505,000, use the State and Local Tax Deduction Worksheet in the Schedule A instructions to compute your reduced cap before filling in line 5e.9Internal Revenue Service. Instructions for Schedule A (Form 1040)
Documents to Gather First
Pulling the right paperwork together prevents the most common errors:
- W-2 forms, where Boxes 17 and 19 show your New York State and New York City income tax withholdings.
- Estimated tax payment records: confirmation numbers or canceled checks for any quarterly payments to New York.
- Form 1099-G if you received a prior-year New York refund. Part or all of that refund may need to be reported as income on your federal return, which offsets your current deduction.10New York State Department of Taxation and Finance. Form 1099-G
- Property tax bills or your year-end mortgage statement (Form 1098), which shows taxes paid from escrow.
- Any PTET statement from a pass-through business showing your share of the entity-level tax and the New York credit.
The Federal Cap Doesn’t Apply to Your New York Return
One point many filers miss: the $40,400 cap is a federal rule only. When you file your New York State return on Form IT-196, you deduct the full amount of state and local taxes you paid, with no ceiling.11New York State Department of Taxation and Finance. Itemized Deductions (2025) Your New York itemized deductions can be substantially larger than your federal ones. Most tax software handles this automatically, but it’s worth opening the state return and confirming the number isn’t the capped federal figure.