For eight years, the $10,000 cap on state and local tax deductions has been the single most expensive line on a New York or New Jersey tax return. The One Big Beautiful Bill Act finally raised it — the cap is $40,400 for 2026, drifting up slightly each year through 2029.
Cue the celebration? Not so fast. The new cap comes with a phase-down aimed squarely at the people who pay the most SALT in the first place.
How the phase-down works
Once modified adjusted gross income passes roughly $505,000 (2026), the cap shrinks by 30 cents for every extra dollar of income — until it lands right back at $10,000 at roughly $606,000. Three consequences worth understanding:
- Under ~$505K: you may genuinely deduct up to $40,400 of property and income taxes. For a two-earner household in Bergen County or Westchester, that's real money — often $10,000+ per year in federal savings versus the old cap.
- Inside the band (~$505K–$606K): every marginal dollar of income costs you 30 cents of deduction on top of the tax itself. Your effective marginal rate in this band can spike well above the stated bracket. Timing a Roth conversion, a bonus, or a capital gain into this window is how refunds quietly disappear.
- Above ~$606K: you're back at $10,000, as if the change never happened.
Why PTET and BAIT still matter
New York's Pass-Through Entity Tax and New Jersey's BAIT let a partnership or S corporation pay state tax at the entity level, deduct it federally without any cap, and pass a credit to the owners. Congress left the workaround intact.
So the 2026 playbook for pass-through owners looks like this:
- Income above the phase-down? PTET/BAIT is still the whole ballgame — the entity deduction is uncapped while your personal cap is back to $10,000.
- Income below ~$505K? Now it's a real comparison. The bigger personal cap may cover your SALT without the election — and skipping PTET avoids estimate calendars, addbacks, and cash-flow drag. Sometimes the election still wins. It's arithmetic, not ideology.
- On the bubble? The PTET deduction itself lowers the income that drives the phase-down. The pieces interact — model both ways before the March 15 New York election deadline.
Try it yourself: our free PTET / NJ BAIT Estimator gives you a first-pass answer in about two minutes.
The deadline that decides everything
New York's PTET election for 2026 is due March 15, 2026 — annual, all-or-nothing, no do-overs. New Jersey's BAIT election rides along with timely estimated payments. If your books aren't closed and your projection isn't done by early March, you're choosing by coin flip.
This article is general information based on rules in effect for 2026, not advice for your specific situation. Thresholds and rules change, and details matter — talk to us (or your own advisor) before acting on anything here.