One shared ceiling
There is no separate limit on property tax. Real estate taxes share one ceiling with your state and city income taxes: $40,400 for 2026, or $20,200 if you file separately.
Key takeaways
Two limits, not one
The ceiling falls by 30 cents for every dollar of modified adjusted gross income above $505,000 and stops falling at $10,000. A second limit reduces the value of itemized deductions in the top bracket from 2026.
Rental/business taxes escape
Property taxes on rental or business real estate are outside the ceiling, and New York does not apply the federal cap on the state return, though it applies a limitation of its own.
If your state and city income tax alone exceeds the cap, your property tax bill produces nothing on the federal return. That changes what is worth planning around.
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The setup
One shared cap, not a separate property-tax number
There has never been a separate limit on property taxes. Since 2018 one combined state and local tax cap has governed the deduction, and property tax is added to the same total as state and city income tax. The cap changed in 2025 and changed again for 2026, so the figure most people remember is out of date.
01The 2026 cap
The 2026 SALT cap and the income level where it phases down
The cap is $40,400 for 2026, up from $40,000 for 2025, and it rises 1 percent a year through 2029. As the law currently stands it returns to $10,000 for 2030. Above $505,000 of modified adjusted gross income, which is your adjusted gross income with a small number of items added back, the cap shrinks by 30 percent of the excess and stops at $10,000 at roughly $606,000.
| Single, MFJ, HoH | Married filing separately | |
|---|---|---|
| 2026 cap | $40,400 | $20,200 |
| Phase-down starts | $505,000 of modified AGI | $252,500 of modified AGI |
| Cap reaches $10,000 | About $606,000 | About $303,000 |
The 2026 cap does not survive a high income
Deduction ceiling by modified adjusted gross income
Single filers and married couples filing jointly. The cap is flat to $505,000, falls 30 cents per dollar, and stops at $10,000 around $606,000.
Up to $505,000
$40,400
At $555,000
$25,400
$606,000 and up
$10,000
Married filing separately uses half of every figure: a $20,200 cap, a phase-down starting at $252,500, and the floor at about $303,000. The raised cap is scheduled to return to $10,000 for 2030.
Inside that band, every extra dollar of income also removes 30 cents of deduction. The effective marginal rate on income between $505,000 and $606,000 is several points higher than the bracket table shows, so deferring income or accelerating deductions is worth more than usual in a borderline year.
Worked example: modified adjusted gross income of $555,000
| Amount | |
|---|---|
| Modified adjusted gross income | $555,000 |
| Less: phase-down threshold | ($505,000) |
| Excess over the threshold | $50,000 |
| Phase-down at 30 percent of the excess | $15,000 |
| Statutory cap for 2026 | $40,400 |
| Less: phase-down reduction | ($15,000) |
| 2026 cap available | $25,400 |
The second 2026 limit on itemized deductions in the 37 percent bracket
A separate limit applies from 2026 to filers in the top bracket. Itemized deductions are reduced by 2/37 of the lesser of two figures: your total itemized deductions, or the amount by which taxable income, increased by those deductions, exceeds the start of the 37 percent bracket. For 2026 that bracket starts at $640,600 for single filers and $768,700 for married couples filing jointly.
The effect is that a dollar of itemized deduction is worth about 35 cents rather than 37 cents. This limit applies after the SALT phase-down, so a New York household above the top bracket threshold is reduced twice: first on the size of the cap, then on the value of what is left. The same limit now reaches non-grantor trusts and estates, which reach the top bracket at a far lower income than individuals.
02Inside vs outside
Taxes inside the SALT cap and taxes outside it
State income tax, city income tax and property tax on your home share one $40,400 ceiling for 2026. Property tax on rental or business real estate is deducted separately and is not capped.
Inside the cap:New York State income tax, New York City resident income tax, and real property taxes on your home. Sales tax if you elect it instead of income tax.
Inside the cap, and often missed:a co-op shareholder's allocated share of the building's real estate taxes, deductible under section 216, is included in the same capped total.
Outside the cap:property taxes on rental buildings, deducted in full on Schedule E.
Outside the cap:property taxes on business real estate, deducted on Schedule C or on the entity return.
Outside the cap:state pass-through entity tax paid at the entity level, where the state permits it.
In New York City, state and city income tax usually fill the cap before any property tax counts. State and city income tax on a $400,000 household income routinely exceeds $30,000. The higher cap helps that household, but income tax fills the space before the Department of Finance bill is counted.
Worked example: a married couple in Brooklyn with $400,000 of income
| Amount | |
|---|---|
| New York State and New York City income tax | $32,000 |
| Property tax on the home | $12,000 |
| Eligible state and local taxes | $44,000 |
| Less: 2026 cap | ($40,400) |
| Deduction lost | $3,600 |
Every dollar of the property tax bill is already outside the ceiling.
03New York
New York itemized deductions and the property tax the federal cap disallows
New York does not apply the federal cap. On Form IT-196 your state and local taxes are not subject to the federal limit, and foreign real estate taxes stay deductible. Since 2018 you can also itemize for New York whether or not you itemized on the federal return.
For the Brooklyn couple above, the $12,000 of property tax that produces nothing on the federal return still counts on the New York return. New York itemized deductions are computed under the federal rules as they stood before the 2017 Act, and New York then requires state and local income taxes to be subtracted, so property tax, mortgage interest and charitable gifts are the parts that carry through. Taking the federal standard deduction and itemizing for New York is a common and correct outcome for a New York City homeowner.
04NY itemized limitation
The New York itemized deduction limitation at higher incomes
New York reduces the itemized deduction it allows once New York adjusted gross income passes a threshold, under Tax Law section 615. The reduction applies to the whole itemized deduction, not to one component, and it phases in over the $50,000 of income above each threshold.
| New York adjusted gross income | Reduction to the New York itemized deduction |
|---|---|
| Above $100,000 single, $150,000 head of household, $200,000 married filing jointly | Up to 25 percent |
| Above $475,000, any filing status | A further 25 percent phases in |
| Above $525,000, any filing status | 50 percent |
| Above $1 million | Only 50 percent of the federal charitable contribution deduction is allowed. Every other itemized deduction, property tax included, is reduced to zero |
| Above $10 million | 25 percent of the federal charitable contribution deduction |
Worked example: the same couple on the New York return
| Amount | |
|---|---|
| Property tax | $12,000 |
| Mortgage interest | $18,000 |
| Charitable gifts | $5,000 |
| New York itemized deduction before the limitation | $35,000 |
| Less: section 615 reduction at 25 percent | ($8,750) |
| Allowed New York itemized deduction | $26,250 |
| Memo: New York standard deduction, married filing jointly | $16,050 |
They itemize for New York. Above $1 million of New York adjusted gross income the property tax deduction disappears on the New York return as well as the federal one.
The comparison is worth running both ways on any return where the federal answer is close.
05STAR
How the STAR credit reduces your deductible property tax
If you itemize, reduce your deduction for real estate taxes by the total STAR credit you received during the year, and keep the check stub with your records. The STAR exemption works the other way round: it lowers the school tax bill itself, so the amount you paid, and therefore the amount you deduct, is already lower. Either way the deduction is net of the benefit. The New York City co-op and condo abatement works the same way, and any other rebate of property tax you receive during the year does too.
The abatement is a credit applied to the tax after it has been calculated, so the amount charged is lower and the amount you deduct is the net figure. For a condo the credit appears on your own bill. For a co-op it reduces the corporation's tax, so your section 216 share is lower, and the managing agent's annual letter should already show the net figure. Where a board raises an assessment equal to the abatement, that assessment is a charge from the corporation rather than a real estate tax, and it is not deductible.
06Standard deduction
The 2026 standard deduction you have to clear to itemize
Itemizing only helps if your deductions together exceed the standard deduction.
$32,200
Married filing jointly
$16,100
Single & MFS
$24,150
Head of household
Your state and local taxes, mortgage interest, charitable gifts and medical expenses above 7.5 percent of adjusted gross income have to clear that figure together. From 2026 charitable gifts also carry a floor of 0.5 percent of adjusted gross income, so the first slice of giving no longer counts toward the total.
Worked example: itemize or take the standard deduction
| Itemize | Standard deduction | |
|---|---|---|
| State and local tax, after the cap | $40,400 | Not counted |
| Mortgage interest | $18,000 | Not counted |
| Charitable gifts, after the 0.5 percent floor | $3,000 | Not counted |
| Total deduction | $61,400 | $32,200 |
The couple itemizes. Figures use the same Brooklyn household as above.
The raised cap has moved a group of New York homeowners back across that line for the first time since 2017. It changes nothing for renters with modest state tax, or for anyone already fully phased down.
07Three ways
Three ways to increase the deduction: PTET, payment timing and income management
Three things change the number for a New York household: moving state tax off the capped line through the pass-through entity tax, controlling when payments are made, and managing income inside the phase-down band.
Pass-through entity tax.If you own an interest in a partnership or an S corporation, the New York pass-through entity tax moves the state tax off your Schedule A and onto the entity return, where the cap does not reach it. This is usually the largest single saving available to a business owner.
Payment timing.Property tax installments and estimated state payments can often be pulled into or pushed out of a year. In a year where you are just inside the cap, a payment made in the wrong December is a deduction you lose.
Income management in the phase-down band.Retirement plan deferrals, charitable timing, and the sequencing of a large capital gain all move modified adjusted gross income. Between $505,000 and $606,000, each dollar moved is worth more than usual.
08How we help
SALT and property tax planning from a NYC CPA firm
We model the cap, file the elections that move tax off it, and prepare the federal and New York returns together.
Cap modeling.Where your household falls against the phase-down and the top-bracket limit, in this year and the next two, before you decide anything.
PTET evaluation and election.Whether the entity-level election helps, and filing it by the annual deadline.
Itemize against standard analysis.Run as a two-year comparison rather than one return in isolation, because grouping two years of deductions into one often produces a better result. The New York return is run separately, since the answer there is frequently different.
Rental and business allocation.Making sure property tax on income-producing real estate is deducted where it belongs and not included in the capped total.
Return preparation.Federal and New York returns prepared together, with the state addback rules handled correctly.
If part of the property is rented or used in a business, depreciation comes up at the same meeting. A cost segregation study is the usual next step.
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From the record
On planning and on the follow-through
“Off the top of my head, about a quarter of the clients' returns that I look at are not fully utilizing the deductions that they have available. I think that number is even more.”
George Dimov, CPA
“Saved us a great deal of money. Loved how they went through the documents page-by-page on the screen. A big help answering our planning questions for next year.”
Kevin M
Google review
The problem we fix most often: a homeowner hears the cap went up to roughly $40,000, assumes the property tax bill is now deductible, and plans around a deduction that never appears. In New York City the state and city income tax usually fills the cap on its own. The higher ceiling is real and worth having, but for most of our clients the cap is filled by income tax rather than by property tax. Knowing which tax is filling the cap tells you whether any of the remaining moves are worth making, and the property tax itself still comes off the New York return.
09FAQ
Common questions about the property tax deduction
Is there a limit on the property tax deduction for a rental property?
No. Property taxes on rental real estate are deducted in full on Schedule E, and property taxes on business real estate are deducted on Schedule C or on the entity return. The cap applies only to the property you live in.
Can each spouse claim the full cap if we file separately?
No. The cap is halved for married filing separately, at $20,200 each for 2026, and the phase-down starts at half the income threshold. If one spouse itemizes, the other has to itemize as well.
Does the federal cap apply to my New York return?
No. On Form IT-196 your state and local taxes are not subject to the federal limit, and you can itemize for New York whether or not you itemized federally. New York requires state and local income taxes to be subtracted from the itemized total, so property tax and mortgage interest are the parts that carry through. New York then applies a limitation of its own, which reduces the itemized deduction by 25 percent to 50 percent at higher incomes and removes everything except part of the charitable deduction above $1 million of New York adjusted gross income.
Can I deduct property tax if I take the standard deduction?
Not on the federal return. The deduction is only available if you itemize. You may still be able to itemize for New York in the same year, which is why the two returns should be run separately.
Do co-op maintenance payments count as property tax?
Part of them do. A co-op shareholder deducts an allocated share of the building's real estate taxes under section 216, and the managing agent reports the figure each year. That share counts against the same capped total as your income tax.
What happens to the cap in 2030?
As the law currently stands the cap returns to $10,000 in 2030. It rises 1 percent a year until then, so the 2029 figure is the last one at the higher level unless Congress changes it.
Book a consultation
Book a consultation
Bring last year's return and your current property tax and withholding figures. The cap math takes about twenty minutes.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising on individual income tax and itemized deduction planning. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.