The short version
For 2026, the One Big Beautiful Bill Act lets a household deduct up to $40,400 of state and local taxes (the SALT deduction), up from $10,000, and the cap rises 1% a year through 2029 before falling back to $10,000 in 2030. For Texas homeowners, who pay no state income tax, that cap covers property tax on a home and any personal-use second home, plus sales tax. But a bigger cap only helps a household that itemizes, and with a 2026 standard deduction of $32,200 for a married couple, many Texas households with sizable property tax bills still come out ahead taking the standard deduction. Texas’s billing calendar gives homeowners an unusual lever: bills arrive in the fall and are usually not late until February 1, so a homeowner who pays directly can choose which tax year each payment counts in, and putting two bills in one year and none in the next can pay off for households whose property tax decides whether they itemize. Above $505,000 of modified adjusted gross income, the cap shrinks by 30 cents per dollar toward a $10,000 floor, but because most Texas households pay well under $40,400 in state and local tax, that phase-down tends to start later and cost less for them than the headline number suggests.
What the 2026 SALT Cap Law Says
OBBBA rewrote the cap in Section 164(b) of the tax code. The rules are short, and each one matters for planning.
The cap rises, then falls back. It was $40,000 for 2025 and is $40,400 for 2026. It grows 1% a year for 2027 through 2029, to roughly $40,800, $41,200, and $41,600, and then returns to $10,000 for 2030 and every year after, with no phase-down.
It is the same for single and married filers. The cap and the income threshold where it starts to shrink are identical for a single filer and a married couple filing jointly, and a married person filing separately gets half of each. Two unmarried homeowners can each deduct up to the full cap; once they marry, they share one.
It shrinks at higher incomes. For 2026, the cap is reduced by 30% of modified adjusted gross income above $505,000 ($500,000 in 2025, rising 1% a year through 2029), but never below $10,000. Modified adjusted gross income here is adjusted gross income plus a few categories of excluded foreign and territorial income, so for most households it is simply AGI.
It still requires itemizing. The state and local tax deduction is an itemized deduction on Schedule A. A household that takes the standard deduction gets nothing from it, whatever the cap.
What Counts Toward the SALT Cap in Texas
Texas has no state income tax, so for most Texas households the deduction is built from two pieces, and a third category sits outside the cap entirely.
Property tax on the homes you use. Real estate taxes on a primary home, and on a second home used personally, like a lake house or a place in the Hill Country, count toward the cap. They are deductible in the year they are actually paid, which turns out to matter a great deal in Texas. Two kinds of charges that can appear on a tax bill are not deductible taxes: itemized charges for services, like trash collection billed by a taxing unit, and assessments for local improvements that tend to increase the property’s value, like new sidewalks or water and sewer lines. Many newer neighborhoods around Houston, Austin, and Dallas also sit inside a special district, and the two common kinds are treated differently. A municipal utility district (MUD) levies a tax at a rate on assessed value, like a city or school district, and MUD taxes are generally treated as deductible property taxes. A public improvement district (PID) typically charges an assessment to repay improvements to the properties inside it, which, like a sidewalk assessment, is generally not a deductible tax, apart from any portion the district identifies as maintenance or interest.
Sales tax, in place of income tax. Every itemizer deducts either state and local income taxes or general sales taxes, never both, and for most Texans the choice is easy. The sales tax figure can come from actual receipts or from the IRS’s optional sales tax tables, which estimate it from income, family size, and local rate. On top of the table amount, a household can add the sales tax paid on a car, truck, or other motor vehicle (limited to what the general sales tax rate would have produced, if the vehicle’s rate was higher) and, when taxed at the general rate, on a boat, an aircraft, and in some cases a home or the materials for a major renovation. A vehicle purchase can raise the sales tax deduction noticeably in the year it happens, and its timing is sometimes flexible too.
What stays outside the cap. Property taxes on a rental property, or on property used in a business such as a working ranch, are deducted against that income on the rental or business schedule, and the cap does not apply to them. A lake house that is rented part of the year splits its property tax between a personal share, which counts toward the cap, and a rental share, which does not (if it is rented for 14 days or fewer, the rent is not taxed and the whole bill stays personal). Taxes on vacant land held purely for investment sit in a grayer area: the statute’s exception for investment activities may reach them, but that reading is less settled than the rental rule, and even where it applies, the deduction is still an itemized one, so it only helps a household that itemizes. It is a question worth raising with whoever prepares the return. Our article on Texas real estate investors covers the rental side in more depth.
The Question That Decides Everything: Will You Itemize?
The cap limits a deduction that exists only for itemizers. For 2026, the standard deduction is $32,200 for a married couple and $16,100 for a single filer. A household’s itemized deductions, mainly state and local tax, mortgage interest, and charitable gifts, have to pass that number before the first dollar of property tax does any good, and only the amount above it produces any savings.
Consider a married couple in the San Antonio area, both under 65, with $250,000 of adjusted gross income. They pay $14,000 of property tax on their home and claim $2,000 of sales tax, for $16,000 of state and local tax, well under the new cap. They pay $11,000 of mortgage interest and give $6,000 a year directly to charities. Starting in 2026, itemizers can deduct charitable gifts only to the extent they exceed 0.5% of AGI, so $1,250 of the $6,000 drops out, leaving $4,750. Their itemized deductions total $31,750.
That is $450 short of the standard deduction. Under the old $10,000 cap they would have been at $25,750; the new cap moved them $6,000 closer, but not over. They take the standard deduction, as they would have before, and also claim the new deduction for non-itemizers’ cash gifts made directly to charities (gifts to a donor-advised fund do not qualify), up to $2,000 for a married couple, for $34,200 of deductions in all. For this household, the $30,400 increase in the cap changed nothing. The new charitable deduction also raises the bar a little: because itemizing gives it up, this couple’s itemized deductions would need to pass $34,200, not $32,200, before itemizing came out ahead.
A few other rules shape the comparison. OBBBA made permanent the limit on mortgage interest, which is deductible on up to $750,000 of debt used to buy, build, or improve the home (loans taken out before mid-December 2017 keep the older $1 million limit). A married couple 65 or older adds $1,650 each to the standard deduction, for $35,500, but only if they take the standard deduction; itemizing gives that add-on up. The $6,000-per-person senior deduction works differently: it is available whether you itemize or not, as our article on the senior deduction explains. And for households in the 37% bracket, which starts at $768,700 of taxable income for a married couple in 2026, OBBBA separately trims the value of itemized deductions to roughly 35 cents per dollar.
When to Pay Texas Property Tax: Choosing the Year
Here is where Texas’s calendar changes the math. Texas tax offices mail bills in the fall, payment is due on receipt, and taxes unpaid on February 1 become delinquent (a bill mailed after January 10 gets a later delinquency date, printed on the bill). On the federal side, an individual deducts real estate taxes in the year they are paid, and taxes paid through a mortgage escrow account are deductible in the year the lender pays the taxing unit, not when the homeowner pays into escrow. A tax also has to be assessed before paying it counts, so next year’s bill cannot be deducted this December. This year’s bill, though, arrives in the fall and can be paid in December or January.
Put together, a Texas homeowner who pays the bill directly chooses, each winter, which year that bill’s deduction lands in.
Go back to the San Antonio couple. Suppose they pay their 2026 bill in January 2027 instead of December 2026, and pay their 2027 bill in December 2027. The year 2027 then holds two bills, $28,000 of property tax, plus $2,000 of sales tax, for $30,000 of state and local tax, still under the 2027 cap of roughly $40,800. Using 2026 figures for both years, their 2026 itemized deductions fall to $17,750, so they take the standard deduction plus the $2,000 charitable deduction, the same $34,200 as before. In 2027, their itemized deductions reach $45,750. Over the two years, their deductions total $79,950 instead of $68,400, an extra $11,550, worth about $2,600 in federal tax at their brackets. Repeating the cycle in 2028 and 2029 doubles that, to $23,100 of extra deductions and about $5,300 of tax.
The cycle also fits the law’s own calendar. Starting with a skipped year in 2026 puts the doubled years in 2027 and 2029, both under the higher cap, and the pattern finishes before 2030, when the cap drops back to $10,000 and a second bill in the same year would mostly go to waste. A household that already paid its 2025 bill in January 2026 is effectively on the other cycle: paying the 2026 bill in December 2026 doubles 2026, the next doubled year is 2028, and the 2029 bill then faces a choice between a single-bill 2029 and the $10,000 cap in 2030.
Property tax is not the only deduction a household can move between years. If the same couple also concentrated two years of giving into a donor-advised fund in each doubled year, giving the same total as before, the two-year gain would rise to $15,550 of extra deductions and about $3,500 of tax. Timing gifts this way only helps a household that was going to give anyway, but for one that was, the two strategies reinforce each other, because each pushes the doubled year further past the standard deduction.
The strategy has limits worth knowing. If a lender pays the bill from escrow, the lender’s payment date decides the year, and controlling the timing generally means paying the bill directly, which depends on the terms of the loan. A January payment has to be made before the delinquency date on the bill, or penalty and interest begin, and it can forfeit an early-payment discount where a taxing unit offers one. The doubled year means two bills inside roughly eleven months, which takes cash-flow planning. And the benefit depends on what a household’s deductions look like without the property tax. If mortgage interest, giving, and sales tax alone already clear the standard deduction, alternating adds no deductions, since both years itemize either way, and it can cost a little when the doubled year’s extra deduction lands in a lower bracket than the skipped year’s extra income. If they fall short, alternating can help even a household that already itemizes every year, because the skipped year falls back to the full standard deduction while the doubled year keeps both bills. The gain shrinks once two bills plus sales tax would run past the cap, since the excess is simply lost, and a household with a large enough bill can come out behind. It disappears entirely when even two bills leave the household below the standard deduction. The same San Antonio couple with $18,000 of property tax instead of $14,000 itemizes every year, at $35,750, yet alternating would add $16,450 of deductions over two years, about $3,600 of federal tax, because two bills plus sales tax, $38,000, still fit under the roughly $40,800 cap.
The SALT Phase-Down Above $505,000
For 2026, every dollar of modified adjusted gross income above $505,000 takes 30 cents off the cap, until the cap reaches its $10,000 floor. For a household that pays at least the full cap in state and local tax and itemizes, each dollar of income inside that range is taxed once at the bracket rate and again through the lost deduction, so a 32% bracket effectively becomes about 41.6% and a 35% bracket about 45.5%. Our article on what a tax strategist does calls these phantom marginal rates, and this is one of the steeper ones.
For most Texas households, though, the headline threshold is not where the cost begins. The shrinking cap takes nothing away until it falls below what the household actually pays, and most Texas households pay well under $40,400. To find where the cost begins, take the gap between $40,400 and the household’s own state and local tax, divide it by 0.30, and add the result to $505,000. A household paying $30,000 is first affected at about $539,667 of MAGI; one paying $22,000, at about $566,333; one paying $15,000, at about $589,667. The most the phase-down can cost in a year is the household’s state and local tax above the $10,000 floor, times its bracket rate.
Consider a Dallas couple who pay $20,000 of property tax on their home and a lake house, claim $2,000 of sales tax, pay $15,000 of mortgage interest, and give $20,000 to a donor-advised fund. At $560,000 of MAGI, their cap is $23,900, still above their $22,000, and the phase-down costs them nothing. The cap reaches $22,000 at about $566,333. At $600,000, the cap is $11,900; they lose $10,100 of deduction, and at their 35% bracket that adds $3,535 of tax, about 10.5 cents for each dollar of income between $566,333 and $600,000. By $620,000 the cap has reached its $10,000 floor, and the total cost stops at $4,200, which is $12,000 of lost deduction at 35%. For a household paying the full $40,400, the same ceiling is $10,640, which is why the corridor looms much larger in states with an income tax than it does for most Texas households.
One more floor sits underneath: if the lost deduction would push a household’s itemized total below the standard deduction, it switches to the standard deduction, and the phase-down stops costing anything more.
The income that lands in this range is often the income a household has some say over: a bonus, business income whose timing an owner controls, a deferred compensation payout, gains from a sale, or a conversion from a traditional IRA. Because the phase-down applies only through 2029, income with flexible timing can sometimes be sized to stay below where the corridor starts, or moved out of the 2026 to 2029 window altogether. The same income also raises the floor on charitable deductions, which is set at 0.5% of AGI, so a large conversion or bonus trims the deductible share of that year’s giving too, by half a cent per dollar of added income. Our articles on deferred compensation elections and on Roth conversion planning under OBBBA walk through how those decisions interact with the corridor.
What about the alternative minimum tax? State and local taxes are not deductible under the AMT, so a larger deduction can, in principle, pull a household toward it. For a married couple, though, the AMT exemption of $140,200 does not begin to phase out until $1,000,000 of AMT income, by which point the state and local deduction has long since shrunk to $10,000. Modeling a married couple who pay at least the full $40,400 of state and local tax, with income between $300,000 and $550,000 and the deduction reduced by the phase-down where it applies, the regular tax stays above the AMT throughout, though the margin narrows to about $2,000 at its tightest, near $440,000 of income with no other itemized deductions. A year with incentive stock option exercises or other AMT adjustments is where that margin deserves a closer look.
If You Own Property or a Business Outside Texas
Households moving to Texas from a state with an income tax usually find that their state and local tax deduction changes character, from income tax to property tax. In the year of the move, and sometimes the year after, income tax paid to the old state (withholding, estimated payments, or a balance due with the prior year’s return) can still outweigh the sales tax figure, so the income-or-sales-tax choice is worth rerunning. Our moving to Texas checklist covers the rest of that transition. A second home in another state works like one in Texas, with its property tax counting toward the same cap, while property tax on a home outside the United States is not deductible at all. Business owners with operations in states that have an income tax may also be able to use a state pass-through entity tax, which moves the state tax to the business level where the cap does not apply; OBBBA left that workaround in place. It does nothing for Texas income, since Texas has no income tax to shift, but our article for practice owners explains how it works for income earned in other states.
How We Think About It
We lean toward treating the date a property tax bill gets paid as a decision rather than a habit. For a household whose property tax can decide whether it itemizes, the year a bill lands in can be worth real money, and the answer shifts with income, giving, a vehicle purchase, and the 2030 reversion. That makes it a question for the multi-year projection, decided before the bill is due, rather than something that happens by default each December.
We lean toward measuring the new cap by whether it changes the itemize-or-not answer in a given year, not by how much property tax a household pays. A $40,400 cap is worth nothing to a household that takes the standard deduction, and worth only the excess to one that barely itemizes. The households who benefit most are the ones whose property tax is what decides whether they itemize, and whose two bills together still fit under the cap.
And we lean toward treating the phase-down as a steep slope that deserves care whenever a bonus, a conversion, or a sale lands inside it, while remembering that for many Texas households the corridor is short and starts well above $505,000. Because its cost is capped at the household’s state and local tax above $10,000, it is usually small next to a large, planned income event like a business sale; for a discretionary one, like a Roth conversion, it belongs in the sizing, as one input to a plan built for decades rather than a reason to reorganize it.
Common Questions
Can Texas homeowners deduct property taxes in 2026?
Yes, if they itemize. Property taxes on a home and any personal-use second home, together with sales tax, which is Texans’ substitute for state income tax, are deductible up to $40,400 for 2026, and the cap shrinks for modified adjusted gross income above $505,000, never below $10,000. The deduction only helps when a household’s total itemized deductions exceed the standard deduction, $32,200 for a married couple in 2026 or $16,100 for a single filer, so many Texas households with sizable property tax bills still take the standard deduction.
Can I deduct sales tax in Texas?
Yes. Itemizers choose between deducting state and local income taxes and deducting general sales taxes, and because Texas has no income tax, Texans generally choose sales tax. You can use actual receipts or the IRS optional sales tax tables, and add the sales tax paid on a motor vehicle and certain other major purchases. Sales tax and property tax share the same $40,400 cap for 2026.
Should I pay my Texas property tax bill in December or January?
It depends on which year the deduction is worth more. Texas bills arrive in the fall and are usually not delinquent until February 1, and a payment is deducted in the year it is made, or in the year your lender pays it from escrow. A household whose deductions other than property tax fall below the standard deduction can come out ahead by putting two bills in one year and none in the next, even if it itemizes today, as long as two bills fit under the cap. A January payment has to be made before the delinquency date on the bill, and because the cap falls to $10,000 in 2030, the timing of the 2029 bill deserves particular thought.
What happens to the SALT deduction above $505,000 of income?
For 2026, the $40,400 cap shrinks by 30 cents for every dollar of modified adjusted gross income above $505,000, until it reaches a $10,000 floor. Inside that range, a dollar of income can be taxed at about 41.6% in the 32% bracket or 45.5% in the 35% bracket. For a household whose state and local taxes are below $40,400, as most Texas households’ are, the shrinking cap has no effect until it falls below what the household actually pays, which can be tens of thousands of dollars above $505,000.