6. State and Local Tax (SALT) Deductions

The State and Local Tax deduction, often called the “SALT” deduction, allows taxpayers who itemize to deduct certain taxes they have paid to state and local governments. While the rules have become more restrictive, it can still be a valuable deduction for retirees.

The $10,000 Limit

Current tax law limits the total SALT deduction to $10,000 per household, per year ($5,000 if you are Married Filing Separately). This cap includes a combination of property taxes plus either state income taxes or state sales taxes—whichever is greater.

What It Includes for Retirees

Even if you live in a state with no income tax, this deduction can be important. For most retired homeowners, the most significant part of the SALT deduction is their local property taxes. If you pay $8,000 a year in property taxes, that full amount can be included in your itemized deductions.

You then have a choice for the remaining amount (up to the $10,000 cap). You can either deduct the state income taxes you paid during the year (from pensions or other income) OR you can choose to deduct the state and local sales taxes you paid. You cannot deduct both.

If you live in a state without an income tax, the choice is easy: you use your sales taxes. The IRS provides tables that give you an estimated amount you can deduct based on your income and location, so you do not have to save every single receipt. However, if you made a large purchase during the year, like a car or a boat, you can add the sales tax from that specific purchase to the table amount.

State-Level Breaks

It is important to remember that this is a federal deduction. Many states offer their own separate property tax relief programs for seniors, often called “homestead exemptions” or “circuit breaker” credits. These are entirely separate from the federal SALT deduction, so be sure to check with your state’s department of revenue for local retirement tax breaks.