Will the New SALT Tax Deduction Cap Benefit Home Buyers?

By Alexander Lewicki, Esq.

When the Big Beautiful Bill was signed into law in July of last year, one of the more impactful tax breaks included was the increase of the state and local tax deduction (SALT) cap from $10k to $40k. In theory, the SALT deduction helps ease the burden of local taxes in regions with high living costs by allowing taxpayers who itemize to deduct up to $40k from their federal taxes for state taxes such as income and property tax. There’s no doubt that this increase is immediately beneficial for taxpayers in California.

But one comment I’ve heard echoed throughout the real estate community is that this SALT increase was going to be beneficial to homebuyers, easing the burden they would feel from high property taxes. Many were championing the increase as a pivotal motivator for new homebuyers as we enter the 2026 market and beyond. And frankly, as someone in the business of real estate, I wish that were the case.

Simply put, the average homebuyer in Silicon Valley, especially here in towns like Palo Alto, Los Altos, or Menlo Park, where an “entry-level” home is in the $3-$4 million range, is a high earning individual. The largest state income tax bracket in California is 9.3% for earners up to $376k. This rate, composed of the most tax payers, gradually increases to the maximum tax rate of 13.3%. For most homebuyers in our area able to afford the high prices of homes, those individuals are very likely to be earning in the range of $200k+ per year, or $400k+ for a married couple. At a 9.3% tax rate, that same couple is already hitting their new $40k SALT tax deduction on state income tax alone, leaving no respite from their property taxes. And for those who may not be earning these high wages, they are likely not feeling any real estate related benefit for other reasons: they either cannot afford to purchase a home or, in another likely scenario, benefit more from taking the $31.5K standard deduction for married couples, so they opt not to itemize and thus forego the benefits of SALT altogether. Of course, the new SALT cap also comes with a phase-out beginning at $500k/year (joint income for married filers), and sunsets altogether at $600k of income, where it returns to the original cap of $10k.

All of this is not to say that the SALT cap increase won’t help shoulder some of the taxes Californians pay to the state. Californians at large will certainly feel the benefits as we enter tax season. One such scenario is the homeowner who inherited a home and had it partially or fully reassessed due to Prop 19. Perhaps now they can more easily afford to keep up with the high property taxes in California.

So, while the SALT cap increase is great news, it’s very unlikely to motivate homebuyers in California, especially here in Silicon Valley.

Alexander Lewicki (DRE #02189814) | alexander@deleonrealty.com | 650.847.7407

DeLeon Realty, Inc. | DRE #01903224 | Equal Housing Opportunity