Short answer. Add up the New Jersey property tax and state income tax you paid in the year (or sales tax instead of income tax, not both). For 2026 the federal deduction for those taxes is limited to $40,400 ($20,200 married filing separately), reduced by 30% of modified AGI over $505,000 but not below $10,000. Add mortgage interest, gifts to charity and other itemized costs, then compare the total with the 2026 standard deduction: $16,100 single, $32,200 married filing jointly, $24,150 head of household. Take whichever is larger. The New Jersey return has its own property tax deduction or credit.
The limits by year
| Tax year | SALT limit | Reduced when modified AGI is over | Never below |
|---|---|---|---|
| 2025 | $40,000 ($20,000 MFS) | $500,000 ($250,000 MFS) | $10,000 ($5,000 MFS) |
| 2026 | $40,400 ($20,200 MFS) | $505,000 ($252,500 MFS) | $10,000 ($5,000 MFS) |
The reduction is 30% of the amount over the threshold. The limit covers state and local income (or sales) taxes, real estate taxes and personal property taxes together, lines 5a through 5c of Schedule A. MFS means married filing separately.
Step by step
- Gather the tax amounts you paid in the year. Property tax: your town's tax bills and receipts, or your lender's escrow statement if taxes are paid from escrow. New Jersey income tax: the state withholding on each W-2, any NJ estimated payments made during the year, and any balance you paid with last year's NJ return during this year.
- Pick income tax or sales tax. You can elect to deduct state and local general sales taxes instead of income taxes, but not both. Compare the two and use the one you choose consistently on Schedule A.
- Count only taxes paid and assessed in time. For 2025, the Schedule A instructions say only taxes paid in 2025 and assessed before 2026 count. Paying a bill early doesn't help if the tax hasn't been assessed yet. Check the 2026 instructions for the same rule.
- Apply the limit. If your modified AGI is at or under the threshold, the limit is the full $40,400 for 2026. Above it, subtract 30% of the excess, stopping at $10,000.
- Add your other itemized deductions. Mortgage interest from Form 1098, gifts to charity with their acknowledgments, and medical costs above the floor in the Schedule A instructions.
- Compare with the standard deduction. Use the amount for your filing status. The new Schedule 1-A deductions (tips, overtime, car loan interest and the senior deduction) are claimed either way, so they don't change this comparison.
- Do the New Jersey return on its own terms. New Jersey has a property tax deduction of up to $15,000 or a refundable $50 credit, and you claim one of the two. Renters count 18% of rent paid as property taxes. The NJ-1040 instructions show which one gives the greater benefit.
A couple in New Jersey, two income levels
A married couple filing jointly for 2026 paid $13,800 in property tax and $8,500 in NJ income tax ($7,900 withheld plus $600 paid in April with their 2025 NJ return). They paid $9,400 of mortgage interest and gave $2,100 to charity.
At $210,000 of modified AGI, the SALT limit is the full $40,400. All $22,300 of their state and local taxes fit under it. Itemized total: $22,300 + $9,400 + $2,100 = $33,800, compared with a $32,200 standard deduction. Itemizing is $1,600 larger.
At $585,000 of modified AGI, they are $80,000 over $505,000. Thirty percent of that is $24,000, so the limit drops to $16,400. Only $16,400 of the $22,300 is deductible. Itemized total: $16,400 + $9,400 + $2,100 = $27,900, which is less than $32,200. The standard deduction is larger.
On their New Jersey return, they separately compare the property tax deduction (the lesser of $13,800 or $15,000) with the $50 credit, following the NJ-1040 instructions.
Common snags
- Married filing separately. Each spouse's limit is half: $20,200 for 2026. Check the Schedule A instructions before choosing separate returns.
- Escrow timing. Count what the escrow account actually paid to the town during the year, not what you paid into escrow.
- Personal property taxes. Only the part of a charge based on value and imposed yearly counts. For a car registration fee based partly on value and partly on weight, only the value part counts.
- Later years. This guide uses the 2025 and 2026 figures the IRS has published. Check IRS publications for the figures that apply after 2026.
Official sources
- IRS: Instructions for Schedule A (Form 1040) (2025)
- IRS: Correction to the state and local tax deduction amount in the 2026 Form 1040-ES (March 16, 2026)
- IRS Publication 505 (2026), Tax Withholding and Estimated Tax
- NJ Division of Taxation: Property Tax Deduction/Credit for Homeowners and Renters (updated March 23, 2026)
- IRS: Working Families Tax Cuts provisions for individuals and workers (updated Aug. 27, 2026)
Checked November 2026 on irs.gov and nj.gov.
Common questions
Can I deduct both New Jersey income tax and sales tax?
No. The Schedule A instructions let you choose state and local general sales taxes instead of income taxes, not both.
Does the SALT limit include property tax?
Yes. It is one overall limit for state and local income or sales taxes, real estate taxes and personal property taxes together.
What is the 2026 SALT limit for married filing separately?
$20,200, reduced when modified AGI is over $252,500, but not below $5,000.
Can I prepay next year's property tax to deduct it this year?
For 2025 the instructions say only taxes paid in 2025 and assessed before 2026 count, so a bill not yet assessed doesn't help. Check the 2026 Schedule A instructions.
Does New Jersey have its own property tax break?
Yes. The NJ-1040 offers a property tax deduction of up to $15,000 or a refundable $50 credit, and you can claim only one of them.
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