What is the SALT deduction cap and how does it affect homeowners?

SALT stands for State and Local Taxes. Before 2018, homeowners could deduct unlimited state income taxes + property taxes from federal taxable income. The 2017 TCJA capped this combined deduction at $10,000 regardless of actual taxes paid. In high-tax states like CA, NY, NJ, and CT, many homeowners pay $15,000–$30,000+ in combined state income and property taxes — but can only deduct $10,000. This significantly reduces the tax benefit of homeownership in these states.

Does everyone benefit from the mortgage interest deduction?

No — and this is one of the most common misconceptions. To benefit from the mortgage interest deduction, your total itemized deductions (mortgage interest + SALT-capped property/state tax + other deductions) must exceed your standard deduction ($15,700 single / $31,500 married in 2026). For a $400,000 loan at 6.75%, year 1 interest is about $26,000 — but if your SALT is capped at $10,000, your total is $36,000 vs the $31,500 married standard deduction, giving only $4,500 extra deduction at a 22% rate = $990 savings. Many moderate-income homeowners see even less.

What is the capital gains exclusion on home sale?

If you've owned and lived in your primary residence for at least 2 of the past 5 years, you can exclude $250,000 (single) or $500,000 (married) of capital gains from your home sale from federal income tax. This means a single homeowner who bought a $400K home and sold for $650K has only $0 in taxable gains ($250K gain, $250K exclusion). This is a significant tax advantage for long-term homeowners.

How does the $750,000 mortgage interest deduction cap work?

You can only deduct interest on the first $750,000 of mortgage principal (for loans originated after Dec 15, 2017). If your loan is $800,000, you can only deduct interest on 93.75% ($750K / $800K) of your interest payments. This affects homes in high-cost markets like San Francisco, NYC, Boston, and Seattle.

Rent vs Buy Tax Deductions Calculator

Model the actual federal tax impact of homeownership — not the simplified version that assumes everyone benefits from the mortgage interest deduction.

Last updated: April 2026

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Rent vs Buy Calculator 2026

Updated with 2026 mortgage rates and current tax law

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What it does

Standard vs itemized comparison

Shows whether you'd actually itemize given your income, state, and mortgage — most homeowners don't.

SALT cap impact

Calculates exactly how much deduction you lose to the $10K cap in high-tax states.

Capital gains exclusion modeling

Applies the $250K/$500K primary residence exclusion to your home sale, reducing or eliminating capital gains tax.

How to use Rent vs Buy Tax Deductions Calculator

1
Enter your income and filing status
This determines your marginal tax bracket and the standard deduction you'd receive ($15,700 single / $31,500 married in 2026).
2
Select your state
State income tax rate is used to estimate the SALT deduction before the cap. High-tax states (CA, NY, NJ, CT) are most affected.
3
Enter other itemized deductions
Charitable donations, medical expenses, etc. These add to your itemized total alongside mortgage interest and property taxes.
4
View Tax Insights tab
See exactly whether you'd itemize, what your SALT cap impact is, and your true annual tax savings from homeownership (often $0).
5
Adjust inputs to see SALT cap impact
Try a CA or NY scenario vs a TX or FL scenario to see how dramatically the SALT cap changes the math.

When to use this

CA or NY homeowner evaluating the SALT cap impact

Enter CA or NY, set a $700K home price with 1.1% property tax. See how the SALT cap limits your combined deduction to $10K despite paying much more.

TX or FL homeowner with no state income tax

Enter TX or FL — SALT deduction equals property tax only, often well under $10K, so the cap doesn't bite.

The mortgage interest deduction: smaller than you think

The conventional wisdom that "homeowners get a big tax break from mortgage interest" was mostly true before 2018. Today, with the standard deduction at $31,500 for married filers and the SALT cap at $10,000, the math is very different. A married couple with a $600,000 home loan at 6.75% pays about $40,000 in year 1 interest. Add a SALT-capped $10,000 in property + state income tax, and their total itemized deduction is $50,000 — just $18,500 above the $31,500 standard deduction. At a 22% marginal rate, that's $4,070 in tax savings. Meaningful, but not the transformative benefit often assumed. And this declines every year as principal builds and interest payments shrink.

Frequently Asked Questions

What is the SALT deduction cap and how does it affect homeowners?: SALT stands for State and Local Taxes. Before 2018, homeowners could deduct unlimited state income taxes + property taxes from federal taxable income. The 2017 TCJA capped this combined deduction at $10,000 regardless of actual taxes paid. In high-tax states like CA, NY, NJ, and CT, many homeowners pay $15,000–$30,000+ in combined state income and property taxes — but can only deduct $10,000. This significantly reduces the tax benefit of homeownership in these states.
Does everyone benefit from the mortgage interest deduction?: No — and this is one of the most common misconceptions. To benefit from the mortgage interest deduction, your total itemized deductions (mortgage interest + SALT-capped property/state tax + other deductions) must exceed your standard deduction ($15,700 single / $31,500 married in 2026). For a $400,000 loan at 6.75%, year 1 interest is about $26,000 — but if your SALT is capped at $10,000, your total is $36,000 vs the $31,500 married standard deduction, giving only $4,500 extra deduction at a 22% rate = $990 savings. Many moderate-income homeowners see even less.
What is the capital gains exclusion on home sale?: If you've owned and lived in your primary residence for at least 2 of the past 5 years, you can exclude $250,000 (single) or $500,000 (married) of capital gains from your home sale from federal income tax. This means a single homeowner who bought a $400K home and sold for $650K has only $0 in taxable gains ($250K gain, $250K exclusion). This is a significant tax advantage for long-term homeowners.
How does the $750,000 mortgage interest deduction cap work?: You can only deduct interest on the first $750,000 of mortgage principal (for loans originated after Dec 15, 2017). If your loan is $800,000, you can only deduct interest on 93.75% ($750K / $800K) of your interest payments. This affects homes in high-cost markets like San Francisco, NYC, Boston, and Seattle.

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