The New $40,000 SALT Cap in 2026: What Dallas Homeowners Can Now Deduct on Property Taxes
Texas has no state income tax, so your entire $40,400 SALT allowance can go toward property taxes. Here's what DFW homeowners can deduct in 2026.
How Does the New SALT Cap Affect Dallas Homeowners in 2026?
The One Big Beautiful Bill raised the federal SALT deduction cap from $10,000 to $40,400 for the 2026 tax year. Because Texas has no state income tax, Dallas-area homeowners can apply their entire SALT allowance to property taxes -- meaning most DFW owners who were previously capped can now deduct their full annual tax bill.
By Paul Blair | September 25, 2026
Texas homeowners got a significant federal tax change this year that most people haven't caught up with yet.
Starting with the 2025 tax year, the SALT deduction cap quadrupled from $10,000 to $40,000 under the One Big Beautiful Bill. With the law's built-in 1% annual increase, the cap for the 2026 tax year is $40,400.
For homeowners in California or New York, this change helps -- but their SALT allowance still has to cover both state income taxes and property taxes. In Texas, there's no split. The state collects no income tax. Your entire SALT allowance is available for property taxes.
That changes the math for a lot of DFW homeowners -- and for buyers who are running carrying-cost numbers right now.
What the SALT Deduction Is and Why the Cap Mattered
SALT stands for State and Local Taxes. On your federal return, the IRS lets you deduct the state and local taxes you paid during the year: state income taxes, property taxes, and either general sales taxes or income taxes (whichever is higher).
Since Texas doesn't tax income, your SALT deduction consists almost entirely of real estate taxes on your home, plus potentially personal property taxes. (You can also choose to deduct sales taxes instead of income taxes, but for most homeowners the property tax bill is the larger number.)
Before 2025, the combined cap was $10,000. If you paid $14,000 in Dallas County property taxes, you could only deduct $10,000. The remaining $4,000 was simply gone from a federal deduction standpoint.
Under the new law, the 2026 cap is $40,400. For most DFW homeowners, that covers their entire property tax bill with room to spare.
The cap and income threshold both increase 1% per year through 2029, then revert to $10,000 in 2030 unless Congress acts again. The $40,000 baseline and annual-increase structure are confirmed by the Bipartisan Policy Center's analysis.
What Dallas-Area Homeowners Are Actually Paying
Property tax rates across the Dallas metro run roughly 1.7% to 2.6% of assessed value, depending on county, city, school district, and any MUD or PID overlays on the property.
Here's how that translates to real bills:
- A $450,000 home in Plano or Richardson: approximately $9,000 to $11,700 per year
- A $600,000 home in Frisco or McKinney: approximately $12,000 to $15,600 per year
- A $900,000 home in Prosper or north Collin County: approximately $18,000 to $23,400 per year
- A $2 million home in Highland Park or Preston Hollow: approximately $40,000 to $52,000 per year
Under the old $10,000 cap, homeowners in that second and third tier were leaving significant deductions on the table. A $600,000 Frisco homeowner paying $14,000 in taxes could only deduct $10,000. That's $4,000 in lost deductions per year. At a 24% marginal rate, that's $960 out the door annually that's now back in play.
Under the new $40,400 cap, most of those homeowners can deduct everything.
The luxury tier is a different story. On a $2 million home with a $40,000 to $52,000 tax bill, you'll capture most of it -- far more than before -- but very high-value properties may still see some excess above the cap. If your home is in the $3 million to $4 million range with an annual tax bill of $60,000 or more, you're getting a much better deal than under the old rules, but you're not deducting every dollar.
The Itemize-or-Standard Decision
The SALT deduction only works if you itemize. You don't get it automatically.
The 2026 standard deduction is approximately $15,400 for single filers and $30,800 for married couples filing jointly (these figures are inflation-adjusted under the new law -- confirm the exact amounts with your CPA since the IRS finalizes them officially).
The key question: will your total itemized deductions exceed the standard deduction?
For most Dallas homeowners with a mortgage, the answer is yes -- often by a wide margin.
Mortgage interest. On a $500,000 loan at 7%, you're paying roughly $34,000 in interest in the first year. That alone clears the married standard deduction.
Property taxes. Add $12,000 to $18,000 for a typical Frisco or McKinney home in that price range. Now you're at $46,000 to $52,000 in total itemized deductions.
The comparison: $46,000 to $52,000 in itemized deductions against a $30,800 standard deduction. You're coming out $15,200 to $21,200 ahead by itemizing. At a 24% marginal rate, that translates to $3,648 to $5,088 in actual federal tax savings.
Higher earners in the 32% to 37% bracket see even more benefit per deduction dollar.
If you're a first-time buyer or a lower-balance borrower where your mortgage interest has dropped substantially, it's worth running the math with your accountant -- but for most DFW homeowners with current-rate mortgages and mid-range or higher property values, itemizing still wins.
Who Benefits Most in DFW
The new SALT cap is most valuable if you meet several of these conditions:
You pay more than $10,000 in property taxes. Anyone below that threshold was already fully deducting under the old cap if they were itemizing. The change is most meaningful from $10,001 upward.
You itemize rather than take the standard deduction. If your mortgage interest plus property taxes clears $30,800 (married), you're almost certainly better off itemizing.
Your income is under $500,000. Above that threshold for single filers (or $250,000 for married filing separately), the cap starts to phase down at $0.30 per dollar of excess income, all the way back to $10,000. High earners buying luxury properties will want to model this carefully with a CPA.
You're in the $600K to $1.5M home range. This is where the change has the most practical impact across the DFW market -- properties with meaningful tax bills that were previously hitting the $10,000 ceiling.
If you're wondering whether to protest your property taxes to reduce that assessed value, the calculus hasn't changed there -- a lower assessed value still means a lower annual bill, regardless of how much of it you can deduct. A lower bill before the deduction is still better than a higher bill you can partially deduct.
What Buyers Need to Know Right Now
If you're house hunting, this is worth folding into your carrying-cost analysis before you make an offer.
Under the old rules, a home with a $14,000 annual tax bill wasn't meaningfully different from a deduction standpoint than one with an $11,000 bill -- both were going to hit the $10,000 ceiling. Under the new rules, both of those bills are potentially fully deductible. The difference in after-tax carrying cost between these two homes just got real.
This matters for comparisons between similar homes in different suburbs. A $650,000 home in a new Prosper subdivision with an effective rate of 2.5% (roughly $16,250/year in taxes) versus a comparable resale in established Plano at 1.9% (roughly $12,350/year) has always had a cost difference. Now the federal deductibility of that gap is what your net carrying cost is actually about -- not just the sticker number on the tax bill.
If you're looking at new construction in Prosper, Celina, Anna, or east Wylie, those properties often carry MUD and PID tax overlays on top of base rates that push effective tax rates above 2.5%. Under the new SALT cap, most of that is now deductible -- but you should still confirm the actual tax bill, not the listing estimate.
The broader point: the after-tax carrying cost of any specific home in DFW just improved relative to what it looked like two years ago. For buyers running purchase math, that's a real input.
If you want to work through what the full carrying cost looks like on a home you're considering -- taxes, insurance, HOA, mortgage, what you net out after deductions -- I'm glad to walk you through it.
Talk to Paul Blair about buying in DFW
What Sellers Should Know
If you're selling a mid-range to high-value home in DFW, this is a legitimate point to work into the conversation with serious buyers.
A $900,000 listing in Plano with a $20,000 annual tax bill now carries a meaningful deduction advantage for buyers earning under $500,000. That doesn't override pricing or condition, but for buyers who are on the fence between two properties, it's a real factor in the net cost of ownership.
This is especially relevant for buyers relocating from California or New York. They're already aware of how painful SALT limitations are. Texas was an escape from state income tax, but they were still hitting the $10,000 federal cap on property taxes. That cap is now gone for most of them. The after-tax cost case for moving here just got stronger.
If your home is valued north of $2 million in Highland Park, the Park Cities, or Preston Hollow, this is worth raising with prospective buyers who are doing detailed due diligence on carrying costs. Get your current home value estimate to ground that conversation in current market data.
The Phase-Out: Know Your Income Level
If your adjusted gross income exceeds $500,000 (single or married filing jointly) or $250,000 (married filing separately), the $40,400 cap starts to phase down.
For every dollar of MAGI above those thresholds, the cap shrinks by $0.30 -- until it bottoms out at $10,000. It cannot go lower than that floor.
Quick example for a single filer at $600,000 AGI:
- Excess over threshold: $100,000
- 30% of $100,000: $30,000
- Effective cap: $40,400 - $30,000 = $10,400
That's essentially the old cap.
High earners purchasing luxury properties in Highland Park, the Park Cities, or Preston Hollow should run this math carefully with a tax advisor. A $3 million home might carry $50,000 to $60,000 in annual taxes, and depending on income, a large portion may still fall outside the deductible range. The improvement over the old rules is still real -- but it's not unlimited.
Your CPA will run the actual numbers. The above is the framework for understanding when the phase-out starts affecting your situation.
The Bottom Line
For most Dallas-area homeowners in the $450K to $1.5M range across Plano, Frisco, McKinney, Prosper, and the northern suburbs, the new SALT cap means a real, calculable improvement in after-tax housing costs. The old $10,000 ceiling was a flat wall for anyone paying above it. The new $40,400 cap removes that wall for almost everyone except the highest earners.
And if you haven't already claimed your Texas homestead exemption, do that first -- it reduces your assessed value before you even get to the federal deduction conversation.
If you haven't had your accountant run your 2026 numbers yet, this is worth putting on the list before year-end. And if you're evaluating a home purchase and trying to understand the true carrying cost in a specific part of DFW, that's exactly the kind of conversation I walk my clients through.
Contact Paul Blair at Grey Square
Frequently Asked Questions
Can I deduct my full DFW property tax bill under the new SALT rules?
Most Dallas-area homeowners can now deduct their entire annual property tax bill, as long as total taxes fall under $40,400 and they itemize deductions on Schedule A. If your home is valued under $1.5 million, you're likely under the cap. Homeowners above $500,000 in income should check whether the phase-out reduces their effective cap.
Do I still need to itemize to claim the property tax deduction?
Yes. The SALT deduction -- including property taxes -- only applies if you itemize on Schedule A rather than taking the standard deduction. For most DFW homeowners with a current-rate mortgage, the combination of mortgage interest and property taxes clears the standard deduction threshold and makes itemizing the better choice.
How does the SALT phase-out work for high earners?
For single filers or married couples above $500,000 in modified adjusted gross income (or $250,000 for married filing separately), the $40,400 cap shrinks by $0.30 for every dollar above the threshold. It cannot go below $10,000. A single filer at $600,000 AGI has an effective cap of approximately $10,400 -- close to the old limit.
Does this help buyers looking at new construction in Prosper or Celina?
Yes, particularly because newer northern suburbs carry MUD and PID tax overlays that push effective rates to 2.5% or higher. On a $700,000 home, that can mean $17,500 per year in property taxes. Under the new cap, all of that is potentially deductible for buyers earning under $500,000.
Does the SALT cap apply to your 2026 tax return as well, or just 2025?
The new cap applies to tax years 2025 through 2029. For your 2026 tax year, the cap is $40,400 (the $40,000 baseline from 2025 increased by 1%). You'll claim it when you file your 2026 return in early 2027. The law currently reverts to $10,000 in 2030 without further Congressional action.
What if I ask my agent to explain what this means for buying a home in Frisco right now?
That's exactly the kind of question a good local agent should be able to walk you through -- how the carrying cost of a specific home in Frisco, McKinney, or Prosper looks after you factor in current mortgage rates, the property tax bill, what's deductible, and how it compares to the standard deduction. If you're working through this math, reach out and we'll run it together.
About Paul Blair
Paul Blair is the founder and broker of Grey Square, a virtual real estate brokerage representing buyers and sellers across Dallas and Los Angeles. With 22 years in the business and more than $200 million in closed transactions, Paul works the full range of the market, from luxury homes in the Park Cities and Preston Hollow to estates in the Hollywood Hills and across the Westside. Connect with Paul and the Grey Square team at greysq.com. TX TREC #9011505 | CA DRE #01792671.