Tidy home-office desk with US tax-planning materials — a calculator on a printed tax form, a folder labelled 'Tax Planning 2026', and a softly-blurred laptop showing a spreadsheet in the background — illustrating the article's theme of OBBBA changes to SALT and 529 plans for the 2026 tax year.

The Savvy Investor's Guide

OBBBA in 2026: the SALT cap is now $40,000 and your 529 can pay $20,000 of K-12 tuition

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James Heppe-Smith

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By James Heppe-Smith · June 2026 · 8 min read

Two of the more practically useful provisions in the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, took effect on 1 January 2026. Both are now actively shaping tax planning conversations for the 2026 tax year. The first is the State and Local Tax (SALT) deduction cap rising from $10,000 to $40,000 for federal income tax purposes. The second is the annual 529 plan withdrawal limit for K-12 expenses doubling from $10,000 to $20,000 per student, with the eligible-expense list expanded to include tutoring, books, and college-prep materials. Both provisions matter most in specific situations, and the SALT change has phase-outs and an explicit sunset that anyone using it should understand before relying on it.

The short version

  • SALT deduction cap raised to $40,000 (from $10,000) for 2025 tax year onward. Married filing jointly and single filers share the same cap.
  • SALT cap phases out above $500,500 MAGI ($500,000 for single filers) and reverts to $10,000 in 2030 unless extended.
  • 529 K-12 annual withdrawal limit doubled to $20,000 per student per year (from $10,000) for elementary and secondary tuition.
  • 529 eligible expenses expanded: tutoring, books, online educational materials, standardised test prep, dual-enrollment college courses, and apprenticeship program fees now qualify.
  • Postsecondary credential programs (recognised industry credentials, certain workforce programs) also now qualify for 529 distributions.
  • A new above-the-line charitable deduction of $1,000 (single) / $2,000 (married filing jointly) takes effect for 2026 for non-itemisers.
  • Combined effect for high-tax-state homeowners with school-age children: meaningful 2026 tax-planning leverage, but check eligibility carefully because phase-outs and state-specific rules apply.

The SALT cap: $40,000 is the new ceiling, with conditions

The State and Local Tax (SALT) deduction allows taxpayers who itemize to deduct certain state and local taxes from their federal taxable income. The eligible taxes are: state and local income taxes (or general sales tax, if elected instead), state and local real property taxes, and state and local personal property taxes. Foreign taxes on real property became excluded under the Tax Cuts and Jobs Act of 2017.

The TCJA capped the SALT deduction at $10,000 starting in 2018. That cap hit hardest in high-tax states (California, New York, New Jersey, Illinois, Massachusetts, Maryland, Connecticut, Oregon) where a typical homeowner could easily pay $15,000 to $25,000 in combined state income tax and property tax. The lost deduction translated directly to higher federal tax for affected taxpayers.

OBBBA raises the cap to $40,000 for 2025 onward. The new cap applies regardless of filing status: a single filer and a married couple filing jointly both get $40,000 (compared with the marriage-penalty version of the old $10,000 cap which was the same for both). However, two conditions limit the benefit:

  • Phase-out above high MAGI. The new $40,000 cap phases out for taxpayers with modified adjusted gross income above approximately $500,500 (married filing jointly) or $500,000 (single). The phase-out reduces the cap back toward $10,000 as income rises further. The IRS has published the specific phase-out formula; consult a tax professional or use IRS-published worksheets for figures above the threshold.
  • Sunset in 2030. Unless extended by future legislation, the $40,000 cap reverts to $10,000 from the 2030 tax year. This matters for multi-year planning, particularly for households contemplating large property purchases, state-tax acceleration strategies, or moves between states.

Who benefits most

Three groups see the largest benefit from the SALT increase:

  • High-tax-state homeowners with combined state income tax plus property tax between $10,000 and $40,000. For a New Jersey household paying $18,000 in property tax and $9,000 in state income tax, the deductible SALT total of $27,000 (up from the $10,000 cap) creates a federal deduction worth roughly $9,000 at a 35% marginal bracket. The annual federal tax saving is therefore around $3,200.
  • Filers who itemize. If you do not itemize (because the standard deduction is larger than your itemized total), the SALT cap is irrelevant to you. With the 2026 standard deduction at $30,000 for MFJ and $15,000 for single filers, the higher SALT cap may push some households over the itemization threshold who were previously taking the standard deduction.
  • High earners below the phase-out. The full $40,000 deduction is available below approximately $500,000 MAGI. Above that, the phase-out reduces the benefit.

Practical 2026 planning notes

  • Review whether to itemize for 2026. If your SALT total is now meaningfully higher than the $10,000 cap, your itemized total may exceed the standard deduction even after the standard deduction’s own OBBBA adjustments. Add up SALT, mortgage interest, qualifying charitable contributions, and medical expenses above the 7.5% AGI floor.
  • Consider timing of state income tax payments. Households near the $40,000 cap may benefit from pulling state income tax payments forward or pushing them back, depending on the year-by-year situation. Standard estimated-tax payment and withholding strategies are now meaningful again in a way they weren’t under the $10,000 cap.
  • Watch the 2030 sunset. If your planning horizon extends beyond 2030, do not assume the $40,000 cap will be extended. Build the reversion to $10,000 into multi-year tax models.
  • State-level workarounds (PTET, pass-through entity tax) are less relevant in 2026. Many states introduced PTET workarounds to avoid the federal $10,000 cap for business owners. With the cap now at $40,000, PTET elections need a fresh look: in some cases the federal benefit no longer outweighs the administrative cost of the state election.

529 plans: $20,000 K-12, plus credentials and prep

529 plans have always been positioned as college-savings vehicles, but the Tax Cuts and Jobs Act (2017) expanded their permitted uses to include up to $10,000 per year of K-12 tuition. OBBBA doubles that limit to $20,000 per student per year from 1 January 2026, and broadens the list of qualifying expenses substantially.

What now qualifies for tax-free 529 withdrawal

  • K-12 tuition at public, private, or religious elementary and secondary schools, up to $20,000 per student per year.
  • Tutoring services for K-12 students (new in 2026).
  • Books, supplies, and online educational materials for K-12 (new in 2026 in this specific form, though some flexibility existed already).
  • Standardised test fees and college-prep materials (SAT, ACT, AP exam fees and review materials).
  • Dual-enrollment college courses taken by high school students.
  • Postsecondary credential programs and recognised workforce programs beyond traditional college: certifications, professional credentials, and certain apprenticeship-related fees.
  • Existing categories (college tuition, room and board for at-least-half-time students, computers and software, and 529-to-Roth-IRA rollovers up to $35,000 lifetime) remain in place.

State tax treatment varies

The OBBBA changes apply federally. State tax treatment of 529 withdrawals for K-12 expenses varies substantially. Some states (including New York and California) decoupled from the federal K-12 529 rules in 2018 and tax K-12 withdrawals as non-qualified at the state level, requiring repayment of prior state income tax deductions. Other states (Texas, Florida, Washington, and other no-income-tax states; plus most states that have aligned with federal treatment) allow tax-free K-12 withdrawals at the state level too.

Before withdrawing from a 529 for K-12 expenses, check whether your state aligns with the federal rules. If your state taxes the withdrawal, the federal tax-free status alone may not justify the move, especially if state income tax deductions for the original contribution would be recaptured.

Practical 2026 planning notes for 529 holders

  • Consider the K-12 vs college tradeoff carefully. Money withdrawn for K-12 reduces the pot available for college. If college tuition is the primary goal, K-12 withdrawals (even for tuition or tutoring) trade short-term tax benefit against long-term funding capacity. Run a multi-year model.
  • The 529-to-Roth IRA option remains valuable. Unused 529 balances can roll into a Roth IRA for the beneficiary, up to $35,000 lifetime, subject to the 15-year account-age rule. See our companion piece on the 529-to-Roth 15-year rule for full mechanics.
  • Postsecondary credentials are now in scope. If the beneficiary is unlikely to attend a traditional four-year college but plans a trade certification, professional credential, or apprenticeship, the 529 can now fund that. This widens the universe of education paths that justify keeping or growing the 529 balance.
  • State income tax deductions on contributions are unchanged. Most states that offer a state income tax deduction for 529 contributions did not change their deduction rules in response to OBBBA. Continue to maximise the state deduction (where one is available) annually.

One adjacent change: the above-the-line charitable deduction

OBBBA also re-introduced an above-the-line charitable deduction for non-itemisers, effective for 2026. The deduction is $1,000 for single filers and $2,000 for married filing jointly, applied to qualified charitable contributions to 501(c)(3) organisations. The deduction is taken regardless of whether the taxpayer itemizes, making it a relatively unusual provision in current US tax design (most itemizable deductions are tied to itemizing the return).

The deduction is small relative to the SALT or 529 changes, but it is a near-universal feature: any taxpayer who makes qualifying charitable contributions can claim it, and many households who previously did not itemize at all can now capture a small tax benefit from regular charitable giving without restructuring their entire return.

What this looks like together

Combine the three changes (SALT $40,000, 529 K-12 $20,000, above-the-line charitable $1,000/$2,000) and the practical 2026 picture for many middle-and-upper-income US households is:

  • If you own a home in a high-tax state and earn under $500,000 MAGI: the SALT increase is the biggest change. Reassess whether to itemize. Run a 2026 tax projection comparing itemized (with the new SALT cap) vs the standard deduction. The savings can be material.
  • If you have school-age children and an existing 529 balance: the $20,000 K-12 limit gives you more flexibility, but the math against college tuition still matters. Decide on a case-by-case basis whether K-12 use makes sense for your funding plan. Confirm state tax treatment before withdrawing.
  • If you give to qualifying charities and take the standard deduction: claim the new above-the-line deduction. Up to $2,000 (MFJ) or $1,000 (single) of qualifying contributions become deductible without itemizing.
  • If your MAGI is above $500,000: the SALT cap phase-out is the key planning variable. The benefit is reduced (potentially to zero) but still worth modelling at the exact income level.
  • If you plan beyond 2030: build the SALT reversion to $10,000 into multi-year projections. Do not assume the cap will be extended.

Common questions

  • Does the new $40,000 SALT cap apply for the 2025 tax year that I am filing in spring 2026? Yes. OBBBA made the change retroactive to 2025. Returns filed in spring 2026 for the 2025 tax year use the new cap.
  • If I am single and earn $400,000, can I deduct the full $40,000 SALT? Yes, if your itemized deductions in total exceed the standard deduction. Below the $500,000 phase-out threshold, the full $40,000 cap is available.
  • Can I use my 529 for K-12 tuition this year and still have enough left for college later? That depends on your balance, contribution rate, and college plans. Model the projected balance at age 18 with and without K-12 withdrawals; the difference is material in many cases.
  • Does my state allow tax-free 529 K-12 withdrawals? Some do, some do not. Check your state’s department of revenue guidance specifically for K-12 529 distributions before withdrawing.
  • If I do not itemize, do I get any of these benefits? The SALT increase only benefits you if you itemize. The 529 changes help if you have a 529 balance and a beneficiary using funds for qualifying education. The above-the-line charitable deduction (up to $1,000 / $2,000) applies regardless of whether you itemize.

Sources

This article is for general information only and is not personalised tax or financial advice. Tax planning decisions depend on individual circumstances; consult a qualified US tax professional (CPA or EA) before relying on these provisions for your own return. Figures reflect OBBBA as enacted July 2025 and apply for the 2025 and 2026 tax years onward, with the SALT cap reverting to $10,000 in 2030 unless extended. Fact-checked 21 May 2026.

Fact-checked: 21 May 2026 · Last reviewed: 21 May 2026

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