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For tax year 2026, the SALT deduction phase-out for single and joint filers begins at $505,000 in modified adjusted gross income, up 1 percent from the 2025 threshold of $500,000. The Alternative Minimum Tax exemption phase-out for single filers begins at the same $500,000 figure and was not indexed for 2026 in the sources reviewed for this analysis.
Nobody crossing the $500,000 income line gets a warning letter from the IRS. There is no single moment, no notice, no red flag. Instead, two entirely separate federal tax provisions, written into different sections of the tax code and passed as part of the same 2025 law, both quietly start taking money back the moment a household’s income passes that exact figure.
Neither provision is described publicly as connected to the other, and most tax software does not explain the overlap in plain language. This is an original comparison of both.
Two rules, One number
The first provision affects the state and local tax deduction, commonly called SALT. Under the One, Big, Beautiful Bill Act, or OBBBA, signed into law on July 4, 2025, Congress raised the SALT deduction cap from $10,000 to $40,000 for most filers who itemize their deductions.
That increase, however, comes with a catch written directly into the statute. According to the text of H.R. 1, now Public Law 119-21, the higher $40,000 cap phases down for any household with modified adjusted gross income above $500,000, a threshold that rises by 1 percent each year and reached $505,000 for 2026.
The second provision affects the Alternative Minimum Tax, a parallel tax system designed to make sure high earners cannot reduce their tax bill too far through deductions.
The OBBBA lowered the income level at which the AMT exemption begins to shrink for single filers to that same $500,000 figure, while also doubling the rate at which the exemption disappears, from 25 percent of income above the threshold to 50 percent.
Two provisions, drafted by different committees, tucked into different titles of the same 500-page law, and both keyed to the identical $500,000 line.
How the SALT phase-out actually works
Here is the mechanics, in plain terms. If your modified adjusted gross income sits at or below $500,000, you can deduct up to $40,000 in combined state income tax, property tax, and sales tax on your federal return, as long as you itemize.
Once your income crosses that line, the deduction shrinks by 30 cents for every dollar of income above $500,000. A married couple earning $530,000, for example, exceeds the threshold by $30,000, which reduces their allowable SALT deduction by $9,000, from $40,000 down to $31,000.
The reduction accelerates from there. By the time a household’s income reaches roughly $600,000, the entire $30,000 bonus deduction has been wiped out, and the taxpayer is left with the original $10,000 cap that existed before OBBBA passed at all.
Tax professionals have started calling this stretch between $500,000 and $600,000 the SALT torpedo, since a household earning $600,000 gets the exact same $10,000 deduction as its neighbor earning $10 million, while the neighbor at $499,000 keeps the full $40,000.
2026 Phase-Out Impact Calculator
How the AMT phase-out compounds it
The Alternative Minimum Tax works differently, but it lands on the same households at the same income level. For 2026, the AMT exemption for single filers was set at $90,100, with that exemption beginning to phase out once income crosses $500,000 and disappearing entirely at $680,200.
Married couples filing jointly face a similar structure at a higher, $1,000,000 threshold, but single filers hit their phase-out at the identical $500,000 figure used in the SALT calculation.
Because the tax code does not allow the SALT deduction to be counted at all when calculating Alternative Minimum Taxable Income, a single filer who crosses $500,000 faces a genuine double impact.
Their regular SALT deduction shrinks under one provision, while their AMT exemption shrinks under a completely separate provision, both triggered by the same dollar of income.
Neither the SALT statute nor the AMT statute references the other, yet a single filer earning $550,000 is affected by both simultaneously, a compounding effect that does not show up clearly on most consumer tax software until the return is actually calculated.
Why this matters more for single filers
The overlap is sharper for single taxpayers than for married couples. The SALT phase-out threshold sits at the same $500,000 mark regardless of filing status for joint returns, but the AMT phase-out for joint filers does not begin until $1,000,000 of income, twice the single-filer threshold.
That means a single filer earning $550,000 can be squeezed by both provisions at once, while a married couple would need combined income above $1,000,000 before facing the same AMT pressure, even though their SALT phase-out began at the same $500,000 to $505,000 line.
This asymmetry matters for households going through a divorce, a widow or widower filing as single for the first time, or a two-income household where only one spouse's earnings are being evaluated for a specific transaction, such as a business sale or a large capital gain.
A person whose income was previously shielded by a joint return can cross into single-filer territory and discover that both thresholds now apply at a lower combined dollar figure than they expected.
What this means for you
If your household income is approaching $500,000, whether from wages, a bonus, a business sale, or a large capital gain, it is worth running the numbers before the transaction happens rather than after.
Timing a large payment, a Roth conversion, or a bonus into a different tax year can sometimes keep modified adjusted gross income below the $500,000 or $505,000 line, preserving both the full SALT deduction and the full AMT exemption in the same year.
Business owners who pay state taxes through a pass-through entity may also want to look into the Pass-Through Entity Tax election, or PTET, which several states allow and which the IRS confirmed was left untouched by OBBBA, since entity-level state tax payments do not count against the personal SALT cap at all.
For readers already filing near this threshold, the practical first step is calculating modified adjusted gross income before year-end, not after, since both the SALT and AMT calculations depend on where that number lands relative to $500,000.
Readers who are also approaching age 65 should note that this $500,000 SALT and AMT threshold is entirely separate from the obbba standard deduction changes for seniors, which phase out at a much lower $75,000 and $150,000 income level, a distinction that is easy to conflate given how many provisions the same law created.
Readers can also review our companion piece on the standard deduction amounts for 2026 to see how the base deduction interacts with itemizing decisions near this income range.
For a broader look at how income-based federal thresholds affect households at different life stages, our coverage of social security tax rules explains a separate but related set of income cutoffs that retirees should track alongside this one.
Both provisions ultimately connect back to how federal tax policy interacts with the broader us money movement system that Investozora tracks across its federal payments coverage.
Does the $500,000 threshold apply the same way to everyone?
No. The SALT phase-out threshold is the same for single and joint filers in dollar terms, though married couples filing separately use half that amount. The AMT phase-out, by contrast, begins at $500,000 for single filers but not until $1,000,000 for joint filers, meaning the two thresholds only fully overlap for single taxpayers.
What you should do now
Calculate your modified adjusted gross income before the tax year ends, not after, since both the SALT deduction and the AMT exemption depend on where your income lands relative to $500,000.
If you are self-employed or a pass-through business owner, ask a tax professional whether a PTET election in your state could shield your state tax payments from this cap entirely.
If your income sits within roughly $50,000 of the threshold in either direction, a conversation with a CPA about timing bonuses, capital gains, or Roth conversions before year-end could meaningfully change what you owe.
Methodology: This analysis combines publicly available legislative text from Public Law 119-21 (H.R. 1), IRS tax year 2026 inflation adjustment guidance, and professional tax-practice summaries of the SALT and AMT provisions published by multiple accounting and law firms. The $500,000 and $505,000 SALT figures and the AMT single-filer phase-out figures were independently cross-checked against the statute and IRS guidance as of publication.
