Can I deduct federal and state tax payments from the previous year on my current tax return?

It depends on the type of tax and whether you itemize deductions.

Federal Income Tax Payments

Federal income taxes are NOT deductible, regardless of when they were paid.

This includes:

• Federal income tax withheld from wages
• Estimated federal tax payments
• Federal tax paid with a prior-year return
• Additional federal tax paid after an audit or notice

Federal income taxes are expressly excluded from deductible taxes.

State and Local Tax (SALT) Payments

State and local income taxes paid in the current year for a prior tax year may be deductible, if all of the following apply:

1. You itemize deductions on Schedule A
2. The tax is a state or local income tax (or sales/property tax)
3. The payment was actually paid during the current tax year
4. Your total SALT deduction does not exceed the annual cap ($40,000 for 2025, or $20,000 if married filing separately)

This includes:

• State income tax paid with a prior-year return
• Prior-year state tax paid during the current year
• Additional state tax paid after a notice or audit

Timing Rule: When the Tax Is Deductible

Taxes are deductible in the year they are paid, not the year they relate to.

Example: If you paid 2024 state income tax in April 2025, it may be deductible on your 2025 return, subject to SALT limits.

Important Limitations and Exceptions

SALT Deduction Cap

• Deduction is capped at $40,000 total for 2025 ($20,000 if married filing separately) for:
  • State and local income taxes
  • Sales taxes
  • Property taxes combined
• The cap shrinks if your MAGI is over $500,000 ($250,000 for MFS), but never below $10,000 ($5,000 for MFS)
• For 2026, the cap rises to $40,400 (see below)

Refund Rule

If you deducted state taxes in a prior year and later received a refund, that refund may be taxable income in the year received.

Quick Summary

The New SALT Cap for 2026

The $10,000 limit you mentioned has been significantly increased. For the 2026 tax year (the return you'll file in 2027), the rules are:

• The New Limit: The SALT cap has quadrupled to $40,400 (up from $40,000 in 2025).
• Income Phase-out: If your Modified Adjusted Gross Income (MAGI) is over $505,000 ($252,500 for MFS), the cap begins to shrink by 30 cents for every dollar over that limit. However, it will never drop below the original $10,000.
• Married Filing Separately: The 2026 cap for MFS is $20,200.

‍Sources:

• IRC §164(a) - Taxes
• IRS Publication 17 - Your Federal Income Tax
• IRS Publication 530 - Tax Information for Homeowners
• IRS Publication 525 - Taxable and Nontaxable Income (State Tax Refunds)