The SALT Cap Just Rose to $40,400: Why Houston and Denver Business Owners Should Plan Differently

The federal deduction for state and local taxes — the SALT cap — just went from $10,000 to $40,000, indexed up to $40,400 for 2026. It is one of the biggest changes to itemized deductions in years, and the timing matters if you are doing year-end tax planning. But how much this actually helps you depends heavily on where your business operates, and the answer looks very different in Houston than it does in Denver.

What Changed in the SALT Cap for 2026

Under the One Big Beautiful Bill Act, the SALT cap rose from $10,000 to $40,000 for 2025, with a 1% increase each year through 2029 — putting the 2026 cap at $40,400 for most filers. The increase is not unlimited, though. The deduction starts phasing out once modified adjusted gross income (MAGI) passes $500,000, reduced by 30% of the amount over that threshold, and disappears entirely — back down to the old $10,000 cap — once MAGI reaches roughly $600,000. Unless Congress acts again, the whole provision reverts to the $10,000 cap starting in 2030.

Why Houston and The Woodlands Business Owners Get a Real Break

Property Taxes Count Toward the Cap, Too

Texas has no state income tax, but the SALT cap was never just about income tax — it covers property taxes as well, and Texas property tax bills are among the highest in the country. Business owners in Houston and The Woodlands who own their home, a second property, or commercial real estate have frequently been maxed out at the old $10,000 cap on property taxes alone. Raising the cap to $40,400 means many of these owners can now deduct several times more of what they are already paying, as long as household MAGI stays under the $500,000 phase-out threshold.

Why the Same Increase Helps Denver Business Owners Less

Colorado’s PTET Election Already Solves This

Colorado has had a workaround in place since 2022: the pass-through entity tax (PTET) election under the state’s SALT Parity Act. A partnership or S corporation can elect to pay Colorado income tax at the entity level instead of passing it through to the owners’ personal returns. The entity deducts that payment as an ordinary business expense on its federal return — which is not subject to the SALT cap at all — while each owner claims a refundable credit on their Colorado return for their share, so nothing is taxed twice.

For Denver business owners who have already made this election, the higher personal SALT cap is largely redundant. The PTET route was already getting them a full federal deduction for their state income tax, with no cap and no phase-out.

The Phase-Out Still Matters

This is especially relevant for higher-earning owners. A Denver business owner with MAGI above roughly $600,000 gets zero benefit from the new $40,400 cap and is still limited to $10,000 on their personal return — but can still get a full, uncapped federal deduction for their share of Colorado income tax through the entity-level PTET election. The election is what is actually doing the work, not the cap increase.

What To Do Before Year-End

If you are in Houston or The Woodlands, estimate your total property tax and state and local tax payments for 2026 and check them against the $40,400 cap and the $500,000 MAGI phase-out — you may be able to itemize more than you have in recent years.
If you are in Denver and have not made the PTET election for your partnership or S corporation, this is worth revisiting regardless of the new cap, since it can eliminate the SALT limitation entirely rather than just raising it.
If you already elect PTET in Colorado, confirm your entity-level estimated payments are on track, since the election is binding for the year once made.

At Petry Tax & Advisory, we help business owners across Houston, the Woodlands, and Denver figure out which of these strategies actually moves the needle for their specific situation — contact us for a consultation before you finalize your year-end plan.

This post is for general informational purposes only and does not constitute legal or tax advice. Consult with a qualified professional about your specific situation.

Source: Colorado Department of Revenue — SALT Parity Act Election (DR 1705)