Illinois Retirees: What to Know About the SALT Deduction
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For nearly a decade, most retirees didn’t have to think twice about how they filed their taxes. The standard deduction became the default choice after the SALT deduction was capped at $10,000 in 2018, making itemizing far less beneficial for many middle- and upper-middle-income households.
That dynamic has now shifted. Recent tax legislation has significantly increased the SALT deduction cap, raising it to $40,000 for 2025 and $40,400 for 2026. For the first time in years, a large number of retirees may find that itemizing deductions can meaningfully reduce their federal tax bill. However, this change is temporary. The cap is scheduled to revert to $10,000 in 2030, creating a limited window for strategic tax planning.
For Illinois retirees in particular, where property taxes and state income taxes are relatively high, this shift presents a timely opportunity to revisit filing strategies and potentially unlock substantial tax savings. If you haven’t reevaluated your approach since 2025, now is the time to take a closer look.
What Is the SALT Deduction? A Quick Refresher
The SALT deduction, a valuable tax break, refers to the federal tax deduction for state and local taxes as part of tax reform. This includes:
- State income taxes
- Local income taxes
- Property taxes
It’s important to note that overlooking the alternative minimum tax (AMT) can affect your eligibility for these deductions. To claim it, you must itemize deductions on Schedule A. If you take the standard deduction, you cannot also claim SALT.
There is also an important limitation: you must choose between deducting state and local income taxes or sales taxes. Most Illinois retirees benefit more from deducting income taxes, given the state’s flat income tax structure.
Historically, Illinois homeowners have been among those most impacted by the SALT cap. With some of the highest property tax rates in the country, many residents were paying far more than $10,000 annually in property taxes alone. Add state income taxes on top, and the old cap quickly became restrictive.
The New Numbers: What Changed and What It Means
The updated SALT rules significantly expand the maximum salt deduction limits under current law, as established by the One Big Beautiful Bill Act, but only for a limited time. Here’s how the numbers compare:
- 2018–2024 (Old Cap): $10,000 for single and married filing jointly, which is affected by individual income tax considerations.
- Phase-out begins: Around $505,000 in modified adjusted gross income (MAGI) for 2026, particularly impacting states like New Jersey with higher tax rates.
- 2026: $40,400 cap
- Married filing separately: Half of the above limits
- Phase-out begins: Around $505,000 in modified adjusted gross income (MAGI) for 2026
- Reversion: Cap returns to $10,000 in 2030
This increase represents a dramatic shift. For many retirees who previously defaulted to the standard deduction, itemizing is once again worth evaluating.
However, the temporary nature of this change is critical. The enhanced cap is only available for a handful of tax years. After 2029, the deduction drops back to $10,000 with no phase-out structure.
That creates a roughly four-year window, beginning with the 2026 filing season, where strategic tax planning can make a substantial difference.
Why Illinois Retirees Are in a Particularly Strong Position
Not all taxpayers benefit equally from the expanded SALT cap. Illinois retirees, however, are uniquely positioned to take advantage of their capital gains within this framework of real property.
First, property taxes in Illinois are among the highest in the nation. It is not uncommon for homeowners in counties like DuPage, Cook, and Lake to pay anywhere from $8,000 to over $18,000 annually.
Second, the state imposes a flat income tax rate of 4.95%. For a retiree with $80,000 in taxable income, that translates to nearly $4,000 in state income taxes each year. However, Illinois retirees do not get any special exemptions from the federal SALT deduction cap for income taxes; they are still subject to the same $10,000 cap on state and local tax deductions as other taxpayers. When combined, these two categories alone can easily exceed $15,000 to $20,000 in SALT payments.
Third, many retirees have federally taxable income streams, including IRA withdrawals, 401(k) distributions, and in some cases, Social Security benefits. While Illinois does not tax certain retirement income, the federal system does, which influences your ability to benefit from deductions.
Should You Itemize? Running the Numbers
The key question now is simple: Should you itemize or take the standard deduction? The answer depends on your specific numbers regarding tax burdens and your federal tax returns filing status. Start with the 2026 standard deduction:
- $16,100 for single filers
- $32,200 for married filing jointly
- Additional deductions apply if you are age 65 or older
Next, calculate your itemized deductions. These typically include:
- SALT (up to $40,400 in 2026)
- Mortgage interest
- Charitable contributions
- Once you have your total, compare it to your standard deduction. If your itemized deductions exceed the standard amount, including personal property taxes, itemizing will reduce your taxable income and potentially lower your tax bill.
Once you have your total, compare it to your standard deduction. If your itemized deductions exceed the standard amount, itemizing will reduce your taxable income and potentially lower your tax bill.
What makes this moment particularly important is that the expanded SALT cap can push many households over that threshold for the first time in nearly a decade.
There is also an opportunity to be more strategic. One widely used approach is “bunching” deductions. This involves accelerating or delaying deductible expenses to maximize your itemized total in a given year. For example, you might prepay property taxes or concentrate charitable giving into a single year to exceed the standard deduction more significantly.
The key is consistency. This is not a one-time calculation. Your income, expenses, and deductions can shift from year to year, especially in retirement. Reviewing this annually is essential.
The Phase-Out: Who Doesn’t Get the Full Benefit
While the expanded SALT cap is generous, it is not unlimited.
For higher-income households, the deduction begins to phase out once modified adjusted gross income exceeds approximately $505,000 in 2026. The cap is reduced by 30% of the excess income above that threshold, but it will not drop below $10,000. For example, a married couple with $600,000 in MAGI, including any foreign-earned income, could see their SALT deduction effectively reduced back to $10,000, eliminating the benefit of the increased cap.
That said, even if your income is near or above the threshold, planning opportunities still exist. Strategies such as Roth conversions, timing withdrawals, or increasing charitable contributions may help reduce your taxable income and bring you within a more favorable range. This is where coordinated tax planning becomes particularly valuable.
The Sunset Deadline: Plan Now, Not in 2029
The expanded SALT cap is temporary, and that is what makes it so powerful. Beginning in 2030, the cap is scheduled to revert to $10,000 with no phase-out provisions. That means the years between now and then, specifically 2026 through 2029, represent a limited planning window.
Decisions you make during this period can have a lasting impact. This includes:
- Timing large IRA withdrawals or Roth conversions
- Strategically prepaying property taxes
- Coordinating charitable giving to maximize deductions
The retirees who benefit most will not be the ones who wait until tax season. They will be the ones who plan across multiple years, aligning their income and deductions to take full advantage of the higher cap while it lasts.
What to Do Next
The opportunity here is clear, but it requires action on various tax topics. Start by pulling your 2025 tax return and identifying how much you actually paid in state and local taxes. Then compare that number to your standard deduction to determine whether itemizing would have made a difference. From there, look ahead. The next four years present a unique chance to optimize your tax strategy.
At Goldstone Financial Group, our in-house tax planners and CFP® professionals take a comprehensive approach. We do not just review your tax return. We evaluate your full financial picture to ensure you are capturing every available advantage.
Schedule a Complimentary Tax Planning Review and take the next step toward making the most of this limited-time opportunity.
Disclosure:
Goldstone Financial Group, LLC (“GFG”) is a registered investment advisor with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or qualification. This material is provided for informational purposes only. Opinions expressed herein are solely those of GFG. None of the information presented in this material is intended to offer personalized investment advice. It does not constitute an offer to sell or solicit any offer to buy a security or any insurance product and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. The information contained herein has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by GFG.