SALT Workarounds for High Property Tax Buyers — Practical Options for Homeowners and Investors

Facing crushing property tax bills in an expensive market? Practical SALT workarounds that actually work in 2026

Hook: If you bought a home or investment property in a high-tax metro—think coastal California, New Jersey suburbs, New York City neighborhoods, Connecticut or parts of Massachusetts—you already feel the bite of property tax plus state income tax. Since the Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000, many buyers and investors are paying thousands of dollars more in federal tax each year. This article shows realistic, legally defensible SALT mitigation options you can deploy in 2026: bunching, passthrough entity elections (PTE tax), and charitable-structure solutions—plus administrative tips, sample math, and the audit risks to manage.

The 2026 context: why SALT workarounds still matter

The SALT cap remains a foundational issue for buyers in high-tax states in 2026. Congress has not repealed the $10,000 limit, and many taxpayers who previously relied on unlimited state and local tax deductions still feel the gap. Since 2018, states and taxpayers have pursued workarounds; by 2024–2026, most large, high-tax states rolled out or refined elective passthrough entity (PTE) taxes, composite and withholding regimes, and targeted charitable-credit structures designed to preserve federal deductibility or offset state tax liability.

That evolution means taxpayers now have practical choices—but the right path depends on the facts: whether the property is your personal residence or a rental/portfolio asset, your income tax bracket, entity structure, and your tolerance for complexity and audit risk.

Quick primer: What the SALT cap actually restricts (2026)

• Who is affected: Individual filers itemizing deductions on Schedule A (primarily homeowners and many high-income wage earners).
• What’s limited: The federal itemized deduction for state and local income, sales, and property taxes is capped at $10,000 per return (married filing jointly or single filers, adjusted for nothing since TCJA).
• What’s not limited: Ordinary business expenses (including many state and local taxes paid by a business or a rental activity) are generally deductible against business income and are not subject to the $10,000 SALT cap.

Practical SALT workarounds for high property tax buyers

Below are the most practical strategies homeowners and investors can consider in 2026. Each section includes steps, sample calculations, and risks you must manage.

1) Bunching: time your payments so you itemize when it matters

“Bunching” accelerates deductible payments into one tax year so itemized deductions exceed the standard deduction and you benefit from otherwise-lost SALT deductions.

How it works and when it helps:

• If your annual property tax + state income tax are near or below the point where itemizing is worthwhile, you can prepay allowable amounts (property taxes, state estimated tax payments, charitable gifts) in alternating years so you itemize every other year.
• This is most useful for homeowners in the middle tax brackets who face high property taxes but also benefit from state tax prepayments that are recognized by the state for the tax year in which the payment is made.

Step-by-step:

1. Estimate your typical annual itemizable deductions (property taxes, state income taxes, mortgage interest, charitable gifts).
2. Determine the standard deduction for your filing status in 2026 (indexed annually; confirm current-year thresholds with your advisor).
3. Identify whether local rules allow prepayment of property taxes and by which date the payment must be received to count in that tax year.
4. Make two years’ worth of payments in the same calendar year when doing so yields an itemized deduction exceeding the standard deduction.

Sample math (simplified):

• Annual property tax: $18,000
• State income tax: $22,000
• Mortgage interest and other itemized deductions: $12,000
• Standard deduction (married filing jointly in 2026): assume $27,700

If you pay taxes normally, your itemized total = $52,000, but SALT is capped at $10,000, so itemized deduction effectively = $40,000 (mortgage interest + $10k SALT) — still above standard, but your SALT benefit is constrained. If your numbers left you below the standard, bunching could push you above and preserve more deductible value in the high-deduction year.

Key operational cautions:

• Not all taxing jurisdictions allow early prepayment, or they may limit it. Confirm with the county or state.
• The timing must match federal cash-basis or accrual rules as applicable; most individuals use cash-basis, so payment date matters.
• Bunching can complicate cash flow; run a multi-year cash model before committing.

2) Passthrough entity (PTE) elections and entity-level SALT payments

Since the SALT cap, many states introduced an elective passthrough entity (PTE) tax that allows partnerships, S corporations, and LLCs taxed as partnerships to pay state income tax at the entity level. The federal treatment of an entity-level state tax is different: when the entity pays state tax, the payment is generally deductible on the entity’s return, reducing federal taxable income—effectively sidestepping the $10k itemized deduction cap at the owner level.

Why this matters for buyers and investors:

• If you hold investment properties through a partnership or S corporation and the state offers a PTE election, electing the entity-level tax can create immediate federal tax savings.
• For operating real estate partnerships or active pass-through businesses, PTE elections are now a standard planning tool in many high-tax states.

How to evaluate whether an election helps you:

1. Confirm your state offers a PTE election and the election mechanics (deadline, payment dates, computation).
2. Estimate the entity’s state tax liability that would be paid at the entity level.
3. Model the owners’ federal tax impact: entity deduction reduces passthrough income; savings = entity-level tax × marginal federal tax rate (approximate).
4. Consider state-level credits provided to owners to prevent double taxation (many states offer a refundable or nonrefundable credit to owners for their share of the entity-level payment).
5. Assess QBI (qualified business income) interactions; paying entity-level state tax can affect taxable income used to compute the 199A deduction, and some states have precise rules that affect QBI calculations.

Illustrative calculation:

• Partnership income allocated to Owner A before entity tax: $200,000
• State passthrough tax at entity level to be paid: $25,000
• Federal marginal tax rate: 37%
• Approximate federal tax savings: $25,000 × 37% = $9,250

Net effect: Owner receives a state tax credit for their share of the $25,000, reducing their individual state tax liability. The net federal and state blended savings often justify the administrative and compliance cost for owners above certain income thresholds.

Operational checklist and risks:

• File the PTE election on time — many states require an early-year election with strict deadlines.
• Coordinate entity accounting and quarterly estimates; the entity will need to remit estimated state taxes on behalf of owners.
• Evaluate owner-level filing complexities: owners may need to claim credits, and multi-state owners face apportionment issues.
• Document business purpose: if your entity is a passive holding company with no commercial activity, auditors may scrutinize the arrangement. Ensure proper business substance and keep robust documentation.

3) Charitable-structure solutions (charitable funds, credits, and donor-advised funds)

States and advisors developed charity-based approaches that combine a federal charitable deduction with a state tax credit or offset—effectively turning a portion of your state tax into a federally deductible charitable gift.

Common structures:

• State-sanctioned charitable funds: Donors contribute to approved nonprofits or state-created funds and receive a state income tax credit equal to a portion of the contribution. The taxpayer claims a federal charitable deduction for the contribution (subject to federal limits) while the state credit reduces state tax.
• Donor-advised funds (DAFs) combined with state credits: Some taxpayers donate to a DAF or public charity with an expectation of state-level credit treatment in jurisdictions that allow it; successful use requires careful legal and tax structuring to respect IRS rules and avoid quid pro quo issues.

Example mechanism (simplified):

• Taxpayer donates $100,000 to an approved charity/fund.
• State provides a tax credit worth 85% of the donation against state tax: $85,000 credit (state rules vary).
• Net state tax cost: $15,000. Taxpayer claims a $100,000 federal charitable deduction (subject to 50%/60% AGI limits depending on gift type).
• Net federal tax savings at 37%: $37,000. After accounting for net state cost, taxpayer achieves a net federal-state tax benefit.

Important cautions and audit posture:

• The IRS has scrutinized some charity-based SALT workarounds. Proper documentation, arms-length fees, and genuine charitable purpose are critical.
• Timing matters: federal charitable deduction limits (percentage of AGI) can restrict usable deduction in the current year; plan multi-year or use a DAF to time distributions.
• Use reputable legal counsel to structure these plans. Poorly documented arrangements risk denial of federal deduction or state disallowance of credits.

4) Entity classification and rental vs personal use: structure matters

Property taxes on rental or business property are typically deductible as business expenses against rental income and generally do not fall under the itemized SALT cap. This difference creates planning opportunities for investors.

Actionable ideas:

• If you use a portion of your property for rental (short-term rental, long-term lease), ensure the business use is supported by contracts, advertising, and separate accounting so the related property taxes can be legitimately treated as business expenses.
• Do not exaggerate or fabricate business use—lack of substance invites audit adjustments and penalties.
• For investors, holding properties in properly capitalized operating entities (LLCs taxed as partnerships) can preserve full deductibility of property taxes as business expenses.

State-by-state considerations (high-level, 2026 snapshot)

High-tax markets—New York, New Jersey, California, Connecticut, Massachusetts, and others—have refined their SALT workaround toolkits since 2018. Most offer some combination of:

• Elective passthrough entity (PTE) taxes
• Composite tax elections for nonresident owners
• Targeted charitable-credit programs or administrative guidance

Because the details differ (election deadlines, credit calculation, apportionment rules), treat this as a checklist: confirm the rules in the taxing state(s) where you own property and involve a state tax specialist before making an election. For a high-level perspective on how fast-moving guidance and state rule changes affect planning windows, see commentary on state and vendor guidance shifts.

Audit risks, compliance and best practices

Workaround strategies attract attention. Follow these rules to reduce risk:

• Substance over form: Maintain clear business records, bank accounts, minutes and operating agreements for entities making elections. The entity must show a valid business purpose beyond tax savings.
• Documentation: Keep receipts for prepayments, executed election filings, computation workpapers, and correspondence with state tax agencies.
• Engage professionals: Use a tax attorney and CPA to draft the election, compute allocations, and prepare owner-level filings. Mistakes often arise where taxpayers try to DIY complex PTE structures.
• Model scenarios: Run conservative and aggressive scenarios showing federal and state tax impacts, administrative costs, and cash-flow effects. If benefits are modest, avoid added complexity. Tools and analyses used for scenario planning follow similar techniques as a formal cost-impact analysis.

Case study: How a rental investor in 2026 cut federal tax exposure using a PTE election

Details changed to protect client confidentiality; numbers are illustrative.

Situation: An investor holds five multifamily units through an LLC taxed as a partnership in a high-tax state. The partnership typically generates $300,000 of taxable income allocated to two partners. The state offers a PTE election.

Action taken:

1. The partnership elected entity-level tax for 2025 and filed required state forms.
2. The partnership remitted a $40,000 state tax payment at the entity level in 2025.
3. Partners received allocated credits from the state to reduce owner-level state tax.

Result (approximate):

• Federal taxable passthrough income decreased by the $40,000 deduction, saving partners an estimated $14,800 in federal tax (37% bracket on a portion of income).
• After coordinating with the CPA and attorney, the partners documented business substance and avoided state or federal adjustments.

Implementation checklist: first 90 days

1. Inventory: List all properties and classify as personal primary residence, second home, short-term rental, long-term rental, or business property.
2. Gather bills: Compile last 3 years’ property tax bills, state income taxes paid, and mortgage interest statements.
3. Consult: Schedule a joint appointment with a tax attorney and CPA experienced in SALT planning.
4. Model: Run PTE election and bunching models to show multi-year cash-tax outcomes and break-evens.
5. Decide: Elect PTE or implement bunching only after confirming the state’s rules and filing deadlines. If pursuing charitable solutions, get pre-approval where possible.

Advanced strategies and future trends to watch in 2026

What to watch this year:

• State statutory tweaks: States continue to refine PTE mechanics, credits and compliance systems to ease taxpayer burdens—expect more streamlined electronic elections and clearer guidance.
• IRS scrutiny and guidance: While entity-level PTE taxes are widely used, the IRS and Treasury occasionally issue clarifying guidance that can change planning margins. Keep your advisor looped in for late-year adjustments.
• Charitable program evolution: New charitable-credit designs will continue to appear; rely only on well-documented, state-approved programs.
• Technology and automation: Tax technology now automates multi-state apportionment, PTE filings and owner credit calculations—use a modern tax platform to reduce manual errors.

When not to pursue SALT workarounds

Not every taxpayer should pursue complexity. Avoid SALT workaround engineering if:

• Projected federal/state benefit is small after professional fees.
• Entity lacks true business substance or adequate capitalization.
• State rules clearly disallow the structure or impose heavy penalties for misuse.

Bottom line: a practical roadmap

For high-property-tax buyers in 2026, the three leading, practical pathways are:

• Bunching — a low-cost, low-complexity tool for homeowners who can time payments.
• PTE elections — the strongest tool for owners of rental or operating pass-through entities when the numbers justify the administrative work.
• Charitable solutions — powerful but technically complex; use only tested, state-authorized programs and experienced counsel.

Each strategy has trade-offs. The best approach often combines more than one technique built around your ownership structure and long-term goals.

Act now: 6-step action plan

1. Pull your last three years’ returns and property tax bills.
2. Identify whether properties are personal or business assets.
3. Contact a tax attorney and CPA experienced in multi-state SALT planning.
4. Run a three-year model comparing: status quo, bunching, PTE election, and charitable options.
5. If electing PTE, calendar the state election and payment deadlines now.
6. Document substance and maintain robust records for any change you implement.

Conclusion and call to action

High property taxes in expensive markets are a real and persistent drain. Thankfully, 2026 offers pragmatic, legally grounded workarounds—bunching, properly structured PTE elections, and vetted charitable solutions—that can materially reduce your federal tax burden when used correctly. These strategies require precise technical work, careful state-by-state analysis, and strong documentation to withstand IRS and state scrutiny.

Call to action: If you’re facing a six-figure property tax bill or hold investment property in a high-tax state, don’t leave money on the table. Schedule a consultation with our SALT-focused tax attorneys and CPAs to build a tailored plan—model the math, evaluate risks, and implement the best combination of strategies for 2026.

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