Introduction
For US citizens living abroad, understanding the State and Local Tax (SALT) deduction cap is critical for effective tax planning. With the 2017 Tax Cuts and Jobs Act (TCJA) limiting the SALT deduction to $10,000, many expats face unexpected tax liabilities. This guide explains the cap, how it impacts your taxes, and strategies to stay compliant.
What is the SALT Deduction Cap?
The SALT deduction allows taxpayers to deduct state and local income, property, and sales taxes from federal taxable income. However, the 2017 TCJA capped SALT deductions at $10,000 per year for single filers and joint filers. For expats who continue to pay state taxes while living abroad, this limitation can increase federal tax liability and make careful planning essential.
How SALT Cap Affects US Expats
Expats often face dual taxation—paying taxes both abroad and to their state of residence. The $10,000 cap restricts deductions on state and local taxes paid, meaning some taxpayers may not be able to fully offset their tax burden. Proper planning, including tracking all state taxes and coordinating with foreign tax credits, is key to minimizing liability.
Practical Strategies for Expats
- Consider residency planning: Some states may not tax you if you establish non-residency.
- Leverage the foreign tax credit: Offset foreign income taxes against US tax liability.
- Track deductible state taxes: Include property taxes or mandatory state contributions to maximize the $10,000 cap.
- Consult a tax advisor: Complex rules make professional guidance essential for compliance and planning.
Common Mistakes to Avoid
- Overlooking state taxes while living abroad
- Forgetting to track property or local taxes
- Ignoring the SALT cap when calculating overall deductions
- Failing to coordinate deductions with foreign tax credits
Resources for US Expats
- IRS guidance: State and Local Taxes
- Expat tax specialists and online platforms
- State-specific residency and tax information
FAQs
Does the SALT deduction cap apply to expats?
Yes, the $10,000 cap under TCJA applies to all US taxpayers, including citizens living abroad.
Can I deduct state taxes if I don’t live in the US?
Only if you maintain tax liability in your state of residence; proper documentation is required.
Are there ways to reduce SALT impact as an expat?
Yes, including residency planning, careful tracking of taxes, and using foreign tax credits.
Do I need a tax professional to manage SALT cap implications?
While not mandatory, professional guidance ensures accurate reporting and maximized deductions.
Conclusion
The SALT deduction cap creates challenges for US expats paying state and local taxes. By understanding the rules, tracking payments, and using professional tax strategies, expats can minimize liability and stay compliant with US tax law.
Download this free Australia-US Tax Guide 2026 or schedule a consultation with our experts to optimize your tax deductions and stay fully compliant while living abroad.
