By Daniel Sabet · Cannabis CFO and Financial Advisor, GreenGrowth CPAs · 280E, Tax Strategy and Growth Planning · Los Angeles, CA | Updated September 2026 | Cannabis Tax
The SALT deduction is worth talking about again. However, the story is messier than the headlines suggest.
The One Big Beautiful Bill Act raised the federal cap from $10,000 to $40,000 for 2025. For 2026 it sits at $40,400, then climbs 1 percent a year through 2029. Dispensary owners, MSO principals, and multi-license operators in New York, New Jersey, and California hear a meaningful win.
Many of them will not get one. A phase-out inside the statute shrinks the expanded deduction once modified adjusted gross income passes $505,000. Most successful cannabis owners land in exactly that range.
QUICK ANSWER
The SALT deduction in 2026 caps at $40,400. Single and joint filers get the same figure. Above $505,000 of MAGI the cap drops 30 cents per dollar, bottoming at a $10,000 floor around $606,333. Cannabis owners over that threshold should weigh the pass-through entity tax election, which moves the state tax deduction to the entity and sidesteps the personal cap. Roughly 36 jurisdictions offer it.
SALT Deduction 2026 for Cannabis Owners: At a Glance
- What it is: A federal deduction for state and local taxes you paid, income and property alike, claimed as an itemized deduction on Schedule A.
- What changed: OBBBA lifted the TCJA's flat $10,000 cap to $40,000 for 2025 and $40,400 for 2026. It rises 1 percent yearly through 2029, then falls back to $10,000 in 2030.
- Key constraint: Above $505,000 of MAGI, the cap shrinks by 30 cents per dollar. Near $606,333 it hits the $10,000 floor and the expanded benefit disappears.
- Primary mistake: Assuming the headline $40,400 applies without checking MAGI first. High-income cannabis owners often collect far less.
- Best workaround: A PTET election lets a pass-through entity deduct state taxes at the entity level, which bypasses the personal cap completely.
- GreenGrowth's role: We model the phase-out and the PTET opportunity for cannabis owners in NY, NJ, CA, MN, and DE while the planning options are still open.
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What the OBBBA Changed
From a Flat Cap to a Graduated One
The Tax Cuts and Jobs Act of 2017 capped SALT at $10,000 for every filer. Before that, no cap existed. A single-family state tax bill in New York, New Jersey, or California runs $20,000 to $40,000 and often more, so that flat cap landed hard.
OBBBA swapped the flat cap for a graduated one. The figure hit $40,000 in 2025 and $40,400 in 2026, then rises roughly 1 percent annually through 2029. January 2030 brings it back to $10,000 with no income limit attached.
One caveat applies before any of this matters. Only itemizers benefit. Taking the standard deduction, roughly $32,200 for joint filers in 2026, means the SALT expansion does nothing for you.
The Phase-Out That Erases It
Cross $505,000 of MAGI and your cap starts shrinking. Every dollar above the line cuts it by 30 cents. The deduction never drops below $10,000, and it reaches that floor around $606,333. A cannabis owner at that income keeps exactly the $10,000 the TCJA already gave them. The expanded cap delivered nothing.
Note that the threshold itself indexes. It sat at $500,000 for 2025 and moved to $505,000 for 2026, climbing on the same 1 percent schedule as the cap. Plans built on last year's number will be slightly off.
▶ SALT Deduction at Different MAGI Levels (2026)
| MAGI | Excess Over $505K | Reduction at 30% | Available Deduction |
|---|---|---|---|
| Up to $505,000 | None | None | $40,400 (full cap) |
| $525,000 | $20,000 | $6,000 | $34,400 |
| $550,000 | $45,000 | $13,500 | $26,900 |
| $575,000 | $70,000 | $21,000 | $19,400 |
| $606,333 and above | $101,333+ | Floor reached | $10,000 (floor) |
Illustrative figures. Run your own with your CPA using actual MAGI and state tax expense.
The SALT Torpedo Zone
Why $505K to $606K Hurts
Practitioners call it the SALT torpedo. Inside that band, an extra $10,000 of income does two things at once. It adds $10,000 to taxable income at your marginal rate. Simultaneously it strips $3,000 off the deduction. That lost deduction behaves like another $3,000 of income, so the true cost of earning runs well above the stated bracket.
Dispensary owners and MSO principals in New York or New Jersey face this constantly. Timing decides the outcome. Structuring distributions, deferring pass-through income, or accelerating retirement contributions can hold MAGI under the threshold. Acting in June leaves room to move. December rarely does.
The AMT Trap Underneath It
A second problem compounds the first, and most coverage skips it. Alternative minimum tax requires you to add back the full SALT amount paid when computing AMTI. So a filer inside the phase-out zone claims only a partial deduction on the regular return while still adding back the whole figure for AMT.
OBBBA also tightened AMT parameters for 2026, lowering phase-out thresholds and doubling the phase-out rate for joint filers. The result can wipe out whatever partial regular-tax benefit survived. Before claiming a large SALT deduction, run the parallel AMT calculation. Our tax planning and compliance team models both together.
💬 The Conversation Worth Having
A New Jersey cannabis owner came to us mid-year expecting $580,000 of MAGI. On paper the SALT change looked like a win. Running the phase-out put the real deduction near $19,000. We then modeled two paths: reshaping second-half distributions to hold MAGI under the threshold, or electing PTET and moving the state deduction to the entity entirely. PTET won. That conversation happened in June. By October the window had closed.
Sitting in the torpedo zone? We can model the phase-out, the AMT interaction, and the PTET option together.
Book a Review →The PTET Election Most Cannabis Owners Skip
How the Mechanics Work
Roughly 36 jurisdictions offer a pass-through entity tax election, New York, New Jersey, California, Minnesota, and Delaware among them. OBBBA left it untouched. For operators above $505,000 of MAGI, this remains the strongest SALT tool on the table.
An LLC, S-Corp, or partnership elects to pay state income tax at the entity level. That payment becomes a federal business deduction, reducing entity taxable income before anything flows to owners. Owners then claim a credit on their state return for what the entity already paid.
So the deduction lands at the entity, where no personal cap exists. Both the $40,400 ceiling and its phase-out stop mattering. Across our cannabis CPA practice in high-tax states, PTET has become standard mid-year work. Our broader guide to SALT strategies for businesses covers the non-cannabis version.
State Notes for GreenGrowth Markets
New York: One of the most established regimes in the country, open to S-Corps, partnerships, and LLCs. Start estimated payments early to capture the full benefit. City residents also pay a local income tax, which raises what the deduction is worth. See our New York cannabis accounting page.
New Jersey: A PTET regime sits alongside some of the heaviest property tax in the country. The phase-out bites hard here, since high state liability meets cannabis income that routinely lands owners inside the torpedo band.
California: The state runs its own election for pass-through entities, against a top income tax rate of 13.3 percent. Any California operator who has not looked at PTET should do so now, because the election deadline closes before year end.
Minnesota and Delaware: Both offer PTET regimes. Multi-state operators holding licences in these markets should confirm election status everywhere they file, and that is mid-year work rather than a December task. Our accounting and financial services team tracks it across all five markets.
Where SALT Sits Among Your Other Levers
SALT planning rarely stands alone. Three other levers usually deserve attention in the same conversation, and each one moves MAGI or taxable income in its own way.
- Depreciation timing. Accelerating or deferring depreciation shifts taxable income between years, which changes where MAGI lands against the threshold. Our guide to depreciation and tax planning covers the mechanics.
- Recent federal tax changes. Several OBBBA provisions interact with cannabis positions directly. We walk through them in using new tax cuts to minimise 280E exposure.
- Ownership structure. Who holds what, and through which entity, determines how income flows to personal returns. Errors here surface late and cost dearly, as our piece on cap table mistakes sets out.
KEY TAKEAWAYS
- ›The 2026 cap is $40,400, up from $40,000 in 2025. It climbs 1 percent a year through 2029, then drops to $10,000 in 2030.
- ›Phase-out begins at $505,000 of MAGI for 2026 and cuts 30 cents per dollar. Around $606,333 the deduction floors at $10,000.
- ›That threshold indexes too. It was $500,000 in 2025 and moves on the same schedule as the cap, so last year's number no longer applies.
- ›AMT compounds the squeeze, since filers add back the full SALT amount for AMTI while claiming only part of it on the regular return.
- ›PTET elections run in roughly 36 jurisdictions and must be made during the tax year. Mid-year is the window. Q4 is usually too late.
Frequently Asked Questions
The numbers
For 2026 the cap is $40,400. Single, head of household, and joint filers all use the same figure, while married filing separately gets $20,200. That reflects a 1 percent step up from the $40,000 base OBBBA set for 2025. The cap rises 1 percent each year through 2029, then falls to $10,000 in 2030 with no income limit.
You only reach the full $40,400 if you itemize on Schedule A and your MAGI stays at or below $505,000. Past that line the cap shrinks by 30 cents per dollar, never dropping under $10,000. Taking the standard deduction means the expanded cap gives you nothing, whatever your state tax burden looks like.
The expanded cap covers tax years 2025 through 2029. From 2030 it returns to $10,000 for every filer, with no income phase-out. That matches the TCJA level that ran from 2018 through 2024. Nothing graduates the change. It happens in one step.
Cannabis owners under the phase-out threshold with real state tax burdens should treat 2026 to 2029 as a window worth using. In a lower income year, pulling deductible state payments forward into that window can lift the benefit before the cap falls back.
The phase-out
The SALT torpedo names the tax spike hitting filers between $505,000 and roughly $606,333 of MAGI in 2026. Inside that band, an extra $10,000 of income adds $10,000 to taxable income at your marginal rate while also cutting the deduction by $3,000. That lost deduction behaves like a further $3,000 of income, pushing the real marginal cost above the stated bracket.
Dispensary owners, MSO principals, and multi-license operators drawing significant pass-through income land here most often. Deferring distributions or accelerating retirement contributions can pull MAGI back under the threshold. A PTET election offers the structural fix, since it removes state taxes from the personal return altogether.
It can, and the interaction catches people out. Alternative minimum tax requires adding back the full SALT amount you paid when computing AMTI. A filer inside the phase-out zone therefore claims only a partial deduction on the regular return while still adding back the whole figure for AMT purposes.
OBBBA tightened AMT parameters for 2026 as well, lowering phase-out thresholds and doubling the phase-out rate for joint filers. Together those two effects can erase whatever partial benefit survived the SALT phase-out. Run the parallel AMT calculation before claiming a large deduction, particularly if you also hold incentive stock options.
Structure and workarounds
A pass-through entity tax election lets an LLC, S-Corp, or partnership pay state income tax at the entity level as a business expense. Owners then claim a credit on their personal state return for what the entity paid. Because the payment happens at the entity, it becomes a federal business deduction and the personal cap never applies.
For cannabis owners above $505,000 of MAGI, that converts a deduction facing partial or total phase-out into a full entity-level one. Most states require the election and estimated payments during the tax year, and many set early deadlines. Confirm your status with a cannabis CPA now rather than in Q4.
No. The personal cap governs individuals itemizing on Schedule A. A C-Corporation deducts state and local income taxes as business expenses with no cap at all. Cannabis C-Corps deduct state tax payments in full, though IRC 280E still restricts their other business deductions.
Entity structure therefore becomes one factor worth weighing. Pass-through income from an S-Corp or LLC lands on the owner's personal return, where the cap and its phase-out apply. A C-Corp avoids that entirely. Against it sit corporate rates, double taxation on distributions, and the full 280E picture, so the decision needs all of those together.
Working with us
We begin with a full-year MAGI projection built from first-half actuals and a realistic second-half forecast. From there we calculate the deduction surviving the phase-out, compare it against the standard deduction to confirm itemizing still wins, run the parallel AMT check, and model whether a PTET election beats relying on the personal deduction.
For owners inside the torpedo band, we test income timing scenarios to see whether moving MAGI above or below the threshold changes the outcome. We work with operators across New York, New Jersey, California, Minnesota, and Delaware. Book a CFO Discovery Call to talk through your own position.
Where to Go From Here
Is Your SALT Position Costing More Than It Should?
We model the phase-out, the AMT interaction, the PTET opportunity, and income timing for cannabis owners across New York, New Jersey, California, Minnesota, and Delaware. Mid-year is when this conversation pays.
KEY NUMBERS
The Cap Went Up. Your Deduction May Not Have.
Book a CFO Discovery Call. We will project your 2026 MAGI, calculate what survives the phase-out, check the AMT interaction, and test whether a PTET election fits your operation.
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