State and Local Tax Deduction in Illinois
Illinois residents itemizing on their 2025 federal return can deduct up to $10,000 in state and local taxes, including Illinois state income tax and local property taxes. Illinois has a flat state income tax rate and some of the highest property tax rates in the nation, particularly in the Chicago metropolitan area and Cook County, meaning many households hit the federal SALT cap quickly.
Illinois does not allow a deduction for federal income taxes on the Illinois state return, and the state has its own rules for itemized deductions that differ from federal treatment. However, Illinois property taxes paid can be partially offset by the Illinois Property Tax Credit, a separate state-level credit worth 5% of property taxes paid on a principal residence, which is distinct from the federal SALT deduction.
Illinois filers should document state income tax payments through withholding statements and estimated payment records, and gather property tax bills and payment receipts from their county treasurer. Homeowners who pay through escrow should use Form 1098 to confirm the property tax amount reported. Combining the federal SALT deduction with the Illinois Property Tax Credit can meaningfully reduce overall tax liability.