Impacts of SALT Cap on California Homeowners
For California homeowners, the federal State and Local Tax (SALT) deduction is an issue of great importance. The combination of high-income taxes and steep property taxes can create income-tax liabilities that many taxpayers cannot fully deduct on a federal level.
Recent federal tax law changes made SALT a particularly pressing concern for California taxpayers in 2025.
Here’s what you need to know about the SALT deduction, especially with regards to California income and property taxes. Get a tax professional (like a tax assessment attorney), understand your issues, and find the best solutions.
Basics of SALT Deduction
The SALT deduction allows you to reduce your federal income-tax liability by the amount of state and local taxes that you paid during the year, up to a set limit. You can claim the deduction if you itemize your tax return, and it may be taken against all three:
- State and local income taxes
- Real property taxes
- Personal property taxes
The SALT deduction is especially important for high-income taxpayers living in states like California. However, it is limited by a cap on the amount of taxes a given taxpayer may deduct.
Why It Matters in California?
California residents have some of the highest income taxes in the country and also must pay some of the highest property taxes, which can be especially problematic for homeowners.
Let’s say someone in California has an income tax bill of $35,000 and $25,000 in mortgage/tax deductible taxes.
This person’s potential itemized deduction would be $60,000. Still, the SALT deduction for a taxpayer in the highest income tax bracket in California is reduced by a huge amount, resulting in a larger-than-expected income-tax bill for the year.
Change in SALT Cap
The original Tax Cuts and Jobs Act of 2017 placed a $10,000 cap on the SALT deduction for most taxpayers, and for 2025 and after, the law will change again, allowing deductions through a sliding scale based on a taxpayer’s income. (irs.gov).
It is important that taxpayers in 2025 do not make financial decisions based on the assumption that the SALT deduction is capped at $10,000.
Strategies for Taxpayers
· Itemizing Is Not Always Better Than the Standard Deduction
Even with big potential deductions from SALT, you should compare the value of itemizing against your standard deduction for your filing status in order to see which method reduces your taxes the most. For example, in addition to your potential SALT deduction, you may also be able to deduct mortgage interest and charitable donations.
· Make Charitable Contributions Count
If you are right at or above the threshold for making the switch between itemized deduction and the standard deduction, you may want to consider timing your charitable contributions in order to maximize the value of itemized deductions or consider using a donor advised fund or another method of charitable giving, especially if you plan to make large contributions.
· The California PTET Can Provide Another Option if You Are Self-Employed or Own a Business
Pass-through Entity Elective Tax (PTET) for California lets certain partnerships and S Corporations pay state income taxes at the entity level. At the same time, the partners, shareholders, and owners are able to claim a credit on their state income tax returns. This means that entity-level taxes paid by a corporation, sole proprietorship, or partnership may be subject to different rules than individual taxes when it comes to the SALT deduction. (ftb.ca.gov)
This strategy is best suited for those in high income tax brackets, and is not recommended for everyone. Consult with an expert (similar to an Oakland tax lawyer) for some additional help.
What to Do Before Year-End?
Before year-end, you should consider your potential California income taxes, California property taxes, mortgage interest, charitable contributions, income, and whether you may be eligible for the PTET, the federal standard deduction, itemizing, and the limitations for the SALT deduction. For some taxpayers, a review of itemized deductions may be necessary in order to determine if the possible itemized deductions offer any benefit for their given filing status. The most suitable approach to year-end deductions for you may depend on your SALT deductions, as well as the limitations on the SALT deduction. Taxpayers need to consult a tax professional when considering a switch from standard deduction to itemizing, or any other strategy that may require a detailed understanding of your federal and California taxes.
For California homeowners, the problem of large amounts of SALT is especially acute because property taxes can quickly add up to large sums that are limited when deducted on a federal level
In addition to the potential of property taxes being limited, large income taxes may create large potential itemized deductions that are sharply limited by the SALT deduction limitations, resulting in large increases in federal tax bills for certain taxpayers. The most suitable approach to year-end deductions for you may depend on your SALT deductions as well as the limitations on the SALT deduction.