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California Homeowners See Relief Under New SALT Deduction Rules

The 2025 federal tax overhaul is already reshaping itemized deductions, and for Californians, the biggest change is the long-awaited increase to the SALT (State and Local Tax) cap.

New SALT Cap Means Real Savings for California Homeowners

What Happened

As part of the new GOP-led tax package, Congress raised the SALT deduction limit from $10,000 (set by the 2017 Tax Cuts and Jobs Act) to an income-based cap of up to $40,000.


This adjustment is designed to give relief to taxpayers in high-cost, high-tax states like California, New York, and New Jersey where property and income taxes easily exceed the old $10,000 ceiling.


How Much Homeowners Stand to Save

According to The San Francisco Chronicle, estimates from Redfin and ITEP show the following potential impacts:

  • Redfin: The median California homeowner could deduct $26,646 in state and local taxes and save about $3,995 in federal tax.

  • ITEP: A more conservative model suggests average savings of $1,240.

  • Coverage: Roughly 74% of California homeowners may benefit from the higher cap.


While savings vary by income, county, and mortgage structure, the broader takeaway is clear: itemizing just became attractive again for many California taxpayers.


Why It Matters for Tax Professionals

This shift reopens strategic planning opportunities that have been largely dormant since 2018.

  • Itemization Review: Reassess whether clients benefit from itemizing vs. taking the standard deduction.

  • Homeownership Incentives: Higher deductibility may encourage home buying in high-tax counties.

  • Entity Structuring: For passthrough owners, coordinate with SALT workaround rules already in place.


Tax professionals should also be prepared to guide clients through the transitional year when software, withholding tables, and state conformity may lag behind federal changes.


What’s Next?

  • The IRS is expected to release updated SALT deduction worksheets by early 2026.

  • California may revisit its own conformity rules, which could affect how state deductions interplay with federal filings.

  • Expect renewed debate in Congress as policymakers weigh fairness for low-tax and high-tax states heading into the 2026 TCJA sunset year.


Try Bizora today to stay ahead with real-time tax insights, curated daily for CPAs, tax attorneys, and financial advisors.

 
 
 

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