California Homeowners Stand to Receive Thousands Due to New SALT Deduction
The One Big Beautiful Bill Act (OBBB) has brought good news for homeowners in high-tax states, such as California, with the increased State and Local Tax (SALT) deduction cap. The new cap, set at $40,000 for tax years 2025 through 2029, is a significant increase from the previous $10,000 limit.
This expanded cap applies primarily to taxpayers with modified adjusted gross incomes (MAGI) of $500,000 or less for 2025, with a phase-out on incomes between $500,000 and $600,000. Starting in 2026, both the cap and the phase-out threshold increase by 1% annually through 2029. After 2029, the cap reverts back to $10,000 starting in 2030 unless new legislation is enacted.
The increased SALT deduction is most beneficial for high-tax state residents who previously paid well above the $10,000 SALT cap, such as California homeowners who also face some of the highest sales taxes in the country. For example, the average homeowner in New Jersey paid a median property tax of $9,137 last year for a property worth $531,559.
In California, over 1% of homeowners in cities like San Jose, San Francisco, and Santa Cruz still surpass the new $40,000 SALT cap. However, some California homeowners could potentially deduct the full cost of their property tax when they file their federal tax return early next year.
The expanded SALT deduction is effective for tax years 2025 through 2029 and is most beneficial for middle-income households, according to Hale. Under the new $40,000 SALT cap, those homeowners in Santa Cruz can deduct all of their property tax burden if they don't already qualify for other popular tax breaks for homeowners.
The increase is only applicable if you itemize deductions, and the expansion lasts only for this five-year period (2025-2029), then returns to $10,000 permanently unless future laws change it. The SALT cap and income threshold will increase by 1% each year from 2026 to 2029, with the cap reset to $10,000 as of 2030.
President Donald Trump signed the OBBT into law, allowing taxpayers with incomes under $500,000 to deduct up to $40,000 in state and local taxes when they file taxes in early 2026. The new SALT deduction cap may impact other expensive states for homeowners, like New Jersey, Connecticut, and Washington.
References: [1] IRS.gov - SALT Deduction Changes Under the One Big Beautiful Bill Act (OBBB) [2] Realtor.com - Analysis of the Impact of the Increased SALT Deduction Cap on California Homeowners [3] TaxPolicyCenter.org - Analysis of the Impact of the Increased SALT Deduction Cap on High-Tax State Residents [4] Census.gov - Median Property Taxes by State and City [5] WhiteHouse.gov - Statement by the President on the One Big Beautiful Bill Act (OBBB) Signing
- The expanded State and Local Tax (SALT) deduction cap under the One Big Beautiful Bill Act (OBBB) could provide opportunities for high-income earners to invest in personal-finance areas such as real-estate, as they may now potentially save more on their taxes.
- For business owners and investors living in high-tax states, the increased SALT deduction cap offers a financial incentive, enabling them to allocate more funds towards their ventures, whether in finance, investing, or real-estate, due to potential savings on their taxes.
