California business owners have faced limited federal deductions for state and local taxes (SALT) since 2018. The One Big Beautiful Bill Act (OBBBA) brings welcome relief. Starting in 2025, the SALT deduction cap may rise to $40,000, up from $10,000, offering meaningful savings for taxpayers who itemize.
Although details await official IRS guidance, this temporary change could benefit many high-tax state residents—especially business owners who pay significant income and property taxes.
The Old Rule: $10,000 SALT Cap Under the TCJA
The Tax Cuts and Jobs Act (TCJA), effective in 2018, capped itemized SALT deductions at $10,000 ($5,000 if married filing separately). This limit applied to the combined total of state income, local income, and property taxes.
For Californians, this cap sharply reduced federal deductions. Many business owners and homeowners who previously itemized found the standard deduction more advantageous instead.
The New Rule: $40,000 Cap Starting in 2025
Under the OBBBA, taxpayers who itemize may deduct up to $40,000 in SALT payments beginning January 1, 2025($20,000 if married filing separately).
However, the expanded cap includes income-based phaseouts:
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Taxpayers with Modified Adjusted Gross Income (MAGI) up to $500,000 (joint filers) qualify for the full $40,000 cap.
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The deduction phases down for MAGI between $500,000 and $600,000.
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Above $600,000, the limit reverts to the old $10,000 cap.
The cap and thresholds are expected to increase 1% per year through 2029. Unless Congress acts, the cap will revert to $10,000 in 2030.
While these details come from multiple trusted tax advisors and policy sources, the IRS has not yet released official implementation guidance. The numbers above reflect what is currently reported by leading CPA and tax law firms.
Why This Matters for California Business Owners
Business owners who pay significant state income and property taxes stand to benefit the most. If you own a closely held business, operate through a pass-through entity, or hold real estate, you could see a substantial increase in deductible expenses.
Here are key planning points to consider:
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Itemize Where It Pays Off: The higher cap only helps taxpayers who itemize. If your itemized deductions now exceed the standard deduction, it’s worth reviewing your filing strategy.
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Manage Your Income: Staying below phase-out thresholds can preserve your full deduction. Consider deferring bonuses or increasing retirement plan contributions.
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Time Your Payments: Where allowed, prepaying property taxes or state estimates during years with higher caps could increase deductions.
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Coordinate with Other Deductions: Combine charitable giving and mortgage interest planning for greater overall benefit.
Temporary Relief—Strategic Opportunity
This increase isn’t permanent. The expanded cap is set to last five years (2025–2029) before returning to $10,000 in 2030. That window creates a limited but valuable opportunity for tax planning.
For high-income Californians, the difference between a $10,000 and $40,000 deduction can equal thousands of dollars in annual tax savings. Strategic timing and income management will be critical to capture these benefits.
Next Steps for Taxpayers
Because the IRS has not yet issued final regulations, specifics may shift. At Whittaker CPAs, we are monitoring every update to confirm how the law applies to individuals and business owners.
Our team specializes in ProActive Tax Planning and virtual CFO services to help closely held businesses in Southern California align their income, deductions, and entity structures for maximum savings under evolving laws like the OBBBA.
Ready to maximize your deductions under the new SALT rules?
Whittaker CPAs helps California business owners plan proactively to reduce taxes and increase after-tax cash flow.
Schedule your ProActive Tax Planning consultation today and see how much more you could save in 2025.
Final Takeaway:
The One Big Beautiful Bill Act raises the SALT deduction cap to $40,000 beginning in 2025, providing potential relief for California taxpayers who itemize. However, because IRS guidance is pending, planning ahead now—with your CPA’s help—is essential to make the most of this temporary opportunity.
