For years, the $10,000 SALT cap was one of the most complained-about provisions in the tax code — particularly in California, where property taxes alone can blow through that ceiling before you even account for state income taxes.
The One Big Beautiful Bill Act changed that. Sort of.
Here's the honest breakdown of what changed, what it actually means for high-income earners in Southern California, and where the catch is.
What Is the SALT Deduction?
The State and Local Tax (SALT) deduction allows taxpayers who itemize to deduct certain taxes paid to state and local governments from their federal taxable income — including California state income tax and property taxes on your home.
Before 2018, this deduction was uncapped. The Tax Cuts and Jobs Act capped it at $10,000, which hit California homeowners and high earners particularly hard.
What Changed in 2026
The SALT deduction cap for 2026 is $40,400, up from $40,000 in 2025, with the cap indexed upward by 1% annually through 2029 (Harter Secrest & Emery).
That's meaningful for many households — but there's a phasedown that significantly limits the benefit for higher earners.
The deduction is reduced by 30% of the amount by which modified AGI exceeds $500,000 — and cannot be reduced below $10,000. The phasedown threshold itself also increases 1% per year through 2029 (Anchin).
Illustrative example (hypothetical, for educational purposes only — individual results will vary):
A married couple with $560,000 in MAGI is $60,000 above the threshold. Their cap is reduced by 30% × $60,000 = $18,000, leaving a maximum SALT deduction of $22,000. That's still more than double the old $10,000 cap (Jones & Roth CPAs).
Taxpayers with MAGI of $600,000 or more see no benefit from the expanded cap and remain limited to a $10,000 deduction — same as before (Holthouse Carlin & Van Trigt).
One more thing most posts bury: the expanded SALT cap is temporary and reverts to $10,000 in 2030. This is a five-year window, not a permanent change (Bipartisan Policy Center).
What This Means If You're a High Earner in California
If your household MAGI is above roughly $600,000, the expanded cap is effectively phased out and you're back at $10,000. The OBBBA didn't move the needle for you on SALT.
If your MAGI is between $200,000 and $500,000, this is a real improvement. A household with $350,000 in income owning a home in Irvine or Pasadena — where combined state income tax and property tax easily exceeds $20,000 — can now deduct a meaningfully larger portion of that federally.
One nuance for married couples filing separately: the SALT cap is $20,000 and the phasedown threshold is $250,000 — half the joint amounts across the board (Venable LLP).
The Pass-Through Entity Tax (PTET) Workaround Still Stands
If you own a pass-through business — an S-corp, partnership, or LLC — California's PTET election allows state income taxes to be paid and deducted at the entity level rather than the individual level, effectively bypassing the SALT cap on that income. The OBBBA preserves PTET deductions with no restrictions, and California recently extended its PTET program for an additional five years (Anchin).
If you have significant pass-through income and haven't evaluated a PTET election with your CPA, this is worth a conversation.
California Still Doesn't Conform
The SALT deduction flows one direction only — state and local taxes deducted on your federal return. California does not allow a deduction for federal income taxes on the state return, and California does not conform to all OBBBA provisions. Work with an advisor who understands which federal changes carry through to your California return and which ones don't.
What to Do Now
If your household income is in the $200K–$500K range, model whether itemizing now makes more sense than the standard deduction. The higher SALT cap may push you back into itemizing territory when you couldn't justify it under TCJA.
If you're above $600K, the SALT story is largely unchanged — but 2026 introduced other changes that may affect your return more significantly, including updated AMT phaseout rules, new retirement contribution limits, and new restrictions on itemized deductions above the 37% bracket threshold. Those deserve their own analysis.
This post is for educational purposes only and does not constitute tax, legal, or investment advice. Tax law is complex and individual circumstances vary significantly. Consult a qualified tax professional before making any decisions based on this content. RYSE Financial is affiliated with Osaic Wealth.
RYSE Financial works with high-income professionals across Los Angeles, Orange County, and the Inland Empire to build tax-integrated financial plans. If you want to understand how the 2026 changes affect your specific situation, let's talk.