A newly signed federal tax measure is set to bring significant relief to many California taxpayers by raising the cap on state and local tax (SALT) deductions. The legislation, signed into law by President Donald Trump, increases the deduction cap to $40,000 for taxpayers earning less than $500,000 annually. The new cap will apply to tax years 2025 through 2029, with a 1% annual increase built in.
This marks a major shift from the $10,000 SALT cap established under the 2017 Tax Cuts and Jobs Act. The expanded deduction is expected to offer meaningful savings for middle- and upper-middle-income households in high-tax states like California. “Real savings for groceries, kids, and homes,” tweeted Rep. Nick LaLota (R-NY), who helped lead the effort to raise the limit.
California lawmakers largely welcomed the SALT provision. “A state like California certainly will benefit from that because the price of real estate is really expensive,” said Rep. Salud Carbajal (D-Santa Barbara). However, Democrats expressed broader concerns about the legislation, which also includes extended tax cuts from 2017 and significant reductions to federal programs like Medicaid and food assistance. “It’s a really bad bill,” Carbajal added.
House Speaker Emerita Nancy Pelosi (D-San Francisco) criticized California Republicans for not fighting as hard to preserve funding for safety net programs as they did for the SALT cap increase. “Just think what House Republicans from California could do for Medicaid if they fought to save it as hard as their colleagues are fighting for the SALT tax caps,” she tweeted.
Defending the bill, Rep. Tom McClintock (R-Elk Grove) called it a fulfillment of Republican priorities: “lower taxes, lighter regulations, a secure border, more frugal government and a war on waste.” He added, “These are the policies that have produced prosperity and security throughout history.”
Still, some analysts warn the benefits of the expanded SALT deduction will be concentrated among higher-income earners. Garrett Watson of the Tax Foundation noted that, even with the $500,000 income limit, the top 20% of taxpayers stand to gain the most.
The change is especially significant for California, which has one of the highest tax burdens in the country. According to WalletHub, the state ranks fourth overall, trailing only Hawaii, New York, and Vermont. While California’s property and sales taxes are closer to the national average, its income tax burden is second only to New York.
Data from the Tax Policy Center highlights how the original SALT cap reduced deductions for many Californians. Prior to 2017, counties such as Marin, San Mateo, Santa Clara, and San Francisco saw average SALT deductions exceed $30,000. In Sacramento County, about one-third of taxpayers claimed an average of $12,000 in deductions. That figure dropped to just 13% of taxpayers in 2022 following the cap and increased standard deduction.
In neighboring El Dorado and Placer counties, nearly half of taxpayers previously deducted around $16,500, and in Yolo County, the average deduction was $15,300. The expanded cap could restore much of that lost benefit, offering relief to households that have borne the brunt of California’s steep tax rates.
The SALT expansion is now poised to become a major financial factor for California taxpayers starting in the 2025 tax year.