California Homeowners Poised for Tax Relief: SALT Deduction Changes Explained
Millions of Americans could see a financial boost when they file their federal taxes next April, thanks to recent changes to the state and local tax (SALT) deduction. But how much will California homeowners actually save? New analyses are attempting to quantify the impact of the increased SALT deduction limit, with estimates varying widely.
A recent analysis from real estate website Redfin sought to determine the potential savings for homeowners across the country. Prior to 2017, taxpayers could deduct their full state and local tax payments from their federal taxable income. The Tax Policy Center reported the average SALT deduction in 2017 was $13,000 nationally, but exceeded $30,000 in four high-cost Bay Area counties: San Francisco, Santa Clara, San Mateo, and Marin.
However, the 2017 Tax Cuts and Jobs Act capped the SALT deduction at $10,000. For the ensuing eight years, lawmakers in states with high property taxes – spanning both parties – worked to reverse this limitation. While the 2025 GOP tax bill did not eliminate the cap, it did introduce a new income-based limit, potentially allowing for deductions up to $40,000.
So, what does this mean for California residents? Redfin’s chief economist, Daryl Fairweather, explained that their estimates were based on local tax revenue, home values, and income data. The report calculated savings by determining the additional deduction available under the new rules and applying a 24% marginal tax rate to that amount.
The analysis indicated that New York homeowners stand to benefit the most, with a typical homeowner able to deduct a median of $39,549 and save a median of $7,092. California ranked second, with the typical homeowner potentially deducting a median of $26,646 in SALT and saving a median of $3,995.
Fairweather attributed the difference between the two states to California’s unique property tax system. Proposition 13, which limits property tax increases, means that long-time homeowners often pay significantly less in property taxes than more recent buyers. “If you look at New York, they don’t have more valuable real estate than California,” she said. “But it’s a combination of such high earners in the state and property values, and their property tax structure is different than California.”
According to the report, approximately 74% of California homeowners could benefit from the increased SALT deduction limits. However, not all experts agree with Redfin’s findings.
A certified public accountant and certified financial planner based in San Francisco cautioned that the Redfin estimates may not be applicable to many of his Bay Area clients. “Most of my married clients have higher income that will phase the SALT down to $10,000,” he said. “My married clients who are retired will most likely still use the standard deduction because their mortgage balance is low and most have lower property tax bases.” He further explained that Redfin’s calculations assume other itemized deductions already equal the standard deduction, and that the 24% tax rate is consistently applied. “I suspect the marginal bracket for the average California taxpayer with a home is 22%,” he added – the rate applicable to joint filers earning between $96,951 and $206,700.
Steve Wamhoff, director of federal tax policy for the Institute on Taxation and Economic Policy (ITEP), also found lower potential savings for Californians. Using ITEP’s tax microsimulation model, which analyzes taxpayer and census data, the organization estimated the average California homeowner would save $1,240 – significantly less than Redfin’s $4,000 estimate. For California homeowners in the bottom 80% of the income distribution, the average savings were found to be less than $1,000.
Ultimately, for homeowners hoping to maximize their SALT savings, it’s crucial to assess how the enhanced deduction stacks up against the increased standard deduction. .
