The Big One: No SALT Cap in California

On your federal return, the state and local tax (SALT) deduction is capped at $10,000 under IRC Section 164(b)(6). That’s been the rule since 2018. But here’s the thing most filers miss: the SALT cap doesn’t apply on your California return. You can’t deduct California state income tax against itself (that would be circular), but you can deduct real property taxes, personal property taxes, and state income taxes paid to other states without any $10,000 ceiling.

For homeowners paying $18,000 or $25,000 in property taxes alone, this makes a real difference. Your federal Schedule A gets hammered by the cap. Your California Schedule CA Part II? No cap at all. That said, you still can’t deduct your own CA income tax payments on your CA return per Cal. Rev. & Tax. Code Section 17220. The Franchise Tax Board isn’t in the business of subsidizing itself.

No Section 199A QBI Deduction

This trips up every pass-through business owner we work with. The federal Qualified Business Income (QBI) deduction under IRC Section 199A lets eligible sole proprietors, S corp shareholders, and partners deduct up to 20% of their qualified business income. It’s a big deal on the federal side. California doesn’t recognize it. Period.

That means if you’re an S corp owner reporting $400,000 in business income, your federal return might show a $80,000 QBI deduction. On Form 540? That $80,000 gets added straight back. Your California taxable income is higher than your federal taxable income, and at California’s tax rates (topping out at 13.3%), that’s a painful difference. If you’re a pass-through entity owner, you should also look into the CA PTET (pass-through entity tax) as a potential workaround for the federal SALT cap.

Mortgage Interest and Charitable Contributions

These two categories mostly follow federal rules, with a few wrinkles. Mortgage interest is deductible on acquisition debt up to $750,000 for loans originated after December 15, 2017 (the same federal threshold under IRC Section 163(h)). Older loans keep the $1,000,000 grandfathered limit. Home equity loan interest? Only deductible if the funds were used to buy, build, or substantially improve the home — same as the IRS position per IRS Publication 936.

Charitable contributions also track federal rules. The 60% of AGI limit for cash donations to public charities applies. Noncash property, appreciated stock, private foundation gifts — all the same percentage limits. California does have its own qualified organizations in some edge cases, but for 99% of filers, if it’s deductible federally, it’s deductible on Form 540.

Medical Expenses: Same Floor, Same Pain

California conforms to the federal 7.5% of AGI floor for medical expense deductions under IRC Section 213. If your adjusted gross income is $100,000, you can only deduct medical costs exceeding $7,500. Everything below that threshold vanishes. This makes the medical deduction almost useless for most filers unless you had a catastrophic year — major surgery, long-term care costs, or expensive ongoing treatment that blew past that floor.

One thing worth noting: premiums for long-term care insurance are deductible (subject to age-based limits), and that’s one area where we see people consistently forget to claim what they’re owed.

Casualty and Theft Losses

Federally, casualty and theft loss deductions have been restricted to presidentially declared disaster areas since 2018. California’s treatment can differ. The state has historically allowed casualty loss deductions for state-declared disasters even when there’s no federal disaster declaration, under provisions in Cal. Rev. & Tax. Code Section 17207. Given California’s wildfire history, this matters. If you lost property in a governor-declared emergency, check whether CA allows the deduction even if the IRS doesn’t. The rules shift year to year — the 2025 filing season, for example, includes special provisions for several 2024 wildfire events.

Where It All Goes: Schedule CA Part II

All of these adjustments flow through Form 540 Schedule CA, specifically Part II. You’ll take your federal itemized deductions from Schedule A as the starting point, then make California-specific additions and subtractions. Add back the QBI deduction. Adjust the SALT amounts. Modify casualty losses if needed. The result is your California itemized deduction amount, which typically differs from the federal figure.

If your California itemized deductions end up lower than the standard deduction ($5,540 for single filers, $11,080 for married filing jointly in 2024), you’d just take the standard deduction instead. But for most filers who itemize federally — especially homeowners with high property taxes or business owners losing the QBI deduction — the California itemized amount usually exceeds the standard deduction by a wide margin.

Sources & References

• FTB Schedule CA (540) Instructions (2024 Tax Year)
• Cal. Rev. & Tax. Code Section 17220 — State Tax Deduction Disallowance
• Cal. Rev. & Tax. Code Section 17207 — Disaster Loss Deductions
• IRC Section 199A — Qualified Business Income Deduction
• IRC Section 164 — Taxes (SALT Deduction)
• IRS Schedule A (Form 1040) — Itemized Deductions
• IRS Publication 936 — Home Mortgage Interest Deduction
• FTB — Disaster Loss Deductions for California