What’s Changing at the Federal Level

The Tax Cuts and Jobs Act expired after December 31, 2025. That means the seven-bracket structure from 2018–2025 reverts to the pre-TCJA framework. The top marginal rate jumps from 37% to 39.6%, the 12% bracket goes back to 15%, and the standard deduction drops from around $15,000 to approximately $9,275 for single filers (indexed for inflation to roughly $16,500 by 2026 estimates, but still smaller than the TCJA version).

For a married couple in Brentwood filing jointly with $400,000 in taxable income, the federal bill alone could increase by $6,000–$8,000 compared to 2025. That’s before California takes its share.

California’s Rate Structure

California runs nine brackets plus a 1% Mental Health Services Tax surcharge on income over $1 million. The top marginal rate of 13.3% applies to income above $1 million for single filers ($1,198,024 for married-filing-jointly, indexed annually). There’s no preferential rate for capital gains — California taxes long-term gains as ordinary income.

That capital gains treatment matters a lot in LA, where real estate sales, stock option exercises from tech companies, and entertainment industry backend payments can create large one-time income events. A screenwriter who sells a show for $2 million pays 13.3% to Sacramento on the gain, on top of whatever federal bracket applies. No special rate. No break.

Here’s how a $500,000 earner in LA breaks down:

• Federal: ~$118,700 (effective rate around 23.7%)
• California: ~$44,300 (effective rate around 8.9%)
• Combined effective rate: roughly 32.6%

At $1.5 million, the marginal rate on your next dollar hits 52.9% (federal 39.6% + CA 13.3%). Add the 0.9% Additional Medicare Tax and you’re over 53%.

SALT Deduction Changes for LA Filers

The $10,000 SALT cap is gone in 2026. California residents who pay five-figure state income taxes and high property taxes (LA County’s effective rate hovers around 0.75%, but a $1.5M home still generates $11,250 annually) will benefit significantly. You’ll be able to deduct the full amount on Schedule A again.

That said, the personal exemption comes back too — roughly $5,300 per person. For a family of four, that’s $21,200 in exemptions that disappeared under TCJA. The interplay between restored exemptions, lower standard deduction, and full SALT deductibility makes 2026 planning genuinely complicated. Don’t guess. Model it.

Moves to Consider Before 2026

• Roth conversions in 2025: Convert traditional IRA balances while the 37% top rate still applies. In 2026, the same conversion gets taxed at 39.6%.
• Capital gains harvesting: If you’re sitting on appreciated stock or planning a real estate sale, closing in 2025 avoids the higher ordinary income rates that affect your overall bracket positioning.
• Entity structure review: S-corp owners and LLC members should evaluate whether their current structure still optimizes the qualified business income deduction (Section 199A), which also expired with TCJA.
• Estimated tax recalculation: California estimated taxes are due quarterly (Form 540-ES). Recalculate for 2026 to avoid underpayment penalties — the FTB doesn’t forgive easily.