Details of Public Law 119-21, section 70111 , One Big Beautiful Bill Act

This provision modifies the overall limitation on itemized deductions that was paused under the Tax Cuts and Jobs Act (Public Law 115-97, section 11046).

Under this provision, the total allowable amount of itemized deductions is reduced by 2/37 of the lesser of:

the total allowable amount of itemized deductions for the taxable year or

the taxpayer’s amount of taxable income, without regards to this section and increased by the itemized deductions, that exceeds the dollar amount at which the 37% tax bracket applies to the taxpayer.

The provision no longer carves out deductions for medical expenses, investment interest, and casualty, theft or gambling losses from the limitation.

This provision also excludes the limitation on the total allowable amount of itemized deductions for purposes of determining the qualified business income deduction, which allows a taxpayer, other than a corporation, to deduct for any taxable year an amount equal to the lesser of the taxpayer’s combined qualified business income amount or an amount equal to 20 percent of the excess (if any) of the taxpayer’s taxable income over the net capital gain of the taxable year (IRC section 199A).

Under the PTIL, California conforms to the overall limitation on itemized deductions as of the specified date of January 1, 2025, with modifications, but does not conform to this federal modification of the overall limitation on itemized deductions.

California phases out itemized deductions for taxpayers whose AGI exceeds certain thresholds. For 2025, the amount of otherwise allowable itemized deductions (other than medical expenses, investment interest, casualty, theft, or wagering losses) is reduced by the lesser of:

Six percent of the amount of the taxpayer’s AGI in excess of $252,203 for single or married-filing-separate/RDP taxpayers, $504,411 for married/RDP taxpayers filing a joint return, and $378,310 for taxpayers who file under the head-of-household status, or

80 percent of the amount of the itemized deductions otherwise allowable for such taxable year.

Under the PITL, California does not conform to the federal deduction for qualified business income under IRC section 199A.

As a result, California does not conform to the changes made by this provision.

The estimated revenue impact to conform to the above provisions would result in the following loss:

26/27 27/28 28/29 29/30 $(2,400,000,000) $(1,600,000,000) $(1,600,000,000) $(1,700,000,000)