Details of Public Law 119-21, section 70120 , One Big Beautiful Bill Act

The provision permanently limits the amount allowed as an itemized deduction for the aggregate amount of state and local, etc. taxes. Under the Tax Cuts and Jobs Act (Public Law (P.L.) 115-97, section 11042), the deduction was limited up to $10,000 ($5,000 for married taxpayers filing a separate return) and applied to taxable years beginning after December 31, 2017, and beginning before January 1, 2026. The Inflation Reduction Act of 2022 (P.L. 117-169, section 13904) also extended the limitation to taxable years ending before January 1, 2027.

Beginning in taxable year 2025, the provision modifies the annual limitation for the aggregate amount of deductible taxes as follows:

For taxable year 2025, $40,000.

For taxable year 2026, $40,400.

For taxable years 2027 through taxable year 2029, the aggregate amount is adjusted by 1 percent each taxable year with taxable year 2026 as the base year.

For taxable year 2030 and after, $10,000.

Additionally, for taxable year 2025 through taxable year 2029, to determine the applicable limit, the provision requires a phasedown adjustment and is based on modified adjusted gross income (MAGI). The applicable limit is reduced by 30 percent of the excess of the taxpayer’s MAGI over the threshold amount (half the threshold amount in the case of a married individual filing a separate return). The threshold amount is $500,000 for taxable years 2025 and 2026, and is increased each year by 1 percent from the prior year, until 2030. This provision defines MAGI as the adjusted gross income of the taxpayer plus certain income earned or sourced outside of the United States that is excluded from gross income.

The provision provides that the phasedown adjustment cannot result in an applicable limitation amount that is less than $10,000.

California conforms, under the PITL, to the deductibility of certain taxes and other provisions related to the deductibility of taxes under IRC section 164, as of the specified date of January 1, 2025, with modifications. Specifically, California does not allow a deduction for state or local income taxes. California does not conform to the limited deduction applicable to individuals for state and local real and personal property taxes and state, local, and foreign income, war profits, and excess profits taxes for taxable years beginning after December 31, 2024. As a result, California does not conform to the changes made by this provision.

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

26/27 27/28 28/29 29/30 $460,000,000 $300,000,000 $310,000,000 $350,000,000