If you are a homeowner in Santa Barbara, you have likely felt the impact of the $10,000 cap on state and local tax deductions that was introduced several years ago. With high property values and corresponding property taxes, it has been easy for residents in our area to exceed that cap. As a result, many homeowners have seen higher tax bills and fewer opportunities to benefit from itemizing deductions.
That is now changing.
On July 4, the federal government passed H.R. 1, better known as the “Big, Beautiful Bill,” a new tax reform package that brings meaningful relief to homeowners. The most significant change for many of us is the increase in the SALT deduction limit. Beginning with the 2025 tax year, homeowners can deduct up to $40,000 in combined state income and property taxes. This is a substantial increase from the previous $10,000 limit and is expected to make itemizing deductions worthwhile for many more taxpayers.
For Santa Barbara residents, this is welcome news. Our property taxes, along with California’s state income tax, often far exceed the old cap. The increased SALT deduction offers real savings for local homeowners and creates additional incentives for renters who are considering taking the step toward homeownership.
The legislation also preserves the mortgage interest deduction at current levels and restores the deductibility of private mortgage insurance premiums. This change can be especially helpful for first-time buyers who may be putting down less than 20 percent.
To take advantage of these benefits, homeowners will need to itemize their deductions if their expenses exceed the standard deductions. In addition to SALT, deductible expenses may include mortgage interest, charitable contributions, and certain medical and dental expenses. Keeping thorough records will be important to ensure you are capturing all eligible deductions.
The increase in the SALT cap is the result of persistent advocacy by the National Association of REALTORS®. NAR has long supported policies that make homeownership more accessible and affordable. This change reflects that commitment and is a direct response to the needs of homeowners in high-cost states like California.
Homeownership brings a wide range of benefits, from financial stability to stronger communities. With the passage of this new legislation, our tax system now offers better support for those who choose to invest in a home. For many in Santa Barbara, this is a timely and meaningful improvement.
For more information about how these changes could affect your tax situation, speak with your qualified tax professional and be sure to ask your questions about state and local tax deductions. Then when you are ready reach out to your REALTOR® to assist you with your purchase.
Summer Knight is a Santa Barbara native and top producing Realtor at Sun Coast Real Estate. Summer has been a member of the Santa Barbara Association of Realtors for over 20 years and currently serves as the President of the Board of Directors. Reach Summer at 805-886-1261 or [email protected].