California Tax Changes: What Will Be Different for California Taxpayers This Year

Hi Friends,

For most of us in Sonoma County, preparing your taxes is a mix of routine and new details each year. Some changes come from Washington. Some come from Sacramento. This year, a few key rules are worth your attention because they could affect how you approach your 2025 tax return filed in 2026.

For the 2025 tax year, the most relevant updates for California taxpayers involve federal SALT-related changes, California’s conformity update, and a few state-specific adjustments that are worth understanding before you file.

What Changed for California Taxes in 2025?

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One of the more noticeable changes this year comes from the federal side.

The SALT deduction refers to state and local taxes, including income and property taxes, that may be deductible on your federal return if you itemize.

We previously wrote about one of the most talked-about developments affecting Californians this filing season, which is the ongoing discussion and changes related to the SALT deduction cap.

To recap, before 2018, California taxpayers could deduct most of their state and local taxes on their federal return. The 2017 Tax Cuts and Jobs Act capped that at $10,000, which in a high tax state like ours often felt limiting.

For the 2025 tax year, there have been ongoing changes and proposals related to the SALT deduction cap, which may affect how itemizing benefits certain taxpayers. If your total itemized deductions, including state income tax and property tax, exceed the standard deduction, itemizing may provide more value than it has in recent years.

The IRS provides general guidance on itemizing deductions here: IRS Schedule A and Itemized Deductions

This does not change how California calculates your state tax bill, but it does influence whether itemizing on your federal return ends up being more beneficial.

Does California Follow Federal Tax Law?

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California does not fully follow federal tax law.

Tax conformity means California chooses which federal tax rules to follow and which to handle differently.

Effective for the 2025 tax year, California updated its conformity date to the Internal Revenue Code as of January 1, 2025 under Senate Bill 711.

You can review California’s current conformity updates here: California FTB What’s New

This means certain federal changes are now reflected in California’s tax forms and instructions, while others are still treated differently. This is why your federal and California returns can look similar in some areas and very different in others.

What California Tax Rules Are Different This Year?

For the 2025 tax year, there are a few state-specific rules worth noting.

Alimony Rules: For the 2025 tax year, California continues to follow its own alimony rules for tax purposes. Payments may still be deductible by the payer and included in income by the recipient in certain cases, even though federal rules changed for newer agreements.

Wildfire and Disaster Related Rules: California allows certain exclusions from income for qualified wildfire mitigation payments and disaster assistance programs. These can apply even when federal rules differ.

Net Operating Loss NOL Suspension: The state continues, in certain cases, its suspension of net operating loss carryovers for certain taxpayers.

Standard deductions and tax brackets remain relatively stable, but even small changes can affect credits and thresholds depending on your income level.

What Has Not Changed for California Taxpayers?

Some things remain consistent. California still uses a progressive income tax system with multiple brackets. Filing extensions are still available, and most taxpayers can request an automatic six month extension to file through October 15, 2026, although any taxes owed are still due by the original deadline.

Credits such as the California Earned Income Tax Credit and Young Child Tax Credit also remain available under similar eligibility rules.

Does the SALT Deduction Affect California Taxes?

No, not directly. The SALT deduction only affects your federal return. It does not change how California calculates your state tax. However, it can influence whether itemizing on your federal return is beneficial, which can affect your overall tax picture.

Bottom Line for California Filers

One of the more noticeable changes for some taxpayers this year is how federal SALT-related updates may make itemizing more attractive, especially for homeowners and those paying higher state taxes.

California’s conformity updates and state-specific rules continue to create differences between federal and state returns, which is why reviewing both together matters.

You can learn more about planning opportunities here: Tax Reduction & Optimization Services

Frequently Asked Questions

Do California tax changes affect my federal return?

No. Federal and California tax systems operate separately, although some rules overlap.

Does the SALT deduction reduce my California taxes?

No. The SALT deduction only applies to your federal return.

Does California follow all federal tax rules?

No. California selectively conforms to federal tax law and maintains its own rules in many areas.

Do I need to itemize to benefit from SALT deductions?

Yes. You must itemize deductions on your federal return to benefit from SALT.

If you are filing this season and want to better understand how these changes affect your situation, it may be worth taking a closer look before you finalize your return. Have a great tax season.

Warmly,

Melissa Ochoa

Enrolled Agent & Owner, Apple Blossom Tax Service

Serving Sebastopol and Sonoma County