OBBBA in 2026: Why Your Federal and California Returns May Not Match
Your 2026 federal return may allow deductions that your California return does not, and that is not a mistake. The One Big Beautiful Bill Act (OBBBA) adds new federal rules for 2026, such as a $40,400 SALT cap and a 0.5% floor on charitable gifts, but California generally follows federal law only as of January 1, 2025. Most families should plan for two different sets of deductions.
Short answer
The One Big Beautiful Bill Act (OBBBA, Public Law 119-21; the IRS now calls it Working Families Tax Cuts) makes 2026 the first year several new federal limits on itemized deductions apply, on top of temporary deductions that began in 2025. California generally adopts none of them, because its code follows the Internal Revenue Code as of January 1, 2025. For California families, the federal and state returns can now move in different directions.
Key facts and figures
- The 2026 federal SALT cap is $40,400, reduced by 30% of MAGI above $505,000, with a $10,000 floor (Pub. L. 119-21 §70120, verified Oct 13, 2026).
- New in 2026: a 0.5% floor on itemized charitable gifts, a $1,000/$2,000 charitable deduction for non-itemizers, and a 2/37 reduction of itemized deductions in the 37% bracket (§§70111, 70424, 70425).
- California conforms to federal law only as of January 1, 2025, so it generally follows none of these, nor the federal tips, overtime, car loan interest or senior deductions (FTB, verified Oct 13, 2026).
- Expect two different sets of deductions, and plan for both returns.
Why the results differ
SB 711 set California's conformity date at January 1, 2025 (FTB, verified Oct 13, 2026). OBBBA was signed July 4, 2025, and the FTB's section-by-section analysis shows California not conforming to the provisions below (FTB summary). SB 1435, signed September 14, 2026, made technical updates; the FTB does not describe it as adopting these items (FTB analysis).
Federal vs. California at a glance (2026)
| Item | Federal 2026 | California 2026 |
|---|---|---|
| Standard deduction | $16,100 single; $32,200 joint; $24,150 head of household (IRS) | Own, smaller amount: $5,900 single; $11,800 joint or head of household (FTB 2026 indexing, verified Oct 15, 2026). The 540-ES worksheet still shows $5,706 / $11,412 (FTB) |
| SALT | $40,400 cap; phasedown above $505,000 MAGI; $10,000 floor | State income tax not deductible; property tax not under federal cap |
| Itemized limit | 2/37 reduction above $640,600 single / $768,700 joint (IRS) | California's own phase-out; no 2/37 |
| Charitable, itemizers | Only amounts above 0.5% of contribution base | No floor |
| Charitable, non-itemizers | Up to $1,000 / $2,000 joint, cash | Not adopted |
| Tips; overtime | Up to $25,000; overtime premium up to $12,500 / $25,000 joint; phase-out above $150,000 / $300,000 (IRS) | Not adopted |
| Car loan interest | Up to $10,000, U.S.-assembled vehicle (IRS) | Not adopted |
| Senior deduction | $6,000 per person 65+; phase-out above $75,000 / $150,000 (IRS) | Not adopted; separate senior exemption credit |
| Child Tax Credit | $2,200; up to $1,700 refundable (Rev. Proc. 2025-32) | No direct equivalent; California offers a dependent exemption credit ($491 for 2026) (FTB, verified Oct 15, 2026) |
Figures verified Oct 13, 2026, except the California standard deduction and Child Tax Credit comparison, verified Oct 15, 2026. California column: FTB Summary of Federal Income Tax Changes, sections 70103 through 70425.
SALT: a larger federal cap that phases down
The statute sets the 2026 cap at $40,400 ($20,200 married filing separately), reduced by 30% of MAGI above $505,000, never below $10,000 (§70120, verified Oct 13, 2026; IRS Schedule A instructions). The FTB's summary lists the 2026 threshold as $500,000, but the statute reads $505,000.
Illustrative example (hypothetical numbers)
A joint return shows MAGI of $560,000, $30,000 of California income tax and $15,000 of property tax. The $55,000 excess times 30% is $16,500, so the cap falls to $23,900. Around $606,333 of MAGI, it reaches $10,000. In California, the $30,000 of income tax is not deductible, while the $15,000 of property tax generally is, under California rules.
Partnership and S corporation owners may also review California's pass-through entity elective tax, extended for 2026 through 2030 (FTB, verified Oct 13, 2026). Whether it helps depends on the facts.
Charitable giving: two new federal rules
Itemizers may deduct gifts only above 0.5% of their contribution base, generally AGI (§70425, verified Oct 13, 2026). Non-itemizers may deduct up to $1,000 ($2,000 joint) of qualifying cash gifts (§70424). Gifts to donor-advised funds and supporting organizations do not qualify (IRS, verified Oct 15, 2026). Only cash gifts to eligible charities count. California adopts neither.
Illustrative example (hypothetical numbers)
A single itemizer with $300,000 of AGI gives $5,000 in cash. Federally, the first $1,500 is not deductible, leaving up to $3,500 before other limits. California generally considers the full $5,000. Grouping several years of gifts into one year may reduce the floor's effect; it depends on your deductions each year.
The 2/37 limit for the top bracket
Itemized deductions are reduced by 2/37 of the lesser of total itemized deductions or the amount by which taxable income plus itemized deductions exceeds the start of the 37% bracket (§70111, verified Oct 13, 2026). Broadly, each itemized dollar is worth about 35 cents federally for affected taxpayers.
Illustrative example (hypothetical numbers)
A joint return has $800,000 of taxable income before the limit and $60,000 of itemized deductions. The $860,000 total exceeds $768,700 by $91,300; the lesser amount is $60,000, so the reduction is about $3,243. California does not apply it.
Federal-only deductions
The tips, overtime, car loan interest and senior deductions run from 2025 through 2028, apply whether or not you itemize, and generally require a valid Social Security number and, if married, a joint return (IRS, verified Oct 13, 2026). None appears on the California return. Households with an ITIN spouse should check each deduction's SSN rule.
Illustrative example (hypothetical numbers)
A retired couple, both 65 with SSNs, files jointly with MAGI of $120,000. Federally they may claim up to $12,000 of senior deductions. In California, that income stays taxable and they receive California's senior exemption credits instead.
Business owners
Federally, 100% bonus depreciation is permanent for property acquired after January 19, 2025, the 2026 Section 179 limit is $2,560,000 (reduced dollar for dollar once more than $4,090,000 of property is placed in service; Rev. Proc. 2025-32 section 4.24, verified Oct 15, 2026), and the 20% QBI deduction is permanent. California's personal income tax allows none of these at the federal levels (FTB §§70105, 70301, 70306, verified Oct 13, 2026). California's own Section 179 limit is $25,000, phasing out above $200,000 (California R&TC §17255, verified Oct 15, 2026). See also choosing an LLC, S corporation or C corporation.
Before December 31, 2026
- Project 2026 MAGI against the $505,000 SALT threshold.
- Time charitable gifts with both returns in view.
- Confirm SSNs for anyone claiming the new federal deductions.
- Model equipment purchases federally and in California.
- Fourth-quarter 2026 estimates are due January 15, 2027 (IRS 1040-ES; FTB 540-ES, verified Oct 13, 2026).
For the broader list, see what a cross-border family should review before year-end, plus FBAR and Form 8938 and Form 3520 for gifts from relatives in China.
Frequently asked questions
Does California follow the $40,400 federal SALT cap for 2026?
No. California does not allow a deduction for state income taxes and does not conform to the federal SALT limitation. Property taxes are generally deductible under California's own itemized deduction rules, per the FTB's analysis of OBBBA section 70120.
Can I deduct qualified tips or overtime on my 2026 California return?
Generally no. The FTB states California does not conform to these federal deductions. AB 1550, which would adopt them for 2026 through 2028, was held in committee in April 2026; check its status before filing.
Does the 0.5% charitable floor apply in California?
No. California does not adopt the federal 0.5% floor or the new non-itemizer charitable deduction, so California charitable deductions generally follow existing California rules.
Who is affected by the 2/37 limit on itemized deductions?
Generally, itemizers whose taxable income plus itemized deductions exceeds the start of the 37% bracket: $640,600 single or $768,700 married filing jointly for 2026. California does not apply this limit.
My spouse has an ITIN. Can we claim the $6,000 senior deduction?
It depends on who qualifies. The IRS requires a Social Security number on the return and a joint return if married, so a spouse without a valid SSN generally does not count. California has no equivalent deduction.
Review your 2026 numbers
If a side-by-side federal and California projection would help, you are welcome to book a 30-minute consultation. See also our cross-border family tax and services pages.
Primary sources
- Public Law 119-21, GovInfo
- Congress.gov
- IRS IR-2025-103
- Rev. Proc. 2025-32
- IRS Working Families Tax Cuts: provisions overview
- IRS Working Families Tax Cuts: individuals and workers
- IRS: deductions schedule, seniors SSN rule
- IRS Publication 946
- California R&TC §17255
- FTB Tax News: 2026 indexing
- IRS Schedule A instructions
- FTB conformity
- FTB federal changes summary
- FTB SB 1435 analysis
- AB 1550 status
General information, not tax or legal advice. Results depend on your facts, and law and guidance can change. Please consult a qualified professional before acting.