For eight years, most Bay Area homeowners hit the same wall: no matter how much they paid in California income tax and property tax, the federal deduction stopped at $10,000. That changed in 2025. The federal limit on state and local taxes (SALT) is now $40,000 for 2025 and $40,400 for 2026, and the right moves before December 31 can be worth thousands of dollars. This SALT deduction Union City guide explains the new limit, the income phase-down, what counts, how Alameda County property tax timing fits in, and when itemizing beats the standard deduction again.
It is written for homeowners, families and business owners in Union City and the Tri-City area, including Fremont and Newark, as well as Hayward, San Leandro, Castro Valley and the wider Bay Area. With high home values and California income tax rates, many local households are among the biggest winners from the higher cap, but only if they plan for it.
What Changed: The SALT Cap Went From $10,000 to $40,400
The Tax Cuts and Jobs Act capped the itemized deduction for state and local taxes at $10,000 from 2018 through 2025. Section 70120 of the One Big Beautiful Bill Act, Public Law 119-21, replaced that limit with a higher “applicable limitation amount” in Internal Revenue Code Section 164(b)(7):
- 2025: $40,000
- 2026: $40,400
- 2027 through 2029: 101 percent of the prior year’s amount
- 2030 and later: back to $10,000
Married individuals filing separately get half of each amount. The IRS confirmed the 2026 figures in its correction to the 2026 Form 1040-ES: for 2026 the limit is $40,400 ($20,200 if married filing separately), reduced when modified adjusted gross income (MAGI) is more than $505,000 ($252,500 if married filing separately), but not below $10,000 ($5,000 if married filing separately).
Because the higher cap is scheduled to drop back to $10,000 in 2030, the years from 2025 through 2029 are a planning window. Decisions about when to pay property tax and state estimated tax matter more now than they have since 2017.
What Counts Toward the SALT Deduction
The SALT deduction is reported on Schedule A (Form 1040), lines 5a through 5e. According to the IRS Instructions for Schedule A and Tax Topic 503, Deductible taxes, the total that is subject to the cap includes:
- State and local income taxes withheld from wages during the year (shown on your W-2), estimated tax payments made during the year, and balances paid during the year for a prior year. Penalties and interest do not count.
- California SDI and Paid Family Leave contributions. The instructions list mandatory contributions to the California nonoccupational disability benefit fund and the California Paid Family Leave program as state income taxes. The EDD rates page shows a 2026 SDI withholding rate of 1.3 percent, and since January 1, 2024 all wages are subject to SDI.
- Or general sales taxes instead. You can elect to deduct state and local general sales taxes instead of income taxes, but not both. Most Union City wage earners come out ahead with income taxes, but a retiree with low taxable income who bought a car or made other large purchases might not.
- Real estate taxes on property you own that is not used for business, if the tax is assessed uniformly at a like rate and used for general government purposes.
- Personal property taxes based only on value and charged yearly. For a vehicle registration, only the part of the fee based on the car’s value counts.
Some items on a property tax bill do not count as deductible real estate taxes. The IRS says not to include itemized charges for services to specific property, such as a per-house trash charge, or assessments for improvements that increase your property’s value, such as a new sidewalk. Homeowners association fees and transfer taxes are not deductible taxes either. Review your Alameda County bill line by line rather than deducting the total.
If your mortgage lender pays property tax from an escrow (impound) account, IRS Publication 530 says you can deduct only the real estate taxes the lender actually paid to the taxing authority during the year, not the amount you deposited into escrow.
The $505,000 Phase-Down for Higher Earners
For 2026, the $40,400 cap is reduced by 30 percent of the amount by which your MAGI exceeds $505,000. The reduction stops at a $10,000 floor. For most people MAGI is simply adjusted gross income; it adds back only certain foreign and U.S. territory income exclusions.
Here is how it works, using Accountico’s own arithmetic rather than an IRS example:
- MAGI of $480,000: under the threshold, so the full $40,400 cap applies.
- MAGI of $555,000: $50,000 over, so the cap drops by $15,000 (30 percent) to $25,400.
- MAGI of about $606,334 or more: the reduction reaches $30,400 and the cap returns to the $10,000 floor.
One detail surprises many dual-income couples: the statute uses the same $505,000 threshold for single filers and married couples filing jointly. Only married individuals filing separately get half. A Bay Area couple with two strong salaries, bonuses or equity compensation can reach the phase-down sooner than a single filer with the same individual income.
Because the phase-down is effectively an extra 30 percent reduction on each dollar of income in that range, timing income matters. Deferring a bonus, increasing 401(k) contributions, harvesting capital losses or spreading out a Roth conversion can keep MAGI below $505,000 in a given year. Each of those choices has its own trade-offs, so model them together.
Itemize or Take the Standard Deduction in 2026?
The SALT deduction only helps if you itemize. According to the IRS 2026 inflation adjustments, the 2026 federal standard deduction is $16,100 for single filers and married individuals filing separately, $24,150 for heads of household, and $32,200 for married couples filing jointly.
Under the old $10,000 cap, many Union City homeowners with a modest mortgage found that the standard deduction was larger than their itemized deductions. With a $40,400 cap, that math often flips. Consider a hypothetical married couple in Union City (our illustration, not an IRS example):
- California income tax withheld and paid in 2026: $15,000
- California SDI withheld: $2,600
- Alameda County property taxes paid in 2026: $11,000
- Mortgage interest: $14,000
- Charitable gifts: $3,000
Their state and local taxes total $28,600. Under the old rules, only $10,000 would have counted, giving itemized deductions of roughly $27,000, which is less than the $32,200 standard deduction. Under the 2026 rules the full $28,600 counts, so itemized deductions are about $45,600 before any other limits, roughly $13,400 more than the standard deduction. Charitable gifts have new rules of their own in 2026; see our charitable giving 2026 guide before you count them.
If your total is close to the standard deduction, consider “bunching”: concentrating deductible payments such as property tax installments and charitable gifts into one year so that you itemize that year and take the standard deduction the next.
Alameda County Property Tax Timing Before December 31
Property tax is often the most flexible piece of the SALT deduction. According to the Alameda County Treasurer-Tax Collector, secured property taxes are payable in two installments:
- First installment: due November 1 and delinquent after 5:00 p.m. on December 10, after which a 10 percent penalty applies.
- Second installment: due February 1 of the following year and delinquent after 5:00 p.m. on April 10, after which a 10 percent penalty and a $10 cost apply. If the date falls on a weekend or holiday, payment by 5:00 p.m. the next business day avoids the penalty. April 10, 2027 is a Saturday, so the practical deadline for the 2026-2027 second installment is Monday, April 12, 2027.
The first installment of the 2026-2027 bill, paid by December 10, 2026, counts as 2026 real estate tax for a cash-basis individual. The real question is the second installment. The Schedule A instructions say that only taxes paid in the year and assessed before the next year can be deducted for that year, and that state or local law determines when a tax is assessed. Because the 2026-2027 bill has already been issued, paying the second installment in December 2026 rather than in early 2027 generally moves that deduction into 2026.
That can be a smart move if you itemize in 2026, have room under your cap and expect to get less benefit in 2027. It is not helpful if you are already over the cap, take the standard deduction, or are in the $505,000 phase-down range where extra SALT payments may not add any deduction. You can look up and pay your bill on the Alameda County property tax website.
If you bought a home in Union City, Fremont or Hayward this year, also look for supplemental property tax bills and the property tax proration on your closing statement. Real estate taxes you paid at closing for your period of ownership are generally deductible, while delinquent taxes you agreed to pay on the seller’s behalf are added to the cost of the home instead.
California Estimated Tax and Withholding Timing
State income tax also counts in the year it is paid. The Schedule A instructions include state estimated tax payments made during the year and prior-year balances paid during the year. The California Franchise Tax Board’s estimated tax payments page shows a different schedule from the federal one: 30 percent by April 15, 2026, 40 percent by June 15, 2026, nothing in September, and the final 30 percent by January 15, 2027.
That final California installment is a classic timing decision. A payment made in December 2026 counts toward your 2026 SALT total, while the same payment made on January 15, 2027 counts toward 2027. Paying early helps only if you itemize, have room under the cap and the payment is a reasonable estimate of tax you actually owe; overpaying just to create a deduction is not a sound strategy. For the federal side of the January deadline, see our Q4 estimated tax guide for January 15, 2027.
Business Owners: Taxes That Sit Outside the Cap
The SALT cap is a limit on personal itemized deductions. Section 164(b)(6) says the limit does not apply to real or personal property taxes paid or accrued in carrying on a trade or business or a for-profit (Section 212) activity. In practice:
- Business property and equipment taxes are deducted on the business return or Schedule C, not on Schedule A.
- Property taxes on a rental home or unit are generally a rental expense on Schedule E. IRS Publication 527 covers rental expenses for residential property owners.
- Pass-through entity owners may still benefit from California’s elective pass-through entity tax, which is paid at the entity level and is not counted against the owners’ SALT cap. Whether it is still worth electing with a $40,400 cap depends on your numbers; see our California PTE elective tax guide.
Clean books make this easier. Property taxes on a mixed-use building, a home office or a rental need to be split correctly between personal and business use, and that starts with how payments are recorded during the year. If business and personal tax payments run through the same account, year-end is the time to sort them out.
California Does Not Follow the Federal SALT Rules
Your California return works differently. The FTB’s 2025 Schedule CA (540) instructions say California does not allow a deduction for state and local income tax, State Disability Insurance or state and local general sales tax, and that California does not conform to the federal SALT limit. If your federal deduction was limited, you make an adjustment on Schedule CA so that real estate taxes and other allowable taxes are deducted on your California return without the federal cap.
California’s standard deduction is also much smaller than the federal one: $5,706 for single filers and $11,412 for married couples filing jointly for 2025. Many Union City homeowners who take the federal standard deduction still itemize on their California return, which is one more reason the two returns need to be planned together.
SALT Deduction Union City Checklist
- Total your 2026 state and local taxes so far: California withholding and SDI from your pay stubs, estimated payments, and property taxes actually paid.
- Estimate your 2026 MAGI and compare it with the $505,000 phase-down threshold.
- Compare itemizing with the standard deduction ($16,100, $24,150 or $32,200 for 2026).
- Pay the first Alameda County installment by December 10, 2026, and decide whether to pay the second installment in December or wait until 2027.
- Decide when to make the final California estimated payment: December 2026 or by January 15, 2027.
- Review your property tax bill and remove service charges and improvement assessments from your deductible total.
- Separate business and rental property taxes from personal ones so they are deducted outside the cap.
- Keep records: property tax receipts, escrow statements, W-2s and estimated payment confirmations.
SALT Deduction Union City FAQs
What is the SALT deduction limit for 2026?
For 2026 the federal limit on the itemized deduction for state and local income (or sales) taxes plus property taxes is $40,400, or $20,200 if married filing separately. The limit is reduced by 30 percent of modified adjusted gross income above $505,000 ($252,500 if married filing separately), but not below $10,000 ($5,000 if married filing separately).
Do I have to itemize to get the SALT deduction?
Yes. The SALT deduction is claimed on Schedule A (Form 1040), so it only helps if your total itemized deductions are larger than your standard deduction. For 2026 the federal standard deduction is $16,100 for single filers, $24,150 for heads of household and $32,200 for married couples filing jointly.
Can I pay my second Alameda County property tax installment in December and deduct it for 2026?
Often, yes, but check the details first. The IRS says prepaid property taxes are deductible only if they are paid in the year and assessed before the next year. Alameda County mails the 2026-2027 secured bills in the fall of 2026, so paying the installment due February 1, 2027 early, in December 2026, generally fits that rule. It only helps if you itemize and are under the cap, so run the numbers before you pay.
Is California SDI part of my SALT deduction?
For federal purposes, yes. The Schedule A instructions list mandatory contributions to the California nonoccupational disability benefit fund as state income taxes on line 5a. The EDD SDI withholding rate for 2026 is 1.3 percent with no wage limit, so for higher earners this can be a meaningful amount. California itself does not allow a deduction for SDI or state income tax.
Does California have the same SALT cap?
No. The Franchise Tax Board instructions say California does not allow a deduction for state income tax, SDI or sales tax, and does not conform to the federal SALT limit. If your federal property tax deduction was limited, you make an adjustment on Schedule CA (540), so your California itemized deductions can include real estate taxes without the federal cap.
Are property taxes on my rental or business property limited by the SALT cap?
Generally no. The cap in Internal Revenue Code Section 164(b)(6) does not apply to real or personal property taxes paid in carrying on a trade or business or a for-profit (Section 212) activity. Property taxes on a rental are normally deducted as a rental expense on Schedule E, and business property taxes on the business return or Schedule C, instead of on Schedule A.
Plan Your SALT Deduction Union City Strategy With Accountico
The higher SALT cap is one of the most valuable changes for Bay Area homeowners in years, but the benefit depends on income, timing and whether you itemize. Accountico helps households, self-employed professionals and family businesses in Union City, Fremont, Hayward, Newark, San Leandro, Castro Valley and across the Bay Area project their 2026 deductions, time property tax and estimated payments, and keep business and personal taxes separated in the books. Learn more about our tax strategy and planning, tax preparation and bookkeeping services.
Book a free 30-minute consultation or contact our team before you make your December payments.
Accountico Inc
33476 Alvarado Niles Rd, Ste A007, Union City, CA 94587
(510) 400-9341
Disclaimer: This article is general information for individuals and business owners and is not tax, legal or accounting advice. Tax rules, limits and IRS, FTB and county guidance change, and individual situations differ. Confirm requirements with the IRS, the California Franchise Tax Board, the Alameda County Treasurer-Tax Collector, or a qualified tax professional before acting.
