Tax Briefing: What Homeowners Need to Know Before April 15th

Dear Friend,

For homeowners and property investors this year's tax season comes with a few developments worth knowing about.

The tax landscape shifted meaningfully in 2025 with the passage of the One Big Beautiful Bill Act, which made some long-standing provisions permanent, accelerated the expiration of others, and introduced changes that affect everything from what you can deduct on your property taxes to how your rental income is taxed.

Below are five updates relevant to anyone who owns property in California, whether you're filing your 2025 return this week, thinking about selling, or managing a rental.

As always, these are general updates and not tax advice. Your specific situation deserves the attention of a qualified CPA or financial professional, but understanding the landscape is the first step.

Jonathan

Tip #1:

The New $40,000 SALT Deduction Cap

One of the most meaningful tax changes for California homeowners is the SALT deduction increase. For 2025, the cap on deducting state and local taxes - including property taxes and California income taxes - has jumped from $10,000 to up to $40,000. That's a significant expansion for middle and upper-middle income households. One important caveat: the deduction begins phasing out for incomes above $500,000 and reduces back down to $10,000 for filers above $600,000, so high-income earners should confirm with their tax advisor how much of the increase they can actually capture.

Tip #2:

If You Rent Out a Property, Don't Overlook Depreciation

Many property owners focus on what they can deduct in cash such as repairs, insurance, property management fees. But one of the most powerful deductions available to rental property owners costs you nothing out of pocket: depreciation.

The IRS allows you to deduct the cost of a residential rental property over 27.5 years, roughly 3.6% of the building's value annually, as a non-cash expense against your rental income. That means even if your property is appreciating in value and generating positive cash flow, it is possible you may still show a loss on paper for tax purposes. This applies to anyone who owns residential rental property.

For homeowners who are renting out a former primary residence or an investment property, this deduction can meaningfully reduce your taxable rental income each year.

One important note: when you eventually sell, the IRS requires depreciation recapture, meaning the deductions you took over the years are taxed upon sale. Understanding all of these dynamics is where smart planning with a qualified financial professional makes a real difference.

Tip #3:

Final Call for 2025 Energy Credits

If you installed solar panels, energy-efficient windows, insulation, or other qualifying clean energy upgrades in 2025, this is the last filing season to claim those credits. Both the Residential Clean Energy Credit (Section 25D) and the Energy Efficient Home Improvement Credit (Section 25C) were terminated by the One Big Beautiful Bill Act, years ahead of their originally scheduled end dates. These are dollar-for-dollar tax credits, not deductions, so the value is real. If you made qualifying upgrades last year, make sure your tax preparer knows.

Tip #4:

Federal Capital Gains Tax Exclusion of $250k-$500k

If you've owned and lived in your home for at least two of the last five years, federal law excludes up to $250,000 in capital gains from tax when you sell, or up to $500,000 if married filing jointly. This tax benefit is very helpful, but it is also important to keep in mind in a market like Los Angeles, where values have appreciated significantly over the past decade, longtime homeowners may have gains well above those thresholds. Anything above the exclusion is subject to federal capital gains tax, and in California, ordinary income tax.

If you've owned your home for a long time and are thinking about selling, understanding your anticipated net proceeds is essential to making a fully informed decision. We can help you anticipate non-tax closing costs such as escrow fees and commissions, and consulting with a CPA or financial professional is essential to understand your tax position post-sale.

Tip #5:

Mortgage Interest Deduction: What's Now Permanent

If you took out a mortgage after December 15, 2017, your deductible mortgage interest is capped at $750,000 in loan principal. That deduction was set to expire at the end of 2025, and many homeowners had been anticipating a return to the old $1 million limit in 2026, when the Tax Cuts and Jobs Act was set to expire. The 'One Big Beautiful Bill Act' passed last year ended that expectation by locking in the $750,000 cap indefinitely.

Loans originated before December 16, 2017 remain grandfathered at the $1 million limit, so if you're planning to refinance or make a purchase, understanding this limit can help inform your tax planning.