Top Tax Tips for California Homeowners in 2026

Tax returns: like cleaning the attic — nobody loves it, until treasure is found.

January is tax prep season, and for California homeowners, it’s not just about filing forms — it’s about knowing the rules that can save you real money. From federal changes to Golden State-specific breaks, here’s how to make the most of 2025 tax year filings in early 2026.

1. Maximize the Mortgage Interest Deduction

For most homeowners, this is the most significant tax break of all. What it is: You can deduct the interest paid on a mortgage used to buy, build, or significantly improve your home. This applies to both primary residences and a second home.

Federal rule for 2025/2026:

You can deduct interest on up to $750,000 of mortgage debt (for married filing jointly).

If your loan was originated before December 15, 2017, some older, higher limits may still apply.

This is especially meaningful in high-cost California markets where mortgage interest can make a noticeable dent in taxable income.

Pro tip: Ask your lender for IRS Form 1098 early — it shows the total interest you paid for the year and is essential for claiming this deduction.

2. Take Advantage of the Expanded SALT Deduction

One of the biggest federal changes affecting Californians is the temporary increase in the SALT deduction — a tax on state and local taxes, including property taxes and state income taxes, that you can deduct if you itemize.

New SALT cap for tax year 2025 (filed in 2026):

Deduct up to $40,400 of combined state and local taxes if your income is under certain limits.

The cap increases each year slightly through 2029, then reverts unless the law changes again. This matters in California, where high income tax plus property tax often push total SALT well above old limits. Previously, most people hit the $10,000 cap — now there’s a much bigger threshold that can mean real federal tax savings.

Important: You must itemize deductions (instead of taking the standard deduction) to use SALT. That’s worth doing when mortgage interest plus SALT and other itemized expenses exceed the standard deduction.

3. Don’t Forget the California Homeowners’ Exemption

This one is state-specific and often overlooked:

California lets you reduce your home’s taxable value by $7,000 on your primary residence — essentially lowering your annual property tax bill. You must apply for this with your county assessor, but once in place, it continues each year until you sell or change the use of the home.

4. Record-Keeping Isn’t Optional — It’s Wisdom

Good records are like gold when tax time arrives. Here’s what every California homeowner should keep:

Mortgage interest statements (Form 1098) from your lender.

Property tax bills and receipts — not just the amount assessed, but what you actually paid.

Closing documents if you bought or refinanced — basis info matters down the road. Receipts for mortgage points paid — these can be deductible in the year paid under certain conditions.
Harness

Home improvement records — these don’t give you immediate deductions, but they reduce capital gains tax when you sell.

Local California quirks like supplemental property tax bills (especially after recent sales or new construction) are also deductible in the year you pay them — so keep those too.

5. Other Credits & Deductions to Watch

Energy-Efficient Upgrades

Federal energy credits may still apply for certain renewable and efficiency improvements begun by year-end 2025 — think solar panels, battery storage, etc. These credits directly reduce your tax owed, not just your taxable income.

Home Office Deduction and a Portion of Utilities (Self-Employed Only)

If you’re self-employed and use part of your home exclusively as an office, you can write off a portion of mortgage interest, utilities, and other home expenses.

Quick Checklist Before Filing in 2026

✔ Gather all 1098 forms
✔ Pull your property tax receipts (including supplemental bills)
✔ Add state income tax totals
✔ Total up deductible mortgage interest
✔ Compare itemizing vs. standard deduction
✔ Scan home improvement/energy upgrade receipts
✔ Review any California-specific exemptions (like the homeowners’ exemption)

Final Thought

Taxes as a homeowner don’t have to feel like a chore; think of them as an annual review of your home’s financial footprint. With the SALT cap increase, permanent mortgage interest rules, and California-specific breaks like the Homeowners’ Exemption, smart planning this January can mean keeping more of your hard-earned dollars where they belong — in your pocket (or toward your next home project).

As always, check with your accountant or CPA, as you should never take tax advice from a Realtor.