Trump’s One Big Beautiful Bill Act (OBBBA) passed Congress and now figures into your 2025 tax returns with blatant Schedule A tax deductions and non-conforming Schedule CA deductions. Federal and CA deductions phase out with high income: OBBBA limits itemization by roughly 2/37 of taxable income above the 37% bracket—mostly $500K+ earners. Taxes really are simpler and cheaper for middling earners protected in 2026 by higher standard deductions of $32,200 MFJ or $16,100 single.
But more Californians will now itemize to save and others will enjoy below-the-line non-itemized deductions for charity, tips, auto interest or overtime. These also include 20% Qualified Business Income deductions stimulating small business, and an indexed $6,000 deduction for seniors, which does not, per Trump, remove all Social Security taxation.
Tips and Overtime
Trump falsely boasts “no tax on tips” and “no tax on overtime.” Yet roughly 6 million tipped or overtime workers can deduct up to $12,500 per person or $25K MFJ. Tax advantaged pay exceeds ordinary rates and tips must be voluntary and reported on tax forms like W2s or 1099-NEC from traditionally tipped professions (not accounting, health care, legal, etc.). These deductions phase out with income above $150K ($300K MFJ). California does not comply.
Auto Interest
OBBBA temporarily lets lucky taxpayers deduct up to $10,000 interest yearly to purchase or refinance purchases of brand-new American-made vehicles for personal use. But most loans charge lower interest and the benefits depend on tax rates so that someone paying $2,000 interest yearly might save just $200. Yet deep-pocketed purchasers can’t take full deductions because of $100K limits for singletons or $200K MFJ. California does not conform.
Medical expenses
Out-of-pocket medical expenses will still be deductible only if they transgress 7.5% of your AGI, including capital improvements and medical travel. For 2025, $6,025 in long-term care premiums per person are deductible. California gives 10% thresholds but takes lower standard deductions.
SALT Taxes
For CA taxpayers, the biggest OBBBA change may be a temporary increase of state and local tax deductions to $40,000, not $10,000, until 2029. SALT taxes combine state income tax, real estate tax and personal property tax from DMV fees. CA itemizers get unlimited real estate and personal property tax deductions.
Mortgage Interest
The OBBBA makes permanent the $750,000 mortgage interest deduction for acquisition or improvements—$375,000 for married filing separately. Two houses can be qualified residences. Home equity debt can’t be deducted but mortgage insurance can. CA allows deductions for acquisition debt up to $1 million and home equity debt of $100,000.
Charity
Without itemizing, couples will be able to give up to $2K per year. But wealthy donors with 60% limits face 35% ceilings on charity when their income reaches 37% brackets, and all suffer 0.5% floors of their income for itemized charity. In 2027, taxpayers get credits up to $1,700 for gifts to K-12 scholarship granting organizations.
With ceilings and floors, many will consider bunching donations into alternate years as Donor Advised Funds let them spread regular contributions. Taxpayers over 70.5 can ask IRA custodians to fund charities in Qualified Charitable Distributions (QCDs). This strategy bypasses floors and ceilings to meet RMD requirements to reduce taxable distributions and perhaps taxable Social Security.
Miscellaneous Deductions
With higher standard deductions, Trump now permanently cut miscellaneous itemized deductions like union dues, home offices for the salaried and investment advisory fees. But he allows deductions for unlawful discrimination or claims against the U.S. Government. Educator’s expenses (more generously defined) are now deductible above or below the line. OBBBA limits gambling deductions to 90% of gains but without non-wagering expenses. California disallows educator expenses but allows miscellaneous itemized deductions above 2% of AGI with generous wagering expenses.
Casualty and Theft
OBBBA permanently limits personal casualty and theft losses to declared disasters with no itemization, a 10% floor and a $500 limit per casualty. CZU fire victims should note that additional disaster relief is possible for disasters declared after Jan. 1, 2020, and could include extra living expenses or lost wages.
OBBBA tax cuts must be evaluated alongside spending cuts and increased federal deficits with interest payments. Take them while you can and hope the economy prospers.
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, is a Santa Cruz Mountain Certified Financial Planner who gives holistic financial advice as his client’s fee-only fiduciary. These articles are not personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
