California Itemized Deductions: Mortgage, Phase-Out, and Schedule CA

California itemized deductions follow rules that are separate from the federal ones, and you can itemize on your state return even if you took the standard deduction on your federal 1040. For the 2025 tax year, California’s standard deduction is $5,706 for single filers and those married or in a registered domestic partnership filing separately, and $11,412 for joint filers, heads of household, and qualifying surviving spouses. Those amounts sit well below the federal standard deduction, so a large number of Californians who skip itemizing federally still come out ahead itemizing on Form 540.

When Itemizing Beats the Standard Deduction

Add up every California-eligible itemized deduction. If the total exceeds your filing status’s standard deduction, itemize. The 2025 figures are $5,706 for single or married/RDP filing separately, $11,412 for married/RDP filing jointly, head of household, or qualifying surviving spouse, and a $1,350 minimum standard deduction for dependents.

Because the federal standard deduction for 2025 runs roughly $15,000 for single filers and $30,000 for joint filers, property taxes and mortgage interest alone are often enough to push a California return past the state threshold.¹ If you didn’t itemize federally, you still have to complete a federal Schedule A to calculate your California deductions, and the FTB requires you to attach that federal schedule along with Schedule CA (540).²

Taxes You Can and Can’t Deduct

On your California return, you can deduct the full amount of real property taxes and personal property taxes you paid during the year, with no dollar cap. Federally, those same taxes are bundled with state income taxes under a combined cap of $40,000 ($20,000 for married filing separately) starting in 2025. California ignores that federal cap, so property taxes disallowed on your federal Schedule A are recovered on the state return.³

California does not allow several categories of taxes that are deductible federally:

State and local income taxes. California strips these out entirely because allowing a state income tax deduction against the same state’s income tax would be circular.
State Disability Insurance (SDI). Not deductible, even though SDI withheld from your paycheck appears on your W-2.
State and local general sales taxes.
Foreign income taxes. California offers a separate credit for taxes paid to other states and foreign countries, but you cannot take the deduction on Schedule CA.

These disallowed amounts come off your federal figure on Schedule CA, lines 5a and 6.³

Mortgage Interest Rules That Differ From Federal

California allows you to deduct mortgage interest on acquisition debt up to $1,000,000 ($500,000 if married filing separately). Federally, that limit was cut to $750,000 by the Tax Cuts and Jobs Act for loans taken out after December 15, 2017. If your federal mortgage interest deduction was reduced because your loan exceeds $750,000, add back the disallowed portion on Schedule CA and claim the full amount on your California return.⁴

Home equity interest is another area where California is more generous. Federally, interest on home equity debt is only deductible if you used the proceeds to buy, build, or substantially improve the home that secures the loan. California did not adopt that restriction. You can deduct interest on up to $100,000 of home equity debt ($50,000 if married filing separately) regardless of how you spent the money, whether that was a kitchen remodel, paying off credit cards, or covering college tuition.³

Medical, Charitable, and Casualty Deductions

You can deduct unreimbursed medical and dental expenses that exceed 7.5% of your federal adjusted gross income. The threshold matches the federal rule, so this deduction typically needs no adjustment on Schedule CA. Eligible costs include health insurance premiums you paid out of pocket, doctor and hospital bills not covered by insurance, prescription medications, and long-term care expenses.⁵

Charitable contributions to qualified organizations are deductible up to 50% of your federal AGI for cash donations, with a five-year carryforward for amounts above that cap. California generally follows federal rules on which organizations qualify and what documentation you need, so a donation deductible federally is almost always deductible in California.

Casualty and theft losses are where California stretches further than federal law. Federally, personal casualty losses are deductible only if they occur in a presidentially declared disaster area. California also allows losses from events where the Governor of California declares a state of emergency, even without a federal declaration.⁶ Given how often California declares emergencies for wildfires, floods, and earthquakes, that broader recognition can matter. Qualifying losses must be reduced by any insurance reimbursement and are subject to the standard per-event and AGI limitations.⁷

Gambling losses are deductible up to the amount of your gambling winnings. One quirk: California Lottery winnings (including Powerball and Mega Millions tickets purchased in California) are not taxed by the FTB, so if your only gambling income is California Lottery winnings, you have no taxable gambling income against which to offset losses.⁸

Miscellaneous Deductions California Still Allows

This is one of the biggest practical advantages of itemizing in California. The 2017 federal tax overhaul suspended all miscellaneous itemized deductions subject to the 2% AGI floor, eliminating federal deductions for unreimbursed employee expenses, tax preparation fees, and investment management costs.⁹ California never adopted that suspension. You can still deduct these expenses on your state return, though only the portion exceeding 2% of your federal AGI counts.⁴

The most common items in this category:

Unreimbursed employee business expenses, including work-related travel, uniforms, tools, and continuing education your employer did not reimburse.
Tax preparation fees paid to a CPA or for tax software.
Investment expenses, such as fees paid for investment advisory services and safe deposit box rental used to store investment documents.

Because these deductions produce nothing federally, many taxpayers forget them on the California return. For employees with significant out-of-pocket work expenses, that oversight is costly.

Other Non-Conformities That Change Your Numbers

Beyond the big deduction categories, a few California-federal disconnects affect filers every year:

Health Savings Accounts. California does not recognize HSAs as tax-advantaged accounts. Contributions you deducted federally must be added back to California income, and earnings inside the account are taxable by the state. You reverse the entire federal HSA treatment on Schedule CA.³
Educator expenses. The federal above-the-line deduction for classroom supplies (up to $300) does not exist in California, so remove it on Schedule CA. Those same expenses may qualify as unreimbursed employee business expenses under California’s miscellaneous deduction rules.

The High-Income Phase-Out

California imposes a Limitation on Itemized Deductions, often called the LID, that reduces total deductions once your federal AGI crosses certain thresholds. For 2025:¹

Single or married/RDP filing separately: $252,203
Head of household: $378,310
Married/RDP filing jointly or qualifying surviving spouse: $504,411

If your AGI exceeds your threshold, the reduction is the lesser of 6% of the excess AGI or 80% of the deductions you would otherwise claim. A single filer with $352,203 in AGI exceeds the threshold by $100,000. Six percent of that excess is $6,000. If the filer had $30,000 in itemized deductions, 80% of deductions would be $24,000. The reduction is the smaller amount, $6,000, so the filer keeps $24,000 in deductions. The 80% ceiling means even the highest earners keep at least 20% of what they would otherwise claim.

Part-Year Residents and Nonresidents

If you moved into or out of California during the year, or earned California-source income as a nonresident, you file Schedule CA (540NR) instead of Schedule CA (540). Itemized deductions are prorated using a deduction percentage: your California AGI divided by your total AGI calculated under California law, carried to four decimal places. Multiply that ratio by your total deductions to get the California-allowed amount.¹⁰ The standard deduction is prorated the same way, and the ratio is capped at 1.0000.

Filing on Schedule CA

Schedule CA (540) is where California-federal reconciliation happens. The form starts with your federal amounts and adjusts them in two columns: Column B for subtractions (amounts deductible federally but not in California) and Column C for additions (amounts not deductible federally but allowed in California).¹¹

The adjustments most filers need to make:

Line 5a, Column B: Remove state income tax, SDI, and sales tax deducted federally.
Line 5e, Column C: Add back property taxes disallowed by the federal SALT cap.
Line 6, Column B: Remove foreign income taxes deducted federally.
Line 8, Column C: Add back mortgage interest reduced by the federal $750,000 acquisition debt limit.
Line 19, Column C: Add miscellaneous deductions subject to the 2% floor that were suspended federally.

The final number on line 30 of Schedule CA transfers to line 18 of Form 540. If you are subject to the LID, the reduction is applied after that transfer.²

Records and Penalties

The Franchise Tax Board generally has four years from the date you filed (or the original due date, if you filed early) to audit and issue an assessment. Four years is the minimum you should keep records supporting your itemized deductions: receipts, mortgage statements, property tax bills, and charitable contribution documentation.¹²

The window stretches in several situations. If the IRS adjusts your federal return, you have six months to notify the FTB. Reporting within that window gives the FTB two years from the notification date to issue an assessment. Reporting late gives them four years. Failing to report the federal change at all removes the statute of limitations entirely, so the FTB can come after you at any time.¹² Property records showing cost basis should be kept as long as you own the property and for the applicable period after you sell.¹³

Overstating deductions carries real consequences. The FTB imposes a 20% accuracy-related penalty on any underpayment of tax caused by negligence or a substantial understatement of income. For a gross valuation misstatement, such as dramatically overstating the value of donated property, the penalty doubles to 40%. In cases of intentional fraud, the penalty rises to 75% of the underpaid amount.¹⁴ The 20% penalty applies when the understatement exceeds the greater of 10% of the correct tax or $5,000, and it is the one honest filers are most likely to encounter if they skip the Schedule CA cross-check.

1
Franchise Tax Board. Summary of Federal Income Tax Changes
2
Franchise Tax Board. 2025 Instructions for Form 540 California Resident Income Tax Return
3
FTB.ca.gov. 2025 Instructions for Schedule CA (540) California Adjustments
4
Franchise Tax Board. Deductions
5
Franchise Tax Board. Bill Analysis AB 1282 – Medical Expense Deduction
6
Franchise Tax Board. 2025 FTB Publication 1034 Disaster Loss How to Claim a State Tax Deduction
7
Franchise Tax Board. Disaster Loss Deduction
8
Franchise Tax Board. Gambling
9
Office of the Law Revision Counsel. 26 USC 67 – Two-Percent Floor on Miscellaneous Itemized Deductions
10
Franchise Tax Board. 2024 Instructions for Schedule CA (540NR) California Adjustments – Nonresidents or Part-Year Residents
11
California Franchise Tax Board (FTB). 2025 Schedule CA (540) California Adjustments – Residents
12
Franchise Tax Board. Your Tax Audit
13
Franchise Tax Board. Keeping Your Tax Records
14
Franchise Tax Board. Penalty Reference Chart