California Itemized Deductions: Rules, Phase-Outs, and Schedule CA

California itemized deductions follow their own rulebook, and you choose whether to itemize on your state return independently of what you did federally. For the 2025 tax year, California’s standard deduction is $5,706 for single filers and $11,412 for joint filers, head of household, or qualifying surviving spouses. Those figures sit far below the federal standard deduction, so plenty of Californians who took the standard deduction on their 1040 still come out ahead itemizing on Form 540.

When Itemizing Beats the Standard Deduction

Add up every California-eligible itemized deduction. If the total tops your filing status’s standard deduction, itemize. The 2025 amounts:

Single or married/RDP filing separately: $5,706
Married/RDP filing jointly, head of household, or qualifying surviving spouse: $11,412
Minimum standard deduction for dependents: $1,350

The federal standard deduction for 2025 is roughly $15,000 for single filers and $30,000 for joint filers, so millions of Californians who skip itemizing federally still clear the state threshold on property taxes and mortgage interest alone.¹ If you didn’t itemize federally, you still need to complete a federal Schedule A to calculate your California deductions, and the FTB requires you to attach that Schedule A with your California Schedule CA (540).²

Taxes You Can and Cannot Deduct

California has no equivalent of the federal SALT cap on property taxes, but that isn’t the whole story. On your state return, real property taxes and personal property taxes you paid during the year are fully deductible with no dollar limit. 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. If your federal property tax deduction was capped, you recover the shortfall on Schedule CA.³

Several taxes deductible federally do not fly on the California return:

State and local income taxes. California won’t let you deduct its own income tax against itself.
State Disability Insurance (SDI) withheld from your W-2.
State and local general sales taxes.
Foreign income taxes. California instead offers a separate credit for taxes paid to other states and foreign countries.

These amounts get subtracted from your federal figure on Schedule CA, lines 5a and 6.³

Home Mortgage Interest

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

Home equity interest is also more generous at the state level. Federal law only allows the deduction if the loan proceeds were used to buy, build, or substantially improve the home securing the debt. 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, credit card payoff, or tuition.³

Mortgage points on a new loan for your primary residence are generally deductible in the year paid; points on a refinance spread over the life of the loan. California follows federal treatment here.

Medical and Dental Expenses

Unreimbursed medical and dental expenses are deductible to the extent they exceed 7.5% of your federal adjusted gross income. Eligible costs include out-of-pocket health insurance premiums, doctor and hospital bills not covered by insurance, prescriptions, and long-term care.⁵ Because California and federal law share the 7.5% floor, this line typically needs no adjustment. The exception is if you included expenses that California treats differently, such as amounts tied to a Health Savings Account.

Miscellaneous Deductions California Still Allows

This is one of the largest practical advantages of itemizing at the state level. The 2017 federal 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.⁶ California never adopted the suspension. These deductions remain available on your state return, subject to the 2% AGI floor.⁴ The commonly claimed items:

Unreimbursed employee business expenses: work-related travel, uniforms, tools, and continuing education your employer didn’t cover.
Tax preparation fees paid to a CPA or for tax software.
Investment expenses, including advisory fees and safe deposit box rental used to store investment documents.

Because these deductions produce zero federal benefit, filers often forget to claim them for California. That is a straightforward miss, particularly for employees with meaningful out-of-pocket work costs.

Casualty and Disaster Losses

Federally, personal casualty and theft losses are deductible only if they occur in a presidentially declared disaster area. California expands the pool: losses from an event where the Governor of California declares a state of emergency also qualify, even without a federal declaration.⁷ Given how often California sees wildfires, earthquakes, and floods, that wider recognition matters. Outside declared disasters, California follows federal law; routine theft or property damage isn’t deductible on either return. Qualifying losses must be reduced by insurance reimbursement and are subject to standard per-event and AGI limitations.⁸

Charitable Contributions

California allows deductions for contributions to qualified organizations, limited to 50% of your federal AGI for cash donations, with a five-year carryforward for excess amounts. California generally follows federal rules on qualifying organizations and documentation, so a donation deductible federally is almost always deductible in California.

Gambling Losses

Gambling losses are deductible up to the amount of your gambling winnings for the year. Win $10,000 and lose $15,000, and you can deduct $10,000. One catch: California Lottery winnings, including Powerball and Mega Millions tickets purchased in California, are not taxed by the FTB. If California Lottery winnings are your only gambling income, you have no taxable winnings to offset, so you get no gambling loss deduction on the state return.⁹

Other Add-Back Traps

A few California-federal disconnects catch filers every year:

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

The High-Income Phase-Out

California imposes a Limitation on Itemized Deductions (LID) once your federal AGI clears a threshold. The 2025 amounts:¹

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

Above the threshold, the reduction equals the lesser of 6% of the excess AGI or 80% of the deductions you’d otherwise claim. A single filer with $352,203 in AGI is $100,000 over. Six percent of that is $6,000. If itemized deductions total $30,000, 80% would be $24,000. The reduction is the smaller number, $6,000. The 80% ceiling means even the highest earners keep at least 20% of their itemized deductions.

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 by a ratio: your California AGI divided by your total AGI calculated under California law, carried to four decimal places, then multiplied by your total deductions. The standard deduction is prorated the same way. If the ratio exceeds 1.0000, it’s capped at 1.0000.¹⁰

How to Report on Schedule CA

Schedule CA (540) is where the California-federal reconciliation happens. You start with federal amounts and adjust them in two columns: Column B for subtractions (deductible federally but not in California) and Column C for additions (allowed in California but not federally).¹¹ The adjustments filers make most often:

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 total on line 30 of Schedule CA transfers to line 18 of Form 540. If you’re subject to the high-income phase-out, the LID reduction is applied after that transfer.²

Records, Audit Windows, and Penalties

The FTB generally has four years from the filing date (or the original due date, if you filed early) to audit and issue an assessment. That’s the minimum time to keep the receipts, mortgage statements, property tax bills, and charitable contribution records supporting your itemized deductions. The window stretches when the IRS adjusts your federal return. You have six months to notify the FTB. Notify within the window and the FTB has two years from your notification to assess. Notify late and it’s four years. Fail to report the federal change at all and the statute of limitations disappears; the FTB can come after you at any time.¹² Records tied to a property, including cost basis, should be kept as long as you own it and for the applicable period after sale.¹³

Overstated deductions carry real cost. The FTB imposes a 20% accuracy-related penalty on any underpayment caused by negligence or a substantial understatement of income. A gross valuation misstatement, such as dramatically overstating the value of donated property, doubles the penalty to 40%. Intentional fraud runs 75% of the underpayment.¹⁴ The 20% penalty applies when the understatement exceeds the greater of 10% of the correct tax or $5,000. Careful records and a double-check of your Schedule CA adjustments are how you stay clear of it.

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
Office of the Law Revision Counsel. 26 USC 67 – Two-Percent Floor on Miscellaneous Itemized Deductions
7
Franchise Tax Board. 2025 FTB Publication 1034 Disaster Loss How to Claim a State Tax Deduction
8
Franchise Tax Board. Disaster Loss Deduction
9
Franchise Tax Board. Gambling
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