The short answer: For 2026, the federal cap on deducting state and local taxes (SALT), including property tax, is $40,400 for most filers, up from $10,000 before 2025, and it shrinks for incomes above $505,000. California property tax bills for 2026–27 are already assessed, so under IRS rules a second installment you actually pay by December 31 can count as a 2026 deduction. That only helps if you itemize, you're under the cap, and your servicer isn't also paying it from escrow. Run the numbers with your tax preparer before you write the check.
As of November 1, 2026. Federal figures are from the IRS; LA County dates are from the Treasurer and Tax Collector. This is general education, not tax advice.
What changed with the SALT deduction?
From 2018 through 2024, the federal deduction for state and local income, sales and property taxes was capped at $10,000 (NBC News). In California, where many households pay more than that in state income tax alone, the property tax deduction often did nothing.
That changed in 2025. The limit rose to $40,000 for 2025 (IRS Publication 530) and to $40,400 for 2026, or $20,200 if married filing separately (IRS). Under the law as passed, the cap rises 1% a year through 2029 and goes back to $10,000 in 2030 (NBC News).
Federal SALT deduction limit (most filers)
Does the higher cap apply to me if I earn a lot?
Not fully. For 2026, the cap starts shrinking once modified adjusted gross income (MAGI) is above $505,000 ($252,500 married filing separately), but it never drops below $10,000 ($5,000 married filing separately) (IRS). The IRS's 2025 worksheet reduces the cap by 30% of the income above the threshold (2025 Schedule A instructions).
A hypothetical, using the same 30% math for 2026: a couple with MAGI of $555,000 is $50,000 over the threshold. Thirty percent of that is $15,000, so their cap would be $40,400 minus $15,000, or $25,400. At roughly $606,000 and up, the cap bottoms out at $10,000. Your preparer will use the final 2026 worksheet.
Why can California homeowners pay next year's installment now?
Because the tax is already assessed. The IRS rule for 2025 returns is that only taxes paid in the year and assessed before the end of it are deductible (2025 Schedule A instructions). The IRS illustrated this in a 2017 advisory with a county that assessed taxes in July and billed them in two installments: paying the second installment early, in the same calendar year, was deductible that year. Prepaying a future year's tax that hadn't been assessed yet was not (IRS advisory, 2017).
California's secured tax bill works like that first example. In Los Angeles County, the 2026–27 bill is out now, and it's split into two installments (LA County Treasurer and Tax Collector, October 1, 2026):
LA County 2026–27 secured property tax: key dates
- 1
Nov 1, 2026
First installment due
- Delinquent after close of business Dec 10, 2026
- 2
By Dec 31, 2026
Last day for a 2026 deduction
- Only what's actually paid to the county by year-end counts for 2026
- 3
Feb 1, 2027
Second installment due
- Paying it now is optional; mailing both stubs together is allowed
- 4
Apr 12, 2027
Second installment delinquent
- After close of business (April 10 falls on a Saturday)
Other counties use similar installment schedules; check your own bill for dates. Supplemental bills and defaulted taxes from earlier years follow their own rules.
When does paying early actually help?
Paying the February installment in December doesn't create a new deduction. It moves one from 2027 into 2026. That's useful in some situations and pointless in others:
Does paying the 2nd installment by Dec 31 help?
| Likely helps | Likely doesn't | |
|---|---|---|
| Itemizing | You itemize in 2026 and expect to take the standard deduction in 2027 | You take the standard deduction in 2026 either way |
| SALT cap room | Your 2026 state income tax plus property tax is still under your cap | You're already at or over your cap |
| Income | 2026 income (and tax bracket) is higher than you expect in 2027 | You expect a higher bracket in 2027 |
| Cash | You have the cash without dipping into reserves | Paying early would leave you short for emergencies |
For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and $24,150 for heads of household (IRS). If your mortgage interest, capped SALT and charitable gifts don't clear that bar, prepaying property tax won't change your federal bill.
I have an impound account. Can I still do this?
Possibly, but call your servicer first. If your lender pays property taxes from escrow, you can deduct only what the lender actually paid to the county during the year, not what you paid into escrow (IRS Publication 530). Most servicers pay the second installment in the spring, so it won't land in 2026 on its own.
If you pay it yourself, ask the servicer how to keep it from paying the same installment again. A double payment usually gets refunded, but untangling it takes time and can throw off your next escrow analysis. If you just got an escrow letter, see what to check on an escrow shortage letter and what to check on your LA County tax bill.
What else changed for homeowners' taxes in 2026?
Two quick ones from the IRS's draft 2026 Publication 936, released September 30, 2026:
- Mortgage insurance is deductible again. The itemized deduction for qualified mortgage insurance premiums (private mortgage insurance, FHA mortgage insurance, the VA funding fee and the Rural Housing Service guarantee fee) is reinstated for 2026. It phases out for AGI above $100,000 and disappears above $109,000 ($50,000 and $54,500 if married filing separately) (IRS draft Publication 936 (2026)).
- The mortgage interest limit is unchanged. Interest is still deductible on up to $750,000 of home acquisition debt taken out after December 15, 2017 ($375,000 married filing separately), and home equity interest counts only if the money bought, built or substantially improved the home (IRS draft Publication 936 (2026)).
Derek\'s take
For years I told California clients not to bother thinking about the property tax deduction, because the $10,000 cap usually ate it. That advice is out of date for a lot of households. If you itemize and you're under the new cap, the timing of a single property tax payment is now worth a conversation with your CPA before December 31. Just don't let a tax move drain your cash cushion, and never pay a bill your servicer is also about to pay. If you're weighing a refinance, a HELOC or a purchase and want to see how the tax picture fits your mortgage plan, book a call with me. Thirty minutes, no credit pull, no obligation.
Frequently asked questions
What is the SALT deduction limit for 2026?
$40,400 for most filers and $20,200 for married filing separately, according to the IRS. The limit is reduced when modified adjusted gross income is above $505,000 ($252,500 married filing separately), but not below $10,000 ($5,000 married filing separately).
Can I deduct my February 2027 property tax installment on my 2026 return?
If the tax has been assessed (California's 2026–27 bills have) and you actually pay it to the county by December 31, 2026, IRS rules generally allow it to count for 2026. It then won't count for 2027. Confirm with your tax preparer.
My lender pays my property taxes. Can I prepay anyway?
You can deduct only what was actually paid to the county during the year. If you pay the second installment yourself, tell your servicer first so it doesn't pay it again from escrow.
Is PMI tax-deductible in 2026?
The IRS's draft 2026 Publication 936 says the itemized deduction for qualified mortgage insurance premiums is reinstated for 2026. It phases out above $100,000 of AGI and is gone above $109,000 ($50,000 and $54,500 married filing separately).
Is it worth prepaying if I take the standard deduction?
Usually not. Prepaying only helps if you itemize in 2026. For 2026 the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers.
This article is general education, not tax, legal or financial advice, and not an offer of credit. Examples are hypothetical. Tax rules depend on your full situation; talk with a CPA or enrolled agent before acting. The 2026 Publication 936 cited here is an IRS draft and could change.
Sources
- IRS, Correction to state and local income tax deduction amount in the 2026 Form 1040-ES
- IRS, Publication 530 (2025), Tax Information for Homeowners
- IRS, 2025 Instructions for Schedule A (Form 1040), Itemized Deductions
- IRS, Publication 936 (2026), Home Mortgage Interest Deduction, early release draft (September 30, 2026)
- IRS, Working Families Tax Cuts: individuals and workers
- IRS Advisory: Prepaid real property taxes may be deductible in 2017 if assessed and paid in 2017
- Los Angeles County Treasurer and Tax Collector, 2026–27 property tax bills press release (October 1, 2026)
- NBC News, "Senate Republican tax bill passes with SALT deduction cap of $40,000"
This article is general education, not a commitment to lend, an offer of credit, or tax, legal or investment advice. All loans are subject to credit approval, income and asset verification, and property appraisal. Programs, rates, terms and limits change without notice; figures are current as of the publish date. Derek Shao, NMLS #242117, CA DRE #01358261. Financial Dynamics, Inc. DBA Emory Financial, Company NMLS #393986. Equal Housing Opportunity.
