Can You Itemize on Your California Return and Still Take the Federal Standard Deduction?

Quick answer: Yes. The Franchise Tax Board sets out the mechanic in the 2025 Form 540 instructions: if you did not itemize federally but will itemize for California, complete a federal Schedule A anyway, then check the box on Side 5, Part II of Schedule CA (540) and complete Part II. California’s standard deduction is small enough that this is worth checking. For tax year 2025 it is $5,706 for single filers and those married filing separately, and $11,412 for married filing jointly, head of household, and qualifying surviving spouse. The federal standard deduction is several times larger.

Before we go further, the disclosure that shapes this whole article. Solve Lending & Realty is a mortgage and real estate brokerage. We are not tax advisors. And one of the deductions discussed below attaches to a product we sell, second mortgages and home equity lines. That is why this piece spends as much space on what limits the benefit as on the benefit itself, and why every version of it ends in the same place: this is a conversation for your CPA, not a calculator.

Two returns, two rulebooks

California does not automatically follow federal tax law. It conforms to the Internal Revenue Code as of a frozen “specified date.” Senate Bill 711, the Conformity Act of 2025, Chapter 231, Statutes of 2025, moved that date to January 1, 2025.

Public Law 119-21 was enacted on July 4, 2025, which is after that date. The Franchise Tax Board states the consequence plainly in its March 2026 Tax News: “In general, California R&TC does not conform to the OBBBA.”

But the conformity date is not actually the mechanism here, and this is where most explanations go wrong. The federal limits in question came from the 2017 tax law and were already sitting in the Code on January 1, 2025. A pure snapshot reading would pull them into California.

What keeps them out is a separate, explicit sentence of California statute. Revenue and Taxation Code section 17225(b) provides that Internal Revenue Code section 163(h)(3)(F), the provision that carries the federal mortgage interest limits, “shall not apply.”

That is the decoupling. If you are checking this yourself, that is the citation to look up.

The three lines that say “California law does not conform”

All three appear in the 2025 Instructions for Schedule CA (540).

Acquisition debt. “Federal law limited the mortgage interest deduction acquisition debt maximum from $1,000,000 ($500,000 for married filing separately) to $750,000 ($375,000 for married filing separately). California law does not conform.” The adjustment is entered on line 8, column C.

Home equity indebtedness. “Federal law suspended the deduction on up to $100,000 ($50,000 for married filing separately) for interest on home equity indebtedness, unless the loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. California law does not conform.” Same line, same column.

Casualty and theft loss. “Under federal law, the personal casualty and theft loss deduction is suspended… California law does not conform. California allows personal casualty and theft loss and disaster loss deductions.” This one goes on line 15, in column B or column C.

Note that these are additions in column C on Schedule CA (540), not subtractions. Column B is subtractions. It is a small distinction that matters if you are reading the form.

What changed in July 2025, and why it now matters more

All three federal limits were temporary. Each carried the phrase “and before January 1, 2026,” meaning they were scheduled to lapse after the 2025 tax year, at which point the federal and California treatments would have quietly re-converged on their own.

Public Law 119-21 struck those expiration dates. Section 70108 removed it from the section 163 mortgage interest limits. Section 70109 removed it from the section 165 casualty loss suspension. Both apply to taxable years beginning after December 31, 2025.

So a gap that was going to close by itself no longer closes. That is the actual news in this topic, and it is the reason it is worth a homeowner’s attention now rather than in 2029.

Worth being precise about the actor: Congress made these permanent by statute. Not the IRS.

The part that limits it, which you should read before the part that sounds good

Three things constrain what any of this is worth, and any content that skips them is selling you something.

California has its own alternative minimum tax. The 2025 Instructions for Schedule P (540), line 4, direct you to “enter home mortgage interest in which the proceeds were used for purposes other than buying, building, or improving your principal residence or a qualified dwelling that is your second home.”

Read that carefully. Section 17225(b) removes a federal limitation. It does not by itself grant anyone a deduction, and whether you are allowed one still turns on the secured-debt and qualified-residence rules, whether you itemize for California at all, how the proceeds are traced, the applicable debt limits, and your own facts. Where the deduction is otherwise allowed, the California alternative minimum tax can then add back all or part of that interest if the proceeds went to something other than buying, building or improving the home.

California’s limit on itemized deductions under section 17077, discussed below, is a separate test with its own trigger. Crossing one does not tell you anything about the other.

We want to be direct about why we are putting that paragraph high in the article rather than in a footnote. Debt consolidation is one of the most common reasons a California homeowner calls a mortgage broker about a second mortgage. It is also the use that California AMT is most likely to claw back. Those two facts belong next to each other.

California limits itemized deductions above certain income levels. Revenue and Taxation Code section 17077 reduces itemized deductions by the lesser of 6 percent of federal adjusted gross income over a threshold, or 80 percent of the itemized deductions otherwise allowable. For 2025 the thresholds are $252,203 for single filers and those married filing separately, $378,310 for head of household, and $504,411 for married filing jointly and qualifying surviving spouse.

And it only matters if you itemize for California at all. Beating a $5,706 or $11,412 standard deduction is a lower bar than the federal one, but it is still a bar, and whether you clear it depends on your whole picture.

Two federal details most homeowners are never told

While we are here, two things about the federal side that consumer content routinely gets wrong.

Home equity line interest is not categorically non-deductible federally. It depends on where the money went. Debt used to buy, build, or substantially improve the home that secures it counts as acquisition indebtedness under section 163(h)(3)(B)(i), and the federal suspension never reached it. The IRS’s own frequently asked question on whether HELOC interest is deductible is answered with “It depends.”

A mortgage that predates December 16, 2017 generally keeps the older $1,000,000 limit, subject to the refinance and stacking rules described below.Section 163(h)(3)(F)(i)(IV) grandfathers acquisition debt incurred on or before December 15, 2017 at the older $1,000,000 and $500,000 limits. The $750,000 limit on newer debt is then reduced by any grandfathered debt still outstanding, so the two do not stack. A qualifying refinance can carry the original date forward, but only up to the balance being refinanced. Cash-out above that balance is new debt at the lower limit.

One caution if you go fact-checking. IRS Publication 936 has not been updated to reflect the 2025 changes. The current edition is written for 2025 returns and still describes the mortgage insurance premium deduction as expired. If you read the publication and it contradicts this article, you have found a publication that predates the statute.

If a past year was missed

California’s refund window is the later of four years from the date the return was filed if it was filed by the original or extended due date, four years from the original due date without extensions, or one year from the date of overpayment, under Revenue and Taxation Code section 19306. An amended California return is filed on Schedule X with a corrected Form 540. Form 540X is obsolete.

Whether amending is worth it for any given year is a question for your tax professional, not something to decide from an article.

Frequently asked questions

If you own a California home and have not had your state return run separately from your federal one since 2018, that is the conversation worth having, and it is a conversation with your CPA.

Written by Kiyoshi Inui: NMLS 1173299
California Mortgage Strategist, Solve Lending & Realty