On July 4th, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA). This sweeping piece of legislation contains tax reforms that extend, cut, and phase out provisions in previous bills. The OBBBA impacts homeowners and people looking to build new construction homes in California. While we can’t provide tax advice, we can share these three ways the bill may affect you.
SALT Deduction Increased Through 2029
Under the 2017 Tax Cuts and Jobs Act (TCJA), taxpayers could deduct their state and local taxes (SALT) from their adjusted gross income. The SALT deduction, which includes property taxes, was capped at $10,000 from 2017 – 2025. But, the OBBBA has increased the limit to $40,000 for taxpayers making under $500,000 per year for the next 5 years until 2030, at which point it will revert to $10,000 again.
A key provision is that the SALT deduction requires taxpayers to itemize. Additionally, it only applies to couples who make under $500,000 per year. California homeowners tend to have more expensive homes due to the overall high value of real estate. Additionally, California has one of the highest property tax rates in the nation, so homeowners building new construction homes in Los Angeles may stand to benefit from this increased cap if they choose to forgo the standard deduction and itemize.
Mortgage Interest Deduction Made Permanent
Per the TCJA, homeowners could deduct the mortgage interest on the first $750,000 of debt. Previously, the cap was set at $1 million. The OBBBA makes this $750,000 cap deduction permanent, as it was slated to revert back to $1 million starting in 2026. As with the SALT deduction, the mortgage interest deduction is only available to taxpayers who itemize.
The mortgage interest deduction applies to qualified homes, which are primary and second homes. So, if your new construction home is a vacation property that you’ll only live in part of the year and then rent out, it likely wouldn’t qualify under the OBBBA. However, if your new construction home will be your full-time dwelling, you may be able to begin taking advantage of the mortgage interest deduction for the loan you took out to build your home for tax year 2025.
Ending of the Solar Tax Credit
Homeowners interested in putting solar panels on their new construction homes have until December 31st, 2025 to take advantage of the 30% residential solar tax credit. Originally, the tax credit was intended to exist through 2032 under the Inflation Reduction Act of 2022, however, the OBBBA stipulates it will cease at the end of this year with no gradual phase-out.
It’s important to note that this solar credit phase out applies to the federal tax credit for solar panel installation. California still offers various tax benefits for residential solar energy, such as the solar panel property tax exemption and rebates for solar installation and battery storage.
Staying Up-to-date on Reforms Affecting You
At Creative Innovation Developers, we keep an eye on policies and regulations that can impact our clients on their home building journey. Reach out to us to help you navigate what it all means for you and see how we can keep you on track to building a new construction home that fits your needs and budget.
