Does the New $40,000 SALT Cap Limit My Manhattan Beach Rental Property Tax Deduction?

Published July 15, 2026

No. The OBBBA's $40,000 SALT cap hits Schedule A. Rental property tax on Schedule E has no cap.

The new $40,000 SALT cap does not touch your Manhattan Beach rental property tax deduction. That cap, created by the One Big Beautiful Bill Act (OBBBA) for 2025 through 2029, limits itemized deductions on Schedule A for personal taxes, mainly your own home. Property tax on a rental is a business expense deducted directly on Schedule E under Internal Revenue Code section 164(b)(6), and it has no dollar limit at all.

What the OBBBA actually changed

For years the SALT cap sat frozen at $10,000 under the 2017 Tax Cuts and Jobs Act. The One Big Beautiful Bill Act, signed into law in 2025, raised that number to $40,000 for single, joint, and head of household filers ($20,000 if married filing separately) starting with the 2025 tax year. The new cap runs through 2029, gets adjusted for inflation starting in 2026, and then reverts to $10,000 for tax years beginning after December 31, 2029 unless Congress acts again. There is also an income phase-down: the $40,000 limit shrinks by 30 percent of the amount your modified adjusted gross income exceeds $500,000 (or $250,000 if married filing separately), and once your MAGI reaches $600,000 the enhanced cap is fully phased down to the $10,000 floor. It never drops below $10,000, no matter how high your income goes. In El Segundo, Manhattan Beach, and Redondo Beach, where property values (and property tax bills) run high, this cap matters a lot for owners with a Schedule A mortgage interest and property tax deduction on their own residence.

Why your rental is a different animal

Here is the part that gets missed constantly, and it is the reason we are writing this. The SALT cap under section 164(b)(6) only applies to state and local taxes that are personal in nature, the ones you itemize on Schedule A. Property tax you pay on a rental house or duplex is not a personal expense. It is an ordinary and necessary cost of running a rental business, deducted under section 212 (or section 162 if you rise to trade-or-business level) directly against your rental income on Schedule E. The statute has always carved this out. Section 164(b)(6)'s flush language excludes any tax "paid or accrued in carrying on a trade or business or an activity described in section 212" from the cap, and that carve out survived the OBBBA rewrite untouched. So whether your South Bay rental property tax bill is $9,000 or $90,000 a year, every dollar is still deductible against rental income, with no $40,000 ceiling in sight.

Where owners get confused

The confusion usually comes from owning both a personal home and a rental in the same high-tax area. If you live in Manhattan Beach and also rent out a second unit in Hawthorne or Hermosa Beach, your own home's property tax goes on Schedule A and now competes for room under the $40,000 cap alongside your state income tax withholding. Your rental's property tax goes on Schedule E and is untouched by any of this. Mixing the two up on a tax return, or assuming a duplex you live in and rent out half of, follows Schedule A rules entirely, is the most common mistake we see. A licensed CPA needs to allocate the owner-occupied portion versus the rental portion correctly.

Does an LLC change anything

Holding a rental in a single-member LLC does not change the federal tax treatment. It is still a disregarded entity reporting on your Schedule E (or Schedule C in rare cases) exactly as if you owned the property directly. Multi-member LLCs and partnerships deduct the property tax at the entity level on Form 1065 before passing net rental income through on a K-1. Either way, the SALT cap conversation stays limited to your personal Schedule A items.

What this means for you

If you own rental property in the South Bay, do not let the SALT cap headlines make you second-guess your Schedule E deductions. Keep tracking every dollar of property tax you pay on rental units the way you always have. Where the $40,000 cap actually bites is your personal residence and any state income taxes you itemize, so that is where a conversation with your CPA about timing property tax payments or Roth conversions is worth having before year end.

If you would rather not track this yourself, that is what we do. We keep an eye on the ownership structure and paperwork side of your rentals so nothing falls through the cracks at tax time.

This is general information, not legal or tax advice. Confirm with a licensed professional before you act.

Sources

1. What OBBB Means for Your Clients' Itemized Deductions, Thomson Reuters
2. Cap raised, strings attached: The 2025 SALT shake-up, The Tax Adviser
3. 26 U.S.C. 164, Taxes, Cornell Legal Information Institute
4. SALT Deduction Changes in the One Big Beautiful Bill Act, Bipartisan Policy Center

Last verified: July 2026.

Topics: taxes, SALT cap, OBBBA, Schedule E, rental property tax, Manhattan Beach

Back to the Schofield Properties blog

Schofield Properties is a family run property management company at 323 Richmond St, El Segundo, CA 90245. We have managed the South Bay since 1972 and personally oversee about 186 doors today. Book a call to talk about your property.