Does the SALT Cap Limit Property Taxes on a Manhattan Beach Rental?

Published August 10, 2026

Manhattan Beach carries some of the highest property tax bills in the South Bay, and landlords assume the federal SALT cap limits how much of that bill they can deduct. It doesn't. Property tax on a rental goes on Schedule E as a business expense, outside the cap that applies to a personal home.

The short answer

No. The federal SALT cap in Internal Revenue Code section 164(b)(6) applies to state and local taxes claimed as a personal itemized deduction. Property tax on a rental is a business expense reported on Schedule E, not an itemized deduction, and section 164 exempts taxes paid in carrying on a trade or business or an income producing activity from the cap. A Manhattan Beach landlord deducts the full property tax bill on the rental regardless of the cap.

Last verified: August 10, 2026

Two different deductions that get confused

There are two separate places a property tax bill can end up on a federal return, and the SALT cap only touches one of them.

If the property is your personal residence, the tax you pay on it is a personal itemized deduction claimed on Schedule A, grouped together with state income or sales tax and any other deductible personal property taxes. That combined total is where the cap in section 164(b)(6) applies.

If the property is a rental, the tax is a cost of operating a business or an income producing activity, deducted directly against rental income on Schedule E. It never touches Schedule A and it never enters the combined total the cap measures.

Manhattan Beach makes this distinction worth more than it does in most places. Assessed values there run well above the South Bay average, and a landlord who owns both a personal home in the city and a separate rental unit or duplex is often looking at two large tax bills at once, one capped, one not. Conflating them into a single "SALT limited" bucket overstates what the cap is actually doing to the rental side.

What the statute actually says

Section 164(b)(6) is the subsection that created the cap, originally $10,000 for an individual, $5,000 if married filing separately. The same subsection carves out its own exception: the limitation does not apply to "any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212." Section 212 covers expenses for the production or collection of income and the management of property held for the production of income, which is exactly what a rental activity is for tax purposes. Real property tax, the tax described in section 164(a)(1), paid on a rental therefore falls inside that carve out and outside the cap.

This isn't a workaround or an aggressive position. It's the plain design of the statute: the cap was written to limit personal itemized deductions, and Congress explicitly excluded business and income producing property from it in the same sentence that created it.

What Publication 527 confirms

IRS Publication 527, Residential Rental Property, lists real estate taxes among the ordinary deductible expenses of a rental activity, consistent with the Schedule E treatment described above. Publication 527 also reflects the current, higher SALT figure that applies on the personal side, an overall limitation of $40,000 for taxpayers who itemize, up from the original $10,000. Under section 164(b)(7), that $40,000 figure applies for 2025 and rises to $40,400 for 2026, with the cap scheduled to step back down to $10,000 starting in 2030 absent further legislation. None of those numbers change how a rental's property tax is reported. They describe a ceiling on the personal Schedule A side that a rental's Schedule E deduction never reaches in the first place.

Where landlords actually run into the cap

The cap can still reach a landlord, just not through the rental. If you also own the home you live in, or a vacation property that isn't rented out, the property tax on that residence stacks with your California income or sales tax on Schedule A and is subject to the limitation. A Manhattan Beach owner occupying one unit of a duplex and renting the other has to split the tax bill: the owner occupied portion goes to Schedule A and is subject to the cap, the rented portion goes to Schedule E and is not.

The other place it shows up is indirectly, through the pass through entity elective tax some California LLCs and S corporations used to route entity level state income tax around the cap on the owners' personal returns. That mechanism dealt with state income tax on business profit, not property tax, and is a separate question covered in our companion article on that program's current availability.

FAQ

Does it matter whether the rental is held personally or through an LLC?

No, not for this question. What matters is whether the activity is a rental, reported on Schedule E, versus a personal residence, reported on Schedule A. An LLC taxed as a disregarded entity or a partnership still flows the property tax deduction through to the rental side of the owner's or entity's return either way.

What if I rent out part of my Manhattan Beach home and live in the rest?

You generally allocate the property tax between the personal and rental portions based on square footage or another reasonable method. The personal share is subject to the SALT cap on Schedule A; the rental share is deducted on Schedule E outside the cap.

Is the current SALT cap $10,000 or something higher?

Under section 164(b)(7), the cap is $40,000 for 2025 and $40,400 for 2026, with an income based phase down for higher earning taxpayers, before it is scheduled to revert to $10,000 starting in 2030. That figure only matters for personal itemized deductions, not for a rental's Schedule E property tax.

Does the SALT cap apply to a short term or vacation rental too?

The same trade or business or income producing activity carve out in section 164(b)(6) applies to a legitimate rental activity regardless of whether it's a long term lease or a short term rental, as long as the property tax is properly allocable to that rental use rather than personal use of the property.

Do mortgage interest and HOA dues on a rental get the same treatment?

Mortgage interest on a rental is also deducted on Schedule E as a business expense rather than as a personal itemized deduction, so it likewise sits outside the SALT cap framework, which only concerns state and local taxes. HOA dues on a rental are an ordinary deductible rental expense and were never a state or local tax question at all.

This is general information, not tax advice. Confirm how your specific property is used and allocated with a CPA before you file.

Topics: taxes, salt cap, manhattan beach, property tax, schedule e

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