What Trump’s OBBBA “Big Beautiful Tax Bill” Really Means for High-Income Earners in San Diego & La Jolla (2025–2029)

The 2025 One Big Beautiful Bill Act (OBBBA) has drawn significant attention from high-income taxpayers—particularly those living and working in La Jolla, San Diego, and coastal Southern California—due to its increase in the SALT deduction cap from $10,000 to $40,000 beginning in 2025.

For many professionals in high-tax states like California, this initially appears to be meaningful tax relief. However, for physicians, executives, business owners, and high-income households in San Diego County, the reality is far more complex.

Rather than broadly reducing taxes, the OBBBA introduces income-based phaseouts, timing traps, and interaction effects that can quietly increase taxes for high earners—especially between 2026 and 2029. Understanding how these provisions work together is essential for effective tax planning in California.

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The SALT Deduction Under the OBBBA "Big Beautiful Tax Bill": Expanded—Then Quietly Phased Out

The SALT (State and Local Tax) deduction allows taxpayers who itemize to deduct California income taxes and property taxes on their federal return.

Under the OBBBA:

• The SALT cap increases to $40,000 in 2025

• The cap increases by 1% annually through 2029

• The cap reverts to $10,000 in 2030

However, for high-income earners:

• The expanded deduction begins to phase out once Modified Adjusted Gross Income (MAGI) exceeds $500,000

• By $600,000 of MAGI, the expanded SALT benefit is effectively eliminated

For taxpayers in La Jolla and greater San Diego, where state income and property taxes are already high, this phaseout can materially impact total tax liability.

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Example: How High-Income San Diego Taxpayers Can Face 45%+ Marginal Rates

Taxpayer A (San Diego physician)

• MAGI: $500,000

• SALT deduction allowed: $40,000

• Taxable income: $425,000

Taxpayer B (La Jolla professional)

• MAGI: $600,000

• SALT deduction allowed: $10,000

• Taxable income: $555,000

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Although Taxpayer B earns only $100,000 more, they have $130,000 more taxable income due to lost deductions.

At a 35% federal marginal tax rate, this results in approximately $45,500 of additional federal tax—an effective 45.5% tax rate on the incremental income, before California tax.

This outcome is driven not by higher tax brackets, but by income phaseouts embedded in the law.

📌 Why This Feels Like a Tax Increase—Even When Rates Didn’t Change

Many high-income taxpayers assume higher taxes only come from higher tax brackets. In reality, phaseouts embedded in the tax code can make income far more expensive at the margins—even when statutory rates stay the same. This is why planning around thresholds matters more than ever.

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Why the OBBBA Disproportionately Affects High-Income Earners in California

High-income taxpayers in San Diego often have layered income sources, including:

• Professional compensation or W-2 wages

• Bonuses or productivity incentives

• Passthrough income from S corporations or partnerships

• Investment income and capital gains

• Deferred compensation or equity payouts

Each additional dollar increases MAGI—and under the OBBBA, MAGI determines whether valuable deductions are lost. As a result, many high earners experience unexpected marginal tax rates far higher than anticipated.

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Business Owners and Passthrough Income Planning

For San Diego business owners and S-corporation shareholders, the OBBBA makes income timing more important than ever.

A strong business year may:

• Push MAGI above $500,000

• Trigger rapid SALT phaseouts

• Reduce the net benefit of deductions that were assumed to be available

Without proactive coordination between entity-level decisions and personal tax planning, a profitable year can create surprisingly high federal and California tax exposure.

🏢 Business Owners: Strong Years Can Trigger Hidden Tax Costs

A profitable year does not always mean a tax-efficient year. For S-corporation owners and partners, additional passthrough income can push MAGI into phaseout ranges—reducing deductions and increasing total tax exposure unless income timing and entity planning are coordinated in advance.

Investment Income and Capital Gains Considerations

While the OBBBA does not directly increase capital gains tax rates, investment income:

• Increases MAGI

• Accelerates SALT phaseouts

• Stacks with the Net Investment Income Tax

For La Jolla and San Diego investors, portfolio rebalancing or asset sales can unintentionally magnify total tax costs if not coordinated with broader tax planning.

Why Multi-Year Tax Planning Matters (2026–2029)

One of the most overlooked aspects of the OBBBA is its temporary structure.

The SALT cap expansion expires after 2029 and drops back to $10,000 in 2030. This creates a limited planning window where multi-year tax projections are essential.

Key planning considerations for high-income San Diego taxpayers include:

• Smoothing income across multiple years

• Coordinating bonus, business, and investment income timing

• Strategically timing deductions and charitable giving

• Aligning tax planning with California-specific rules

Tax planning under the OBBBA is no longer about optimizing a single return—it requires forward-looking, multi-year coordination.

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Strategic Tax Planning for High-Income Earners in La Jolla & San Diego

Effective planning under the OBBBA often focuses on:

• Proactively managing MAGI thresholds

• Coordinating income timing across all sources

• Aligning business and personal tax strategies

• Modeling multiple tax years together

• Avoiding unintentional phaseout cliffs

For high-income households in California, the difference between reactive tax preparation and proactive planning can be substantial.

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The Takeaway

The OBBBA does not broadly reduce taxes for high-income earners in California. Instead, it reshapes how income is taxed—often quietly and at the margins.

For physicians, executives, and professionals in La Jolla, San Diego, and surrounding communities:

Strategic, multi-year tax planning is now essential to avoid unnecessary tax exposure under the new rules.

At Natalie C. Papagni, CPA – Tax, Planning and Advisory Services, we help high-income individuals and business owners in San Diego County understand how these provisions interact, anticipate tax exposure before thresholds are crossed, and plan confidently for 2025–2029 and beyond.

How can we help?

Let's get our conversation started today.

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About us

Natalie C. Papagni, CPA – Tax, Planning and Advisory Services

provides tax, planning and advisory services to individuals and high-income earners, physicians and healthcare professionals, business owners - entrepreneurs and new and existing businesses and private practices serious about saving taxes and minimizing multi-year tax liabilities, filing accurate and efficient tax returns, transforming financial complexity into clarity, planning for their financial future and achieving what matters most. Natalie C. Papagni, CPA Tax, Planning and Advisory Services

4727 Executive Drive Suite 300 San Diego, CA 92121 858.754.8277

service@lajollataxcpa.com

www.lajollataxcpa.com