Federal Tax (2025)

Calculate medical expenses allowed after the federal income floor:

$$\text{Medical Deduction}=\text{MAX(0, Qualified Unreimbursed Expenses - 7.5\% Of Federal AGI)}$$

Add eligible state income, SDI, and property taxes paid:

$$\text{SALT Paid}=\text{State Income Tax Paid + California SDI Paid (Excluding VPDI) + Property Tax Paid}$$

Reduce the starting SALT cap when income exceeds the phaseout threshold:

$$\text{SALT Cap}=\text{MAX(SALT Floor, SALT Starting Cap - 30\% × MAX(0, Federal AGI - SALT Phaseout Threshold))}$$

Use the smaller of total SALT paid and the allowed SALT cap:

$$\text{Deductible SALT}=\text{MIN(SALT Paid, SALT Cap)}$$

A home equity loan is an eligible loan only when its proceeds buy, build, or substantially improve the home securing it. Like a mortgage, it is repaid with a fixed monthly payment on the first of each month, where the monthly rate is the annual rate ÷ 12 and the number of payments is the term in years × 12:

$$\text{Monthly Payment}=\text{Balance × Monthly Rate × (1 + Monthly Rate)^Payments ÷ ((1 + Monthly Rate)^Payments - 1)}$$

Each payment pays the interest of the calendar month before it, and the rest reduces the balance. The first payment pays for the part of the month from the start date on. Interest counts in the year it is paid, so add the interest of the payments dated January 1 through December 1. December's interest is paid on January 1:

$$\text{Loan Interest}=\text{SUM(Balance × Monthly Rate Of Each Payment In The Year)}$$

Average the balance over each day of the year the loan exists:

$$\text{Loan Average Balance}=\text{SUM(Balance On Each Day) ÷ Days}$$

A HELOC is an eligible loan only when its draws buy, build, or substantially improve the home securing it. Until its repayment period begins, payments are interest-only, and withdrawals are made only in that period. Each withdrawal raises the balance and each principal-only payment lowers it from its date:

$$\text{HELOC Balance}=\text{Amount Drawn At Opening + SUM(Withdrawals) - SUM(Principal-Only Payments)}$$ $$\text{Interest-Only Payment}=\text{HELOC Balance × Monthly Rate}$$

When repayment begins, the balance is repaid over the repayment term with a fixed monthly payment like a home equity loan's, where the number of payments is the repayment term in years × 12. Count HELOC interest and average balance the same way as for a home equity loan.

A principal-only payment on the mortgage, the home equity loan, or the HELOC reduces that loan's balance on its date. When a balance changes during a month, charge each part of the month its share of the month's interest:

$$\text{Month's Interest}=\text{Monthly Rate × SUM(Balance × Days At That Balance) ÷ Days In The Month}$$

Later payments are recalculated from the reduced balance over the payments left, which repays the loan over its remaining term:

$$\text{Principal Paid}=\text{Monthly Payment(Balance, Payments Left) - Balance × Monthly Rate}$$

Add all eligible loan balances, including qualifying home equity loan and HELOC average balances, used for the mortgage-interest limit:

$$\text{Combined Qualified Average Balance}=\text{SUM(All Eligible Loan Balances)}$$

Add the mortgage interest assigned to all eligible loans, including qualifying home equity loan and HELOC interest:

$$\text{Combined Qualified Interest}=\text{SUM(Eligible Loan Interest Amounts)}$$

Limit federal mortgage interest using the eligible debt balance:

$$\text{Deductible Mortgage Interest}=\text{Combined Qualified Interest × MIN(1, Federal Acquisition‑Debt Limit ÷ Combined Qualified Average Balance)}$$

Determine the itemized deduction after applying the year's deductions and limits:

$$\text{Itemized Deduction}=\text{Medical Deduction + Deductible SALT + Deductible Mortgage Interest + Allowable Charitable Contribution Deduction}$$

Calculate maximum dependent credits before the income phaseout:

$$\text{Maximum Credit}=\text{Eligible Children × \$2,200 + Other Dependents (18+) × \$500}$$

Count the income increments used to phase out dependent credits:

$$\text{Reduction Steps}=\text{CEIL(MAX(0, Federal AGI - Credit Phaseout Threshold) ÷ \$1,000)}$$

Subtract the income-based reduction from the maximum credit:

$$\text{Dependent Credits}=\text{MAX(0, Maximum Credit - Reduction Steps × \$50)}$$

Subtract the selected deduction, the larger of the standard and itemized deductions, from federal adjusted gross income:

$$\text{Federal Taxable Income}=\text{MAX(0, Federal AGI - Selected Deduction)}$$

Subtract dependent credits from federal bracket tax, then add the early distribution tax:

$$\text{Federal Income Tax}=\text{MAX(0, Bracket Tax - Dependent Credits) + Early Distribution Tax}$$