For years, pass-through entity taxes (PTETs) have been a popular strategy for business owners to get around the $10,000 SALT deduction cap. But with the One Big Beautiful Bill Act (OBBBA) increasing that cap to $40,000 through 2029, you might be wondering—should you still elect PTET?
Why PTET Became Popular
When the SALT cap was first introduced in 2018, PTE owners—partners, S corporation shareholders, and LLC members—were limited to just $10,000 of state and local tax deductions on their personal returns. Electing PTET allowed their business to pay the state taxes instead and deduct them as a business expense, fully bypassing the cap.
What OBBBA Changed
The OBBBA raised the SALT cap to $40,000 for 2025–2029, but that higher cap phases out for high-income taxpayers. Once your modified adjusted gross income exceeds $500,000, the deduction begins to shrink—and it drops back to $10,000 once income reaches $600,000.
That means high earners will still benefit from the PTET election.
Other PTET Advantages
PTET can also lower federal and self-employment taxes by reducing the income that passes through to you. It may even help you qualify for deductions and credits that phase out at higher AGI levels. For some taxpayers, electing PTET and taking the enhanced standard deduction under OBBBA results in the best overall outcome.
The One Possible Downside
PTET can reduce your qualified business income (QBI) deduction because it lowers the income passed through to you. It’s not a dealbreaker—but it’s something to model before you make the election.
There’s no one-size-fits-all answer. PTET is still powerful, especially for high earners, but the right choice depends on your income and goals.
If you’d like help running the numbers or determining whether PTET makes sense for your situation, contact us to discuss your tax strategy.