The One Big Beautiful Bill Act (OBBBA) increased the annual cap on the personal deduction for state and local taxes (SALT) from $10,000 to $40,000 for 2025 through 2029 (with a high-income phase-down). So it’s fair to ask: is a PTET election after OBBBA still worth it?
In many cases, yes. Even with a higher SALT cap, many pass-through owners can still benefit when the business pays state income tax at the entity level.
Pass-through entity taxes (PTETs) became popular when the Tax Cuts and Jobs Act put a $10,000 annual cap on SALT itemized deductions. That cap made it impossible for many taxpayers—especially in higher-tax states—to fully deduct their property taxes and state income taxes.
PTETs are a workaround for owners of pass-through entities like partnerships, multi-member LLCs taxed as partnerships, and S corporations. The concept is simple:
Key point: The IRS has approved this arrangement in guidance. (See IRS Notice 2020-75.)
Most states with an income tax have enacted PTET rules. PTETs are generally optional—meaning the owners must choose (elect) the PTET treatment for the entity.
Here’s a simple example to show how PTET works when the SALT cap is tight.
Facts. Riverstone LLC is a two-member California LLC with $450,000 in net income for 2024, split 50/50. Each owner also paid more than $10,000 in California property tax.
Ordinarily, each owner would pay California income tax on $225,000 of pass-through income. Using a 9.3% rate as a rough illustration, that’s $20,925 per owner (or $41,850 total).
If the owners pay the state income tax personally, they may not get a federal benefit from deducting it because the SALT cap is already “used up” by property taxes. Instead, Riverstone LLC elects PTET and pays $41,850 at the entity level. The LLC deducts the PTET as a business expense and the owners generally receive a state credit for their share.
Result. The owners can still deduct their personal property taxes (up to the SALT limit), while the entity-level PTET is deducted above-the-line through the business. In the right fact pattern, taxpayers win.
The OBBBA increased the SALT cap to $40,000 starting in 2025, with the cap indexed upward by 1% annually through 2029 (and subject to a high-income phase-down), but that does not automatically make PTET unnecessary. Here are the big reasons PTET can still make sense.
Under the OBBBA, the higher SALT cap is phased down for higher-income taxpayers. That means many owners with higher modified AGI can still find themselves effectively back near the $10,000 cap.
When the entity pays PTET and deducts it, the pass-through income reported to the owners is reduced. For partners in partnerships (and LLC members taxed as partners), this can also reduce self-employment taxes.
Example. Marco is a self-employed partner. His partnership pays $28,000 of PTET attributable to him. That reduces the income flowing to his return, which can reduce the base for self-employment tax. (The exact savings depends on where he is relative to the Social Security wage base and Medicare thresholds.)
One of the most overlooked PTET benefits is that it effectively moves a state tax deduction from “below-the-line” itemized deductions to an “above-the-line” reduction in pass-through income. That can lower AGI.
A lower AGI can potentially help with things like:
This is where PTET planning becomes very individual: the best outcomes often happen when your AGI is near a “cliff” or phaseout band.
In some cases, paying state income tax through the entity reduces your itemized deductions enough that the standard deduction becomes the better choice. You’re not “losing” the tax benefit—you’re shifting where it lands.
Example. Dana and Chris have $420,000 AGI in 2025, including $310,000 of pass-through income. Their itemized deductions total $33,000, including $16,000 of state income tax tied to the pass-through income.
If the entity pays the $16,000 as PTET, the pass-through income drops accordingly, and Dana and Chris may be able to take the standard deduction instead of itemizing—depending on their overall facts.
If you qualify for the 20% qualified business income (QBI) deduction, PTET paid at the entity level generally reduces QBI dollar-for-dollar. That means the PTET can reduce the QBI deduction amount.
Example: If your entity pays $20,000 in PTET, the QBI deduction could be reduced by up to $4,000 (20% of $20,000), depending on your situation. The PTET benefits can still outweigh this, but it’s one more item you must run through the math.
A higher SALT cap does not automatically eliminate the value of PTET. A PTET election after OBBBA can still be a win—especially for higher-income owners, partners exposed to self-employment tax, and taxpayers whose planning hinges on AGI-based thresholds.
The only honest answer is: run the numbers. PTET is a planning tool, not a guarantee.
Schedule a Free Tax Strategy Session if you want us to run the PTET vs. personal SALT math for your exact situation (including AGI cliffs and QBI impact).
Download the Tax Savings Checklist if you want a quick list of the biggest levers business owners use to reduce taxes and protect profits.