The SALT Cap Quadrupled (Do You Still Need the Secret “Workaround”?)

For years, the “SALT Cap” (State and Local Tax deduction limit) has been the villain of the tax world. You pay $30,000 in state taxes, but the IRS only lets you deduct $10,000. It felt like theft.

To fight back, states got creative. They invented the Pass-Through Entity Tax (PTET), a clever “workaround” that let business owners pay state taxes through their company to bypass the individual cap. It was complex, expensive, and absolutely worth it.

But then 2025 happened.

The One Big Beautiful Bill Act (OBBBA) passed mid-year, and it threw a wrench in our strategies. The headline? The SALT Cap is now $40,000.

You might be thinking: “Great! I don’t need that complicated PTET anymore!”

Stop. Put the champagne down.

We read the fine print of the OBBBA so you don’t have to, and we found a trap door. For a chunk of you, the PTET isn’t just “still useful,” it’s the only thing standing between you and a massive tax bill.

Here is the new math of state taxes for the 2026 filing season.

The New Rules: $40,000 is the New $10,000 (Mostly)

First, let’s look at the shiny new toy. For the 2025 tax year (the return you file in 2026), the OBBBA raised the SALT deduction limit to $40,000 for single and joint filers (and $20,000 for married filing separately).

If you make $200,000 a year and pay $25,000 in state taxes, you used to lose $15,000 of deductions. Now? You can deduct all of it on your personal return.

You might not need the PTET anymore. You can just itemize and be done. You have to itemize to get this. With the standard deduction now at $31,500 for couples, you need a lot of deductions (mortgage interest + charity + taxes) to beat the standard deduction. If you don’t beat it, the $40,000 cap is useless to you.

The “Success Tax”: The $500,000 Trap

The government didn’t just give us a $40,000 cap; they attached a dimmer switch.

If your modified adjusted gross income (MAGI) goes over $500,000, your SALT deduction starts to disappear.

For every dollar you earn over $500,000, your $40,000 cap is reduced by 30 percent of that excess, until it hits a floor of $10,000.

Example:

• You earn $600,000.
• You are $100,000 over the limit.
• The IRS reduces your cap by $30,000 (30% of $100k).
• Your new SALT Cap: $10,000.

If you are a high earner, the OBBBA actually puts you right back where you started. You are back in the $10,000 bucket.

Why the PTET “Workaround” is Still King

This is why we love the PTET. Unlike the SALT deduction, which happens on your personal return (Form 1040), the PTET happens on your business return (Form 1065 or 1120-S).

1. Your business pays the state tax directly.
2. The business claims that payment as a business expense (not a SALT deduction).
3. This lowers the net profit reported on your K-1.

You pay less federal tax on your personal return, and the $40,000 personal cap doesn’t apply to this money at all.

Who Needs PTET Now?

• The High Earners: If you make over $500,000, you need PTET to avoid the phaseout trap.
• The “Standard Deduction” People: If you take the standard deduction ($31,500), you get zero benefit from the personal SALT cap. The PTET lets you get a state tax benefit plus the standard deduction.

Club 36: States with a PTET Election

Most states have realized that the PTET is free money for their residents (it lowers your federal tax bill without costing the state a dime). As of 2025, 36 states have enacted a PTET election.

• Alabama
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• New Jersey
• New Mexico
• New York (it has its own separate PTET election)
• North Carolina
• Ohio
• Oklahoma
• Oregon
• Rhode Island
• South Carolina
• Utah
• Virginia
• West Virginia
• Wisconsin

Every state has different rules for when you have to sign up. Some require you to elect by March 15 of the tax year. Others require a deposit by June 15. If you miss the deadline, you might be stuck with the personal cap.

The Strategy Guide: Which Bucket Are You In?

Stop guessing. Find your persona below to see your move.

Persona A: The “Standard” Earner

• Income: $150,000 (Joint)
• State Taxes Paid: $12,000

Strategy: Skip PTET. Just take the standard deduction ($31,500). It’s worth more than your itemized deductions anyway.

Persona B: The “Middle-Rich” (The OBBBA Winner)

• Income: $350,000 (Joint)
• State Taxes Paid: $35,000
• Mortgage Interest: $20,000

Strategy: Skip PTET. You can itemize! Your total deductions ($55,000) beat the standard deduction, and because you are under the $500,000 income cap, you get the full $40,000 SALT deduction. The OBBBA actually worked for you.

Persona C: The “High Earner” (The Target)

• Income: $700,000 (Joint)
• State Taxes Paid: $60,000

Strategy: USE PTET. Your personal SALT cap has phased out to $10,000 because of your income. By using PTET, your business pays the $60,000, reducing your taxable income directly and bypassing the cap entirely.

Don’t Autopilot This

The OBBBA made taxes “better” for some and “more confusing” for everyone. The default setting in most tax software is to skip the PTET because it’s extra paperwork.

Do not let your software decide.

If you own a business, you have a choice. You can pay taxes personally and fight with the caps and phaseouts, or you can pay them through your business and bypass the drama.Check your state’s deadline. Check your income projection. If you are close to that $500,000 cliff, the PTET isn’t just a workaround; it’s a lifeboat.