Pass-Through Entity Taxes (PTET) After the Higher SALT Cap: Still Worth It?

Part of our 2025 Tax Law Changes guide — the complete breakdown of the One Big Beautiful Bill Act.

When the federal cap on state and local tax (SALT) deductions arrived, most states responded with a pass-through entity tax (PTET) — an elective workaround that has saved owners of S corporations and partnerships real money. Now that the federal SALT cap has been raised, advisers are asking whether the PTET election is still worth making. The short answer: often yes, but it depends.

How the PTET workaround works

Under a PTET election, a pass-through entity pays state income tax at the entity level. That payment is generally deductible as a business expense on the federal return — reducing federal taxable income before it ever reaches the individual owner’s capped SALT line. The owner then typically claims a state credit or income exclusion so the tax isn’t paid twice.

What changed

Recent federal legislation increased the individual SALT deduction cap and added an income-based phase-down for higher earners. A larger cap means some owners can now deduct more of their state taxes directly — which narrows, but does not always eliminate, the PTET advantage.

Why PTET can still pay off

• Owners whose state taxes still exceed the (now higher, but income-limited) individual cap.
• High earners subject to the phase-down of the individual deduction.
• States where the PTET credit mechanics are especially favorable.

What advisers should do

• Model both paths for each owner — PTET vs. the individual deduction under the new cap.
• Watch state-specific election deadlines and estimated-payment rules, which vary widely.
• Coordinate multi-state owners carefully; credits for taxes paid to other states get complicated.

Keep your skills current

Tax law and accounting standards move fast — continuing education keeps you ahead. Browse the course catalog, cover a full year with an Unlimited Access plan, or compare all CPE plans. Need a refresher on your state’s rules? Check your CPE requirements.

This article is general information for tax and accounting professionals and is not legal, tax, or accounting advice. Rules, dollar thresholds, and state provisions change and vary — always confirm current figures and requirements with the IRS, your state authority, the FASB/AICPA, or qualified counsel before acting or advising clients.