Maximizing the SALT Deduction in 2025–2029: Why PTET Elections Matter More Than Ever

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With the passage of the One Big Beautiful Bill Act, the long-debated State and Local Tax (SALT) deduction cap has undergone its first major update since the Tax Cuts and Jobs Act of 2017. For high-income earners and business owners, this presents a significant planning opportunity and a limited window for optimization.

ALT Dedication Basics: 2025–2029

Starting January 1, 2025, the SALT deduction cap increases from $10,000 to $40,000 for joint filers (and $20,000 for single filers), with several essential features. The cap will rise by 1% annually through 2029. For high earners, the deduction begins to phase down by 30% of income above $500,000 for joint filers or $250,000 for single filers, but it will never fall below $10,000 regardless of income. Both the cap and the income thresholds will be indexed, increasing by approximately 1% each year. In 2030, the expanded cap is set to expire and revert to the original $10,000 limit unless extended by Congress. Given these limitations, the Pass-Through Entity Tax (PTET) election has become one of the most effective tools for business owners to bypass the SALT cap completely.

What is PTET (Pass Through Entities)?

PTET allows S corporations, partnerships, and some LLCs to pay state income tax at the entity level (the business must own the property), which is fully deductible on the business return—without limit—before passing income to owners. This effectively circumvents the federal SALT deduction cap on individual returns.

Why it matters under the new law:

Even with a $40,000 cap, many high-income business owners will still face phasedowns. The Pass-Through Entity Tax (PTET) enables them to maintain full deductibility of state taxes paid at the business level, reduce federal taxable income without being subject to the SALT cap or income thresholds, and offset income tax owed at the individual level with the credit received from PTET payments.

Planning Considerations (2025–2029)

Now is the time to take proactive steps considering the temporary expansion of the SALT deduction. Start by modeling your MAGI to determine how much of the SALT benefit may phase out based on your income level. Evaluate whether you're taking advantage of PTET elections in eligible states—if not, consider doing so now. You should also consider bundling deductions by accelerating real estate or state income tax payments during the high-deduction years between 2025 and 2029. Finally, prepare for 2030, when the expanded cap is set to expire and the $10,000 limit may be reinstated, making the PTET strategy one of the few long-term solutions to preserve full deductibility.