You’ve probably heard the rumors that the "One Big Beautiful Bill Act" (OBBBA) signed by President Trump is the end of the line for the popular SALT deduction workaround. If you're a pass-through business owner who has been using the Pass-Through Entity Tax (PTET) to dodge the $10,000 cap on state and local tax deductions, you might be sweating. But before you call your accountant in a panic, let’s look at what’s actually on paper for 2026.
There’s a lot of noise about how the new tax bill could "end" this workaround. Honestly, it’s not that simple. While certain earlier versions of the bill in the House and Senate did take aim at the PTET, the final version that became law in mid-2025 actually left most of these workarounds intact for now. But that doesn't mean you're in the clear.
For the 2026 tax year, we’re looking at a $40,400 SALT cap for individual filers, which is a massive jump from the old $10,000 limit. This change alone might make you wonder if you even need the PTET anymore. Let’s break down why you shouldn't just assume the workaround is dead and what you actually need to do to keep your tax bill low.
What is the PTET and Why Are People Worried
If you’re not familiar with the term, the PTET is a clever move where a pass-through entity—like an S corp or an LLC—pays state income taxes at the business level rather than passing that liability down to the owners. Because the entity pays the tax, it’s treated as a business expense. This means it doesn’t count toward your personal $10,000 SALT deduction limit on your 1040.
In 2026, the OBBBA is significantly raising that personal SALT cap, which is great for most people. But for high earners in states like New York, California, and New Jersey, $40,400 is still a drop in the bucket. If your state and local tax bill is $100,000 or more, you’re still losing a huge chunk of potential deductions without a workaround.
The worry comes from the fact that the OBBBA introduces new phase-down rules. Once your modified adjusted gross income (MAGI) hits $505,000 in 2026, your SALT deduction starts to shrink. For every dollar you earn over that limit, your $40,400 cap is reduced by 30 cents. If you make enough, you’re right back at a $10,000 cap.
The Reality for 2026
The OBBBA didn't explicitly kill the PTET at the federal level. The final version of the law actually omitted the language that would have disallowed entity-level deductions for state taxes. This is a huge win for business owners in high-tax states.
However, there’s a catch. Just because the federal government says it’s okay doesn't mean your state will. Several states have tied their PTET laws to the duration of the federal SALT cap or have their own sunset provisions. For example, states like California and Virginia had laws that were set to expire at the end of 2025.
Fortunately, many of these states have been busy passing their own legislation to keep the party going. California extended its PTET through 2030. Illinois made its program permanent. Maryland even expanded its PTET to include a resident's full share of income, not just Maryland-source income, starting in 2026.
But not every state is moving that fast. If you’re in a state that hasn't acted, your workaround might just vanish. It’s not the Trump tax bill that will end it—it’s your state’s own legislative calendar.
Is the PTET Still Worth It
With the individual SALT cap at $40,400 for 2026, you have to run the numbers. For a lot of people, the PTET might actually be more trouble than it’s worth now.
Consider this. If you use the PTET, you’re often paying tax at a fixed state rate that might be higher than what you’d pay on your personal return after other deductions and credits. You also have to deal with the administrative headache of making the election and filing the extra forms.
On the other hand, if your MAGI is well over $505,000, you're definitely going to see that "SALT torpedo" hit your personal return. That’s when the PTET becomes your best friend again. Since it’s a business-level deduction, it doesn’t care about your personal MAGI. It stays 100% deductible regardless of how much you make.
Comparing Your Options in 2026
| Scenario | SALT Cap (Personal) | PTET Benefit |
|---|---|---|
| MAGI < $505,000 | $40,400 | Minimal for most, unless SALT > $40k |
| MAGI = $550,000 | ~$26,900 | Growing as cap phases down |
| MAGI > $600,000 | $10,000 | High - Best way to deduct total SALT |
You're also seeing some states, like Michigan, give you way more time to decide. For the 2025 tax year, Michigan lets you wait until September 30, 2026, to make the PTET election. That gives you plenty of time to see exactly what your final income looks like before you commit.
Watch Out for the AMT
One thing the OBBBA didn’t fix is the Alternative Minimum Tax (AMT). Even with a higher SALT cap, you still can’t deduct state and local taxes under the AMT.
The new bill does keep the higher AMT exemptions from the 2017 Tax Cuts and Jobs Act, which is a relief. For 2026, the exemption for single filers is $88,100 and $137,000 for joint filers. But if you have a massive amount of SALT deductions and other preference items, you could still find yourself caught in the AMT trap.
Using the PTET is one of the few ways to avoid this, as business-level deductions generally aren’t treated as AMT preference items. This makes the workaround even more valuable for the truly high-income crowd.
Stop Overthinking the Workaround
Don't let the headlines scare you. The "workaround" isn't a single thing that the federal government can just turn off with one switch. It’s a combination of state laws and federal recognition of those laws.
The real threat to your tax strategy isn't the OBBBA—it's your own state legislature's laziness or a lack of planning on your part. If you’re in a state like Massachusetts or Oregon, where the PTET is tied directly to the federal SALT cap, you need to be watching for updates.
Basically, you need to check three things right now. First, did your state extend its PTET law past 2025? Second, is your 2026 income likely to be over the $505,000 threshold where your personal SALT deduction starts to disappear? And finally, do you have enough other itemized deductions to even make the $40,400 cap worth it compared to the standard deduction?
For 2026, the standard deduction is around $15,750 for singles and $31,500 for joint filers. If your only major itemized deduction is $20,000 in property taxes, you’re better off just taking the standard deduction and not worrying about the SALT cap at all.
You need to act fast. Some states require you to make your PTET election early in the year, and if you miss the boat, you're stuck with that personal cap. Don't wait until you're filing your 2026 return in 2027 to find out you could have saved fifty grand.
Take these steps immediately:
- Review your state's current PTET status to see if it was extended for 2026.
- Estimate your 2026 MAGI to see if you'll hit the SALT phase-down threshold of $505,000.
- Compare the total cost of a PTET election against the benefit of the new $40,400 personal SALT cap.
- Schedule a meeting with your tax advisor to confirm election deadlines for your specific state.
