PTET Survives: Why This Pass-Through Entity Tax Loophole Still Matters After Passing of the Big Beautiful Tax Bill

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

There was a lot of buzz surrounding the “Big Beautiful Tax Bill” recently signed into law, and while most headlines focused on the new $40,000 SALT deduction cap, a quieter but equally important victory came in the form of what didn’t make it into the final bill for the business owners of pass-through entities.

One major provision originally tucked into the House version of the bill would have eliminated the PTET (Pass-Through Entity Tax) workaround—a popular strategy business owners have been using to bypass the federal $10,000 SALT deduction cap. Thankfully, the Senate stripped that provision from the final legislation, meaning PTET is here to stay—at least for now.

This article will walk through what PTET is, why it still matters (even with a $40,000 cap), and how business owners should think about it in light of the latest tax reform.

What Is PTET?

The Pass-Through Entity Tax (PTET) is a state-level workaround created in response to the federal $10,000 SALT deduction cap introduced under the 2017 Tax Cuts and Jobs Act. Since pass-through entities like S corporations and partnerships don’t pay federal income tax directly, owners report their share of the business income on their personal returns—and thus, their state taxes on that income were limited by the $10,000 SALT cap.

States like New York, New Jersey, California, and over 30 others adopted PTET programs, allowing these businesses to elect to pay state income tax at the entity level. Because entity-level taxes are fully deductible at the federal level, this approach effectively restores the lost deduction for many business owners.

PTET has become one of the most powerful tools for state tax planning, and in many cases, saves owners thousands—or even tens of thousands—of dollars in federal tax liability.

What the House Tried to Do—and What the Senate Undid

In the original House version of the Big Beautiful Tax Bill, lawmakers proposed to eliminate the PTET workaround starting in 2025, citing the new $40,000 SALT cap as sufficient relief. The rationale was that, with a higher cap on SALT deductions, there was no longer a need for a workaround like PTET.

But here’s the catch: the new $40,000 SALT cap is temporary and has income limitations

• It only lasts from 2025 through 2029

• It phases out for high-income taxpayers (starting at $500,000 AGI and fully phased out at $600,000)

• It reverts to $10,000 in 2030, unless Congress intervenes again

Fortunately, the Senate recognized the long-term value and flexibility of PTET, especially for business owners whose income levels could exceed the new cap thresholds. In the final bill, the PTET elimination was removed, preserving the deduction strategy.

Why PTET Still Matters—Even With a $40,000 Cap

Even with the temporary SALT cap increase, PTET remains a valuable planning strategy for three reasons:

1. Not Everyone Qualifies for the Full $40,000 Cap

If your income exceeds $500,000, your benefit from the new SALT cap begins to phase out. At $600,000 or more, it drops back to $10,000—and PTET becomes your best tool for reclaiming that lost deduction.

2. PTET Applies at the Entity Level

Unlike the SALT cap, which applies at the individual level, PTET deductions occur above the line at the business level. That means the full amount paid as state tax by the business is deductible federally, regardless of your personal AGI.

3. Taxpayers May Benefit from BOTH

It’s possible for an owner of a pass-through entity to benefit from both the preservation of the PTET deduction as well as the increased $40,000 SALT Cap, especially for business owners that have high property taxes.

Planning Considerations Moving Forward

If you’re a business owner in a state with an active PTET program, here’s what you should be thinking about:

• Continue electing into PTET where beneficial: The deduction is still fully valid under federal law and can provide meaningful savings for those with large state tax liabilities.

• Coordinate with your SALT cap usage: While the new $40,000 cap opens opportunities, use both PTET and the SALT cap strategically based on your AGI and other deductions.

• Review PTET election timing and payments: Some states require estimated payments or year-end elections. Make sure you're aligned with state-specific rules to lock in the deduction.

And remember—just because the PTET survived this round doesn't mean it's immune to future legislative changes. It’s wise to work with your tax professional to maximize the benefit while it lasts.

Final Thoughts

The survival of the PTET deduction is a major win for business owners who rely on this strategy to manage their federal tax exposure. While the expanded SALT cap helps in the short term, PTET offers a more durable and targeted solution—especially for high earners and pass-through business owners in high-tax states.

As always, tax planning is about playing the long game. The Big Beautiful Tax Bill gave us some new tools—but it also confirmed that tried-and-true strategies like PTET still have a place in the modern tax toolkit. 

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs):

What is the Pass-Through Entity Tax (PTET)?
The PTET is a state-level workaround that allows S corporations, partnerships, and other pass-through entities to pay state income tax at the business level rather than at the individual level. Because entity-level taxes are fully deductible federally, PTET helps business owners bypass the federal $10,000 SALT deduction cap.

Did the Big Beautiful Tax Bill eliminate PTET?
No. While the House version of the bill originally proposed eliminating PTET starting in 2025, the Senate removed that provision from the final legislation. As a result, PTET remains fully intact under current federal law.

Why does PTET still matter even with the new $40,000 SALT cap?
The new $40,000 SALT cap is temporary (2025–2029) and phases out for taxpayers with income above $500,000. PTET, on the other hand, applies at the entity level, offering a potentially unlimited deduction regardless of the owner’s income. This makes PTET particularly valuable for high earners in high-tax states.

Can business owners use both PTET and the new $40,000 SALT cap?
Yes. It’s possible to benefit from both. Business owners can use PTET to deduct state income taxes paid at the entity level while still itemizing and using the higher $40,000 SALT cap for property taxes or other eligible personal state taxes.

Which states have PTET programs?
More than 30 states—including New York, New Jersey, California, and Illinois—currently offer PTET elections. Rules vary by state, so business owners should review eligibility, election deadlines, and payment timing requirements with their tax professional.

When does the new $40,000 SALT cap expire?
The expanded SALT cap is available for tax years 2025 through 2029 and is scheduled to revert to $10,000 in 2030 unless Congress extends it. PTET remains in effect beyond that date unless future legislation changes it.

What should business owners do next?
Business owners should continue electing PTET where available, coordinate its use with the new SALT cap for optimal tax benefit, and monitor future tax legislation for potential changes. Working closely with a CPA or tax advisor ensures compliance with both federal and state-level PTET rules.