The annual limitation on an individual taxpayer’s deduction for state and local taxes (the SALT cap) is a complex subject. This was first created by the Tax Cuts and Jobs Act of 2017 (TCJA), and the $10,000 annual limitation took effect beginning in 2018, with a scheduled expiration at the end of 2025.
After the enactment of the TCJA, states searched for opportunities to alleviate the impact of the SALT cap. The most common arrangement, state pass-through entity tax (PTET) tax regimes, shift the state tax burden from individuals to their pass-through entities. The Treasury Department approved such regimes in Notice 2020–75 by providing federal entity-level deductions for qualifying PTETs. In the years since that Notice, most states have adopted PTET regimes.
The One, Big, Beautiful Bill (OBBB), enacted in July 2025, includes the following changes to the SALT cap:
- Increase the cap on a temporary basis. The SALT cap will be increased from $10,000 to $40,000. The cap will increase to $40,400 for 2026 and then increase to 101% of the previous year’s cap for 2027, 2028, and 2029. However, the $10,000 SALT cap will be restored for 2030 and beyond.
- Income-based phase-out. The increased cap will be phased down for taxpayers based on their income but will never go below $10,000. The phase-out begins at $500,000 for 2025 going up to $505,000 for 2026, increasing 101% of the previous year’s threshold for 2027, 2028, and 2029 (half of those amounts for married filing separately).
- No PTET changes. The final version of the OBBB excludes any further limitation on state PTETs.
However, state statutes aren’t consistent when it comes to making the PTET election, and states may differ further when it comes to which owners are eligible to receive PTET deduction benefits. Our SALT experts have specific articles on the PTET for the following states:
Due to varying guidance at the state level and laws that change due dates and eligibility requirements for PTET, it can be difficult to discern whether your business income qualifies. Use these insights from our PTET experts to stay alert on state-level changes, and work with your Plante Moran advisor on your specific tax elections.
