Even with a temporary $40,000 SALT cap, high earners face phaseouts—making PTET the permanent workaround that keeps deductions alive while unlocking the full standard deduction and new charitable benefits.
Congress’s 2025 tax law changes gave taxpayers a partial win: the state and local tax (SALT) cap temporarily rose from $10,000 to $40,000 for 2025, indexed through 2029. But the higher cap comes with a catch. Once married filing joint (and single) income exceeds $500,000 (or $250,000 for married filing separately), the benefit begins to phase out at a rate of 30% of the income above the threshold. At an income of $600,000, the deduction reverts to the old $10,000 minimum. President Trump signed the bill into law before the July 4 recess, making this framework official.
How the SALT Workaround Works
To circumvent the federal SALT cap, many states have adopted pass-through entity tax (PTET) regimes. Instead of business owners deducting state income tax on their individual return (where it’s capped), the entity pays the tax directly. That entity-level payment is treated as a business expense, fully deductible for federal purposes, and then credited to the owners’ state returns. This structure allows taxpayers to bypass the individual SALT cap. PTET laws differ by state and not all states offer this workaround, so eligibility and rules vary. Traders eligible for Trader Tax Status (TTS) qualify as a business for PTET purposes.
Why PTET Still Matters
Even with a $40,000 cap in 2025, high earners will often lose most of the benefit due to phaseouts. For them, PTET may be the only way to preserve meaningful state tax deductions at the federal level. Beyond SALT savings, PTET lowers adjusted gross income (AGI), which can improve eligibility for deductions and credits tied to income limits. Importantly, PTET deductions also reduce alternative minimum tax (AMT) income, unlike SALT itemized deductions. For operating partnerships, it reduces self-employment tax.
PTET can also create an additional benefit: if electing PTET reduces itemized deductions below the standard deduction threshold, taxpayers may claim the full standard deduction ($31,500 for married filing jointly, $15,750 for single/MFS in 2025). Starting in 2026, non-itemizers will also be allowed an above-the-line charitable deduction ($1,000 single / $2,000 joint). This adds another layer of tax efficiency.
The Bottom Line
The 2025 law raised the SALT cap but did not eliminate its limits on high earners. PTET elections remain a critical workaround that let pass-through businesses and their owners preserve valuable deductions. Taxpayers should weigh the costs and benefits, which vary by state and entity type, and consult advisors to determine if a PTET election makes sense for 2025 and beyond.
See the long-form version of this blog post on GreenTraderTax.com, SALT Cap Workaround Update: Why PTET Elections Still Matter After OBBBA.