Should I still elect PTET now that the SALT cap is $40,000?

It depends on your total state and local tax picture. For taxpayers with modest entity income and low property taxes, the raised cap may fully cover your state income taxes personally — eliminating the PTET benefit. But if your entity state income tax plus property taxes exceeds $40,400 (or if the phase-out reduces your effective cap below that), PTET continues to save money. The break-even threshold is lower than before, but for high earners in high-tax states, PTET often remains the right choice.

What is the OBBBA SALT cap phase-out?

The OBBBA raised the SALT cap to $40,000 for 2025 ($40,400 for 2026) but included a "hidden" phase-out: for every dollar of AGI above $400,000 (MFJ) or $200,000 (Single/HOH), your SALT cap shrinks by $0.20. At $550,000 AGI for joint filers, the cap is fully phased back to $10,000. This means many of the taxpayers who would benefit most from the raised cap — high-income business owners — see a reduced or eliminated benefit.

What states have PTET elections?

As of 2026, over 30 states have enacted PTET laws, including California, New York, New Jersey, Illinois, Massachusetts, Connecticut, Maryland, Virginia, Oregon, Minnesota, Wisconsin, Colorado, Georgia, Arizona, and many others. A few high-income states (Florida, Texas, Nevada, Washington) have no individual income tax, so PTET doesn't apply. Check your state's Department of Revenue for current rules — election deadlines and mechanics vary widely.

What is the election deadline for PTET?

Each state sets its own deadline. Most require the election by the extended due date of the entity return. California requires election by the original due date (March 15 for calendar-year entities). New York allows a late election in some circumstances. Missing the deadline typically means forfeiting the election for that tax year — ask your CPA well before year-end.

Does the entity income tax reduce my K-1 income?

Yes. When the entity elects PTET and pays the state tax, the payment is deducted at the entity level, which reduces your allocable share of income on the K-1. This means your federal taxable income from the entity is lower — which is precisely where the federal tax savings comes from.

Is there a cost to electing PTET?

There are compliance costs: additional state filings, estimated PTET payments (to avoid underpayment penalties), and potentially a CPA fee to manage the election. These typically run $500–$2,000 per year depending on complexity. If your net annual benefit from this calculator is under ~$1,000, weigh those costs carefully.

Tax

PTET vs. SALT Cap Election Calculator (OBBBA 2026)

Find out if your S-corp or partnership should still elect Pass-Through Entity Tax under the new $40,000 SALT cap — with OBBBA phase-out math included.

By The FinCalc TeamUpdated May 25, 2026

Over 30 states created Pass-Through Entity Tax (PTET) elections as a SALT cap workaround — letting S-corps and partnerships pay state income tax at the entity level, where the deduction is unlimited. The OBBBA (signed July 4, 2025) raised the personal SALT cap from $10,000 to $40,000 for 2026, which changes the math for many business owners. This calculator tells you the exact net annual benefit of electing PTET under the new rules.

How PTET Changes Your Federal Deduction

Before the SALT cap existed, paying state income taxes personally and deducting them on Schedule A was straightforward. After 2017, the $10,000 SALT cap meant that any state income tax above $10,000 (minus property taxes) got no federal deduction at all.

States responded by creating Pass-Through Entity Tax elections: the entity pays state income tax rather than the individual owners. Because it's a business expense, the deduction flows through to owners as a reduction in their K-1 income — not as a personal SALT deduction subject to the cap. There's no federal limit on business deductions.

The mechanics:

Entity elects PTET before the state deadline
Entity pays estimated PTET throughout the year (some states allow a lump payment)
Your K-1 income is reduced by the PTET paid on your behalf
You receive a state tax credit equal to the PTET paid (most states: 100%)
Your personal state income tax liability is offset by the credit

The net effect: your federal taxable income is lower (via reduced K-1 income), and your state tax liability is unchanged (because the credit offsets the PTET). The SALT cap never enters the calculation.

How OBBBA changed the math:

The SALT cap increase to $40,400 (2026) means some taxpayers can now deduct their entity income taxes personally — particularly those with low property taxes and modest entity income. For those taxpayers, the PTET election was previously providing a $3,000–$10,000 federal benefit that may now be zero.

But the phase-out is critical: at $450,000 AGI for joint filers, your effective cap is only $30,400. At $550,000, it's back to $10,000. High-earning business owners in high-tax states are often still in essentially the same position as before OBBBA.

When to Run This Calculation

Before the PTET election deadline each year: PTET elections are typically annual and irrevocable once made. Run this calculator before the deadline to confirm the election still makes financial sense under current rules.

If your income increased significantly: Moving from $380,000 to $420,000 AGI (MFJ) starts triggering the SALT phase-out. What was a neutral PTET decision can become clearly beneficial as the phase-out bites.

When your property taxes or other SALT changed: Buying or selling a home, moving states, or paying off a mortgage all affect your SALT headroom. The PTET benefit is directly tied to how much of the cap is already consumed by other taxes.

When your state changes its PTET credit rate: A handful of states have adjusted credit rates since their initial PTET laws. If your state reduces the credit from 100% to 90%, the math changes.

For multi-state entities: If the entity operates in multiple states that have PTET, run a calculation for each state separately. The benefit varies significantly by state rate and credit mechanics.

Understanding the Inputs

Household AGI: Your total household adjusted gross income including the entity income. This is used to calculate your SALT cap under the OBBBA phase-out rule. The $40,400 cap phases out at 20 cents per dollar of AGI above $400,000 (MFJ) or $200,000 (Single/HOH), bottoming out at $10,000. If your AGI is in that range, the raised cap is less valuable than it appears.
Your Share of Entity Income (K-1): Your allocable distributive share from the partnership or S-corp as shown on your Schedule K-1. This is the amount on which you'd owe state income tax — either personally (no PTET) or through the entity election (PTET).
State Income Tax Rate: The marginal rate your state applies to pass-through business income. Most high-tax states: California 9.3–13.3%, New York 6.85–10.9%, New Jersey up to 10.75%, Illinois 4.95% flat, Massachusetts 5%. Use the rate that applies to your income level.
State PTET Credit Rate: Most states give a 100% credit — the full amount of PTET paid comes back to you as a credit against your personal state tax liability. Connecticut gives 87.5%. A few states have partial credit or addback provisions that reduce the net benefit. Check your state's PTET statute or ask your CPA.
Federal Marginal Tax Rate: Your top federal income tax bracket: 22%, 24%, 32%, 35%, or 37%. The higher your federal rate, the more valuable the unlimited entity-level deduction is compared to the capped personal SALT deduction.
Other Personal SALT: Property taxes plus any other state or local taxes you pay personally — anything that would compete for space under your SALT cap. Do not include the entity income tax here; it is calculated automatically. If your property taxes plus other personal state taxes already exceed your SALT cap, the entity income tax gets zero personal SALT benefit, and PTET is unambiguously valuable.
You Itemize Deductions: If you take the standard deduction ($30,000 for MFJ in 2026), the SALT deduction is worth exactly $0 to you — PTET is automatically beneficial for any amount of state income tax. Toggle this off if you take the standard deduction and the calculator will reflect that.

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The FinCalc Team

Personal Finance Experts

The FinCalc team is a group of personal finance writers, analysts, and engineers dedicated to building accurate, transparent financial calculators. Every formula is verified against industry standards and explained in plain language.

Last reviewed and updated: May 25, 2026