The SALT Cap & PTET Workaround Analyzer
An interactive guide to the $10,000 SALT deduction limit and the Pass-Through Entity Tax solution.
Visualizing the $10,000 SALT Cap's Effect
The Tax Cuts and Jobs Act of 2017 (TCJA) introduced a $10,000 limit on the amount of state and local taxes (SALT) individuals can deduct on their federal returns. This section visualizes how that cap creates a significant disparity for taxpayers in high-tax states, where average property and income taxes often far exceed the limit. The chart below shows the gap between average taxes paid and the maximum deduction allowed.
The Pass-Through Entity Tax (PTET) Workaround
In response to the SALT cap, many states created an ingenious workaround. The PTET shifts the tax payment from the individual owner to the business entity (S-Corp or Partnership). The business pays the state tax and deducts it as an ordinary business expense, which is not subject to the $10,000 limit. This lowers the federal taxable income that "passes through" to the owner, effectively bypassing the cap. The diagram below illustrates this shift.
Without PTET Workaround
With PTET Workaround
PTET Benefit vs. QBI Cost Modeler
Electing PTET is not always a simple win. The primary trade-off is that the PTET payment reduces your Qualified Business Income (QBI), which in turn reduces your 20% QBI deduction under Section 199A. This simulator helps you model the net federal benefit by comparing the tax savings from the SALT deduction against the tax cost of a smaller QBI deduction. Adjust the sliders to fit your scenario.
Net Federal Tax Benefit
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State-by-State PTET Rules
PTET rules are not uniform. They vary significantly by state in areas like tax rates, election deadlines, and how the owner receives their benefit. Select a state below to see a snapshot of its key provisions. This highlights why multi-state businesses need careful, state-specific analysis.
The Future: Post-2025 Scenarios
The $10,000 SALT cap is set to expire at the end of 2025. Congress faces a choice: let it expire, extend it, or create a new compromise. The outcome will dramatically affect taxpayers and the viability of the PTET workaround. Explore the potential impact of different legislative scenarios below.