Under the One Big Beautiful Bill Act (OBBBA, P.L. 119-21), the federal SALT deduction cap has been temporarily expanded from $10,000 to $40,000 for tax years 2025 through 2029, with a 1% annual increase each year. For taxpayers with modified adjusted gross income (MAGI) exceeding $500,000, the cap phases down by 30% of the excess, reverting to a minimum of $10,000. The cap reverts permanently to $10,000 beginning in 2030. For 2026, the cap is $40,400. High-earners in high-tax states (California, New York, New Jersey, Illinois, Massachusetts) who routinely pay $50,000 to $200,000+ in state and local taxes now receive a federal deduction for a substantially larger portion. The pass-through entity tax workaround, available in 36+ states, allows business owners to deduct state taxes at the entity level - an additional above-the-line strategy that is not subject to any SALT cap.
Before OBBBA (2023-2024): Married couple in New York with $2,000,000 AGI pays $200,000 in NY state income tax and property taxes. Federal deduction limited to $10,000 (TCJA cap). Loss on $190,000 of state/local taxes paid.
With OBBBA (2026): Same couple pays the same $200,000 but now receives a federal deduction. Because their MAGI is $2,000,000, they are above the $500,000 phaseout threshold. The cap is reduced by 30% of the excess: 30% x $1,500,000 = $450,000. The phased-down cap is $40,400 - $450,000, floored at $10,000. They receive the $10,000 floor deduction. But a couple at $750,000 MAGI would phase down as follows: 30% x $250,000 = $75,000 reduction. Cap is $40,400 - $75,000, which equals a $10,000 floor deduction (cannot go below). A couple at $600,000 MAGI: 30% x $100,000 = $30,000 reduction. Cap is $40,400 - $30,000 = $10,400 deduction allowed.
Combined with PTET: Partnership earns $1,000,000 and passes through to New York resident partners. Partners make PTET election to pay NY state tax at entity level. The entity deducts the full NY tax amount without the individual SALT cap - and partners still receive the benefit of the expanded $40,000+ cap (subject to phaseout) on any remaining state/local taxes paid personally.
The $40,000 SALT cap applies to tax years beginning in 2025 (i.e., 2025 calendar year and fiscal years starting in 2025). The cap increases by 1% annually: $40,400 for 2026, $40,800 for 2027, $41,208 for 2028, $41,620 for 2029. Beginning in 2030, the cap reverts permanently to $10,000. Taxpayers in high-tax states should plan their tax strategies with this sunset in mind - the 2025-2029 window is temporary and finite.
PTET elections must be made annually by a specified deadline that varies by state. New York requires the election to be made by March 15 of the tax year. California requires it by June 15. Most states require the election to be made during the tax year - a retroactive election is not possible. The payment of the estimated PTET tax is also typically due during the tax year to generate the federal deduction in that year rather than the following year. Missing the election or payment deadline means losing the SALT cap workaround for the entire year.
Real property taxes on a personal residence are subject to the same SALT cap - now $40,000+ for 2026 (subject to MAGI phaseout). High-end homeowners in New York, New Jersey, Connecticut, and Illinois who pay $20,000 to $80,000 in annual property taxes now receive federal deduction for up to $40,000 of combined state income and property taxes (if below the $500,000 MAGI threshold). The expanded cap provides material relief for homeowners in high-tax jurisdictions but only during the 2025-2029 window. The PTET workaround does not help with personal property taxes or real estate taxes on personal residences - only with state income taxes paid through a business entity.