The Tax Cuts and Jobs Act capped the deduction for state and local taxes (SALT) at $10,000 per year ($5,000 for married individuals filing separately). This limitation heavily impacts taxpayers residing in states with high income and property tax rates. Fortunately, creative legislative workarounds exist.
Pass-Through Entity (PTE) Taxes
Many states have enacted PTE tax laws allowing partnerships, LLCs, and S-Corporations to pay state tax at the entity level rather than passing it to individual tax returns. Since entity-level business deductions are not subject to the $10,000 individual SALT cap, this bypasses the cap and yields substantial federal tax savings.
Who Qualifies?
High-income individuals with pass-through business income stand to gain the most from electing PTE status. If you are exclusively an W-2 employee, you cannot use this workaround, meaning personal tax planning must focus on alternative deductions.