PTET in 2026: Why This Strategy Still Matters

Beginning in 2025, the One Big Beautiful Bill Act (OBBBA) increased the federal deduction limit for state and local taxes (SALT) from $10,000 to $40,000 for most taxpayers.
This new cap is scheduled to remain in place from 2025 through 2029.

However — and this is the part many taxpayers miss — the benefit of this higher cap is not universal:

• High-income individuals may see the SALT deduction partially or fully phased out.
• Business owners in high-tax states like NY, CA, and NJ often pay well above $40,000 in state tax anyway.
• The new cap does not eliminate the advantage of PTET, because PTET is fully deductible at the entity level and not limited by personal SALT rules.

That’s why the Pass-Through Entity Tax (PTET) remains one of the strongest tax-saving tools available for S-Corporation owners, partners, and multi-member LLCs in the 2026 tax year.

What PTET Does (In Plain English)

PTET allows your business (not you personally) to pay state income tax.
When the entity pays the tax:

✔ It becomes a federally deductible business expense
✔ Owners receive a credit on their personal state returns
✔ Your federal taxable income drops — often significantly

This remains true even under the revised SALT rules.

State-Specific PTET Rules for 2026

New York PTET (2026)

• Election deadline: March 15, 2026
• Credit flows to owners through their K-1s
• Works extremely well for high-income earners and professionals
• PTET remains valuable even with the $40k SALT cap because NY taxes often exceed that level

California PTET (2026)

• Rate: 9.3%
• All owners must consent
• Election is irrevocable for the year
• Very advantageous for CA residents with high income
• Still a major workaround given CA’s steep taxes

New Jersey BAIT (PTET Equivalent)

• Election due by original return due date (April 2026)
• Multi-tier entities allowed
• Very favorable for NJ residents with out-of-state K-1 allocations
• NJ typically offers strong credits, preventing double taxation

Why PTET Is Still Valuable Even With a Higher SALT Cap

Let’s break it down.

1. The $40,000 SALT cap doesn’t fully apply to everyone

High-income owners — especially those with MAGI over ~$500,000 — may lose much or all of the cap due to phaseouts.

2. State income taxes often exceed the cap anyway

In NY, CA, and NJ, business owners with income above $350k-$400k typically pay far more than $40k in state tax.

3. PTET offers unlimited deduction potential

A business can deduct all of the PTET it pays.

4. PTET reduces federal taxable income — even if the owner maxes out SALT

This is the key point:
The SALT deduction (individual level) and PTET deduction (entity level) do not compete with each other.

PTET continues to offer additional savings.

Real-World PTET Savings: Updated 2026 Examples

Scenario 1 — NY S-Corp Owner (2026)

Income: $650,000
NY state tax liability: $58,000
SALT deduction allowed under new rules: $40,000
Amount still nondeductible: $18,000

With PTET:

• Full $58,000 becomes deductible at the business level
• Federal taxable income drops accordingly
• Savings typically range from $6,000 to $12,000

Scenario 2 — CA Partnership (2026)

Income: $1.2 million
CA-source income only subject to CA PTET
PTET election at 9.3% makes most of the CA state liability deductible

Owners see major federal tax reductions, especially CA residents.

Scenario 3 — NJ Resident + NY Partnership

This is an extremely favorable combination:

• NY PTET paid by the entity
• NJ offers credits for taxes paid to NY
• No double tax
• Large federal deduction through PTET

This “cross-border PTET optimization” is one of the most misunderstood but profitable strategies for tri-state clients.

Common PTET Mistakes to Avoid in 2026

1. Missing the election deadline

• NY: March 15, 2026
• CA: election with payment
• NJ: by return due date

2. Underplanning for cash flow

PTET payments reduce distribution cash. Owners must plan accordingly.

3. Assuming the $40k SALT cap eliminates PTET benefits

This is false — and often expensive.

4. Forgetting payroll alignment (S-Corp owners)

Reasonable compensation must be structured correctly.

5. Incorrectly applying multistate allocation rules

Cross-state PTET is powerful — but very technical.

How VV Taxhouse Helps With PTET in 2026

Your PTET plan should be tailored, not generic.
VV Taxhouse provides:

• PTET projections for NY, CA, and NJ
• Multistate resident / nonresident coordination
• S-Corp payroll structuring
• Partner/member PTET allocation planning
• K-1 optimization
• Estimated tax scheduling
• PTET + QBI/199A integration
• Trust and estate PTET planning
• Cross-border NY/NJ and CA multi-state strategies

Our goal is to reduce federal taxable income while avoiding unintended state-level issues.

Final Thoughts: PTET Is Still a Major Opportunity in 2026

Even though the SALT cap is higher, it doesn’t eliminate the need for PTET. In fact, for many high-income business owners, PTET continues to be the superior method for reducing federal taxable income.

PTET remains:

✔ Fully deductible
✔ Powerful for high-income states
✔ Beneficial for multistate owners
✔ One of the easiest ways to produce real, measurable tax savings

If you’re an S-Corp owner, partnership member, or real estate investor, PTET should be part of your 2026 tax strategy.

Ready to Plan Your 2026 PTET Strategy?

📧 [email protected]m
🌐 www.vvtaxhouse.com