The SALT Deduction Workaround
The SALT Deduction Workaround
Karma Martell
Karma Martell, Founder of KarmaCom, is a seasoned professional business commentator, writer, and marketer, and serves as virtual CMO for International Wealth Tax Advisors.
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The One Big Beautiful Bill Act (OBBBA) permanently extends key provisions of the 2017 Tax Cuts and Jobs Act, including the SALT deduction cap. From 2025 to 2029, the cap increases to $40,000, but phases down for households earning over $500,000—reverting to the original $10,000 cap for those above $600,000.
Adoptions vary by state.
Pass the Salt
Crucially, the SALT cap workaround remains intact for pass-through entity (PTE) owners, offering a powerful tool to mitigate federal tax exposure by shifting state and local tax payments to the entity level.
Key Provisions
- SALT Deduction Cap Adjustments Raised to $40,000 (2025–2029), but phased down for incomes over $500K.
- Households earning $600K+ revert to the original $10K cap.
- Married filing separately: thresholds are halved.
- PTE Workaround: A key planning opportunity: Applies to partnerships, S corporations, and certain LLCs.
- Enables state/local taxes to be paid at the entity level, bypassing individual SALT limits.
- Reduces taxable income passed through to owners—effectively lowering federal liability.
- May outperform itemized deductions, especially for those subject to AMT or net investment income tax.
- IRS Endorsement & Compliance: IRS formally authorized the workaround in 2020; further guidance may follow.
- Applies to “Specified Income Tax Payments” made after Nov. 9, 2020, or earlier if state law was in place.
- No federal restrictions introduced under OBBBA.
- State-Level Adoption: over 35 states have enacted PTE tax legislation.
- Laws vary in scope, effective dates, and expiration (some ending in 2025).
- Confirm eligibility and timing with a qualified tax advisor.
Strategic Wealth Preservation
For high-income earners in high-tax states, the PTE workaround can uphold significant deductions that would otherwise be lost under the SALT Cap. It’s a sophisticated lever for tax efficiency—especially relevant for those with complex income streams and multi-state exposure.
Jack Brister and his capable team are up-to-date with all OBBBA developments and tax law changes. We’re here for a consultation, an evaluation, and to serve as a trusted advisor and accounting partner. Whether you call Detroit, Dublin or Dubai your home, if you have investments, business, family or residences in the U.S., we can help.
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