SALT Cap at $40K: When the PTE Election Still Wins
The One Big Beautiful Bill Act, signed into law in 2025, raised the federal SALT deduction cap from $10,000 to $40,400 for 2026. That sounds like great news for S-corp owners and LLC members in high-tax states. And for many taxpayers, it is. But here's the catch: if you own a pass-through business in California, New York, or New Jersey and your state tax bill already exceeds $40,400, the new cap still leaves tens of thousands of dollars in deductions on the table. A California S-corp owner earning $500,000 in pass-through income pays roughly $46,500 in state income tax. The SALT cap covers $40,400 of that. The remaining $6,100 or more disappears under the new law. And for anyone with income above $500,000, the SALT cap phases out entirely, dropping back toward $10,000 once your MAGI hits $600,000. That's where the pass-through entity (PTE) election still wins in 2026. This guide explains exactly who benefits, how to calculate the advantage, and what you need to do before the deadlines close.
