Dossier · Tax · Multi-state

The SALT cap quadrupled until 2030, and the pass-through entity tax workaround survived

Status
Open, tracking
Next deadline
December 31, 2026 (56 days)Last day for an LLC to pay its 2026 pass-through entity tax and deduct it for 2026. New York's fourth estimated payment is due December 15.
Last verified
October 29, 2026
Entries
5

For an LLC owner with income above about $600,000, the bigger federal SALT cap does nothing. The cap is $40,400 for 2026, but it shrinks by 30% of modified AGI above $505,000 and never falls below $10,000, so a high earner is back at $10,000. And for everyone, the cap returns to $10,000 for tax years after 2029.

That keeps the pass-through entity tax at the center of LLC tax planning. A PTET is a state tax the LLC elects to pay on its own income, which the LLC deducts federally under IRS Notice 2020-75, outside any owner’s SALT cap. The House version of the 2025 tax law would have limited those deductions for service businesses. The final law dropped that limit. That is reported by law firms; we have not found an IRS statement reaffirming Notice 2020-75 since the law passed.

An LLC deducts its state pass-through entity tax only in the year it pays, so a 2026 deduction needs a payment by December 31, 2026.

The states are extending, not sunsetting

California’s SB 132 extends its elective tax through tax years beginning before 2031, and starting in 2026 a missed June 15 payment no longer voids the election; owners instead lose 12.5% of their credit on the unpaid amount. New York’s PTET remains an annual election due by March 15 of the tax year, with no sunset. Illinois, Utah, Oregon and Minnesota were reported to have removed or extended their sunsets in 2025 and 2026, and Virginia’s was reported moved to January 1, 2027. Those other-state reports come from accounting firms and are not yet confirmed on official pages.

The structuring consequence

Because the LLC makes the election and pays the tax, the operating agreement has to say who decides, how the tax is charged among members who live in different states, and how a member who gets no benefit is kept whole. A multi-state real estate LLC tracks each state’s election date and payment rules every year, and the snap back to $10,000 in 2030 makes the election valuable to more owners, not fewer.

Timeline

  1. Minnesota is reported to extend its PTET through 2027

    Minnesota HF 2438 was reported signed May 27, 2026, extending the state’s PTET to tax years beginning before January 1, 2028. The same report says Illinois made its PTET permanent and Utah and Oregon removed or extended their sunsets. The official bill pages have not yet been confirmed.

    Reported by: Forvis Mazars · Verified Oct 29, 2026

  2. The IRS confirms the 2026 SALT cap is $40,400, phasing down above $505,000

    The IRS corrected the 2026 Form 1040-ES to state a $40,400 limit ($20,200 married filing separately). The phase-down starts at modified AGI of $505,000 ($252,500 married filing separately), with a floor of $10,000.

    Primary source: IRS, correction to 2026 Form 1040-ES · Verified Oct 29, 2026

  3. Congress raises the SALT cap to $40,000 for five years and leaves PTET deductions alone

    Public Law 119-21 sets the cap at $40,000 for 2025, rising 1% a year through 2029, reduced by 30% of income over the threshold with a $10,000 floor, and back to $10,000 after 2029. The House version’s limits on PTET deductions for service businesses were dropped from the final law.

    Reported by: Cooley · Verified Oct 29, 2026

  4. California extends its elective pass-through tax through 2030

    SB 132 extends the elective tax to tax years beginning before January 1, 2031. Starting in 2026, a missed or short June 15 payment reduces the owners’ credit by 12.5% of the unpaid amount instead of voiding the election.

    Primary source: California FTB, Tax News, August 2025 · Verified Oct 29, 2026

  5. The IRS lets entity-level state tax payments sit outside the individual SALT cap

    Notice 2020-75 announced proposed regulations under which a partnership or S corporation deducts specified state income tax payments in computing its income, so those payments do not count against an owner’s SALT cap. Every state PTET program rests on this notice.

    Primary source: IRS Notice 2020-75 · Verified Oct 29, 2026

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All of The "LLC" Wire

Opened October 29, 2026. Entries are dated by the event, not the write-up, and each links to its source. Education only; nothing here is legal or tax advice.

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