If you're a high earner in California, New York, New Jersey, Illinois, Connecticut, or any of the other high-tax states, the 2017 SALT cap is probably the most expensive tax change of the last decade for your household. A married couple making $400,000 in California can easily pay $35,000 in state income tax and another $15,000 in property tax — $50,000 total in state and local taxes. Pre-2017, all $50,000 was federally deductible. Post-2017, only $10,000 is. That extra $40,000 of non-deductible tax costs $9,600-$14,800 in extra federal tax depending on your bracket.

Most CPAs throw up their hands at this point. "There's no way around the cap." They're wrong. For households with any pass-through business income (Schedule C, K-1 from an S-Corp or partnership), there's a state-level workaround called the Pass-Through Entity Tax (PTET) that effectively lifts the SALT cap on business-related state taxes. It's been quietly enacted by 36+ states since 2018, and most CPAs serving W-2 clients have never used it.

This article explains the PTET workaround, who qualifies, the savings math, and three smaller strategies for households without business income.

What the SALT cap actually does

The 2017 Tax Cuts and Jobs Act capped the federal deduction for state and local taxes at $10,000 per return ($5,000 if married filing separately). This is a combined cap on:

State income tax (or sales tax, if you elect that instead)
Local income tax
Property tax (real estate)

Before 2017, all of these were fully deductible. The cap was originally set to expire at the end of 2025, but most analysts expect it to be extended in the 2025-2026 tax legislation cycle.

Real-world impact: A New Jersey couple paying $25,000 in state income tax and $15,000 in property tax loses $30,000 of deductions to the cap. At a 32% marginal federal rate, that's $9,600/yearof extra federal tax — directly attributable to the cap.

The Pass-Through Entity Tax (PTET) workaround

Here's the trick most CPAs miss: the SALT cap applies to state taxes paid by individuals. It does not apply to state taxes paid by entities. So if a partnership or S-Corp pays state income tax at the entity level (rather than passing the income through to partners/shareholders who then pay state tax individually), the entity's tax payment is fully deductible against the entity's income — bypassing the cap entirely.

This was an obscure quirk for years, until states started actively enacting PTET regimes in 2018. As of 2025, 36+ states have PTET legislation on the books, including:

California — AB 150, enacted 2021. Elective; one of the most generous.
New York — PTET enacted 2021.
New Jersey — Business Alternative Income Tax (BAIT), enacted 2020.
Illinois — Optional pass-through entity tax, enacted 2021.
Connecticut — first state to enact PTET in 2018.
Plus AL, AZ, AR, CO, GA, ID, IN, IA, KS, KY, LA, MD, MA, MI, MN, MS, MO, MT, NE, NM, NC, OH, OK, OR, RI, SC, UT, VA, WA, WV, WI…

The IRS blessed this workaround in Notice 2020-75, confirming that state-level PTET payments are deductible at the entity level. Translation: the federal government is fine with it.

How it works for an S-Corp owner

Without PTET: Your S-Corp distributes $200,000 to you. You owe $20,000 in state income tax personally. That $20,000 hits your SALT cap and is mostly non-deductible federally.

With PTET: The S-Corp pays the $20,000 state tax at the entity level. Your distributions drop by $20,000 (the entity paid it on your behalf), but the $20,000 is now an ordinary business expense — fully deductible on your federal Schedule K-1, reducing your federal taxable income by $20,000. At a 32% federal bracket, that saves you $6,400 in federal tax — money you would have lost to the SALT cap.

The state typically gives you a credit on your personal return for the PTET your entity paid, so you don't end up double-paying state tax. The net is: you owe the same state tax you would have anyway, but you've moved the deduction from "capped at $10k personally" to "fully deductible at the entity level."

Who can use PTET

S-Corp owners — yes, with election
Partnership / multi-member LLC owners — yes, with election
Single-member LLC owners filing Schedule C — usually NOT eligible (single-member LLCs are disregarded entities by default; they'd need to elect S-Corp tax treatment first)
Pure W-2 employees — no. PTET requires pass-through business income.

So if you have an S-Corp election (see the S-Corp threshold article), PTET layers on top. If you don't have a pass-through entity, the PTET workaround isn't available — but other strategies below are.

The math: when PTET is worth doing

Three things have to be true for PTET to save you money:

You have meaningful pass-through business income (typically $50,000+ to make the admin worth it).
Your state has a PTET regime (most blue and many red states do — check your state's department of revenue).
You're already itemizing (or the savings push you into itemizing). Standard-deduction filers don't benefit.

The savings scale with your federal marginal rate. At 24%, every $1 of state tax moved from capped-personal to deductible-entity saves you 24¢. At 37%, it saves 37¢. Above 24% federal marginal rate AND above $50k of pass-through income, PTET typically saves $2,000-$15,000/year.

If you don't have business income: three smaller strategies

1. Bunch property tax payments

Most counties let you pay 18 months of property tax in a single calendar year (current year + half of next year paid in December). In your "stacked" year, your total SALT might exceed $10k by enough to be relevant; in the off year, you take the standard deduction. The mechanics depend on your state — California's prop tax billing cycle makes this easier than New York's.

Same idea applies to charitable giving — see the Itemize vs Standard calculator for bunching strategy.

2. Switch to using sales tax (only useful in TX, FL, WA, etc.)

The SALT $10k includes either state income tax OR state sales tax (whichever you choose). In states with no income tax (Texas, Florida, Washington, Tennessee, Nevada, South Dakota, Wyoming, Alaska), only sales tax counts — and it's usually well below $10k, so you're not really capped. This isn't a workaround, just a reason why low-tax-state residents aren't really affected.

3. Consider a charitable workaround (limited)

Several states attempted to convert state tax into "charitable contributions" to state-controlled funds in 2018, since charitable contributions aren't capped. The IRS shut most of these down in 2019. A few residual programs exist for specific purposes (school choice, conservation easements) but they're niche and audit-magnetic.

What about state-level legislation lifting the cap?

High-tax states (NY, CA, NJ) have lobbied for years to lift the cap or add credits to offset it. As of 2025, no federal legislation has passed. The cap is scheduled to expire at the end of 2025 along with most other TCJA individual provisions, but extension is the most likely outcome politically. Don't plan around the cap going away.

The bottom line

If you have ANY pass-through business income and live in a PTET state, ask your CPA about electing PTET this year. They may not have brought it up. The savings can be $2,000-$15,000 annually for the typical high-earning entrepreneur.
If you're a pure W-2 employee, you're mostly stuck with the cap. Bunching property tax and charity into alternating years is the main lever.
If you live in TX/FL/WA/NV/etc., the SALT cap barely affects you — focus on other levers.

Run your numbers in the Itemize vs Standard calculator to see how close you are to making the cap matter, and the full optimizer to see where SALT fits in your overall tax picture.

How to Stop Losing $10,000+ to the SALT Cap (and the One Workaround Most CPAs Miss)