The federal limit on state and local tax deductions, known as the SALT cap, is set to expire for tax years after 2025, raising state tax uncertainty for pass-through entities that have elected to be taxed at the entity level. Although most states’ pass-through entity taxes (PTETs) will remain in effect if the federal election expires, six states (including Illinois) tie their PTET to the duration of the SALT cap, and four states (including California) limit the PTET election to tax years before 2026. Even in states that offer the PTET election indefinitely, the potential elimination of the federal SALT cap may prompt pass-through entities that elected to pay state taxes at the entity level to reevaluate the benefits of making the election. In this article, Checkpoint Catalyst considers the questions posed for pass-through entities, and the future of the PTET.
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