The New $40,000 SALT Cap: Should You Itemize or Use PTET Through Your Business?

The tax landscape is shifting again—this time with a major change to the state and local tax (SALT) deduction. For years, individuals were capped at a $10,000 deduction for property taxes and state income taxes. For many business owners, this meant paying far more federal tax than necessary.

Now the proposed new SALT cap of up to $40,000 opens the door for a larger deduction on your personal return. But it also raises an important planning question:

Should you take the bigger SALT deduction on your personal taxes—or continue using the Pass-Through Entity Tax (PTET) through your business?

If you’re an owner of an S corporation, partnership, or LLC taxed as a partnership, the decision isn’t always obvious. And making the wrong choice could leave thousands of dollars on the table.

This guide breaks down the key factors to help you decide.

What Is the New SALT Cap?

Under the proposed legislation, the federal SALT cap would increase from $10,000 to up to $40,000 for certain filers. This higher cap allows eligible taxpayers to deduct much more of their state income and property taxes on Schedule A—meaning a potentially lower federal tax bill.

This is great news for high-income business owners in states like Colorado, New Mexico, and Wyoming (yes—WY clients may still be affected through property taxes, local taxes, and multi-state activity).

But whether you should itemize is another story.

What Is PTET (Pass-Through Entity Tax)?

PTET allows your business to pay the state income tax instead of you paying it personally. The business then deducts that tax as an ordinary business expense—bypassing the SALT cap entirely.

This has been one of the most powerful tools for small business owners since 2021 because:

• Your business gets a full federal deduction for the state taxes paid.

• You receive a credit or adjustment on your personal return.

• You avoid being limited by the $10,000 SALT cap.

  
  

If you’re a high-income business owner, PTET has likely saved you thousands.

When Does PTET Still Win?

Even with the higher SALT cap, PTET will often still be the better choice—especially for business owners with high taxable incomes.

Here’s why:

1. PTET gives you an unlimited business deduction.

The business deduction is not capped at $40,000.If your state tax liability is $25,000… or $60,000… or $120,000—PTET deducts it all.

2. Itemizing is only helpful if your total itemized deductions exceed the standard deduction.

For 2025, the projected standard deduction is roughly:

• $29,200 for married filing jointly

• $14,600 for single filers

If your mortgage interest, charitable giving, and property taxes aren’t already high, you may not reach the threshold even with a larger SALT deduction.

3. PTET often produces a better federal deduction than itemizing.

PTET reduces business income before it flows to your personal return.Itemizing reduces your federal tax after the income is already in your taxable income.

That difference can be huge.

4. PTET avoids AMT issues.

Some taxpayers who itemize may get pushed closer to AMT, reducing the benefit of the SALT deduction.

When Might Itemizing With the New SALT Cap Make Sense?

There are a few situations where itemizing could be the smarter move:

1. Your state income tax is below the PTET threshold.

If your business income is modest, the difference between itemized SALT and PTET may be small.

2. You are married filing separately.

The cap and PTET interplay can look different depending on filing status.

3. You have large mortgage interest and charitable contributions.

If you’re already itemizing easily, the larger SALT deduction becomes more meaningful.

4. You have multiple properties and high property taxes.

The new cap may allow you to deduct much more than your business income alone would.

5. Your business has multiple owners with misaligned tax situations.

Some owners may benefit from PTET while others may benefit from itemizing.PTET elections often require consensus.

Real-World Example

Scenario:A Colorado S corporation owner owes $32,000 in Colorado income tax for 2025.

Option 1: Itemize with the $40,000 SALT cap

• They can deduct the full $32,000 on Schedule A.

• Benefit is limited by whether they exceed the standard deduction and whether AMT applies.

  
  

Option 2: Use PTET

• The business deducts the full $32,000.

• Reduces federal taxable income—no itemizing required.

• Typically results in a larger federal tax savings.

  
  

Winner: PTET—unless the taxpayer already has large itemized deductions.

So… Which Should You Choose?

Here’s the bottom line:

• High-income business owners: PTET will usually create a larger federal benefit.

• Business owners with a mortgage, large charitable giving, and high property taxes: Itemizing may become more attractive.

• Business owners with several owners or multi-state activity: The decision must be modeled carefully.

  
  

There is no one-size-fits-all answer. It depends entirely on your numbers.

At T. S. Allen & Associates, our year-end tax planning process runs detailed projections both ways so you can make the most tax-efficient choice before December 31.

Want to Know Which Strategy Saves You More?

We run SALT vs. PTET comparison models for all our business clients during year-end tax planning.

Schedule a consultation, and we’ll help you determine the most advantageous approach for 2025. Your next step? Check out our Proactive Tax Strategy & Planning for Business Owners. While you're there, take the 2-minute Tax Strategy Assessment and get some free tax strategy ideas.

We provide these articles as general information and not individualized tax advice.  They do not constitute a client relationship with you, and any information provided here should be applied at your own risk.