SALT Cap Raised to $40,000: OBBBA 2025 Changes and the PTET Workaround

The OBBBA raised the prior itemized SALT cap to a much higher figure for 2025. The IRS withholding-changes page states the new cap directly: "Individuals who itemize their deductions can claim up to $40,000 ($20,000 if married filing separately) for state and local taxes paid."^[1]

For Miami homeowners and itemizers with significant property-tax bills, the practical effect is a much larger itemized deduction on the federal return for tax year 2025.

The new SALT cap is not unlimited at every income level. The IRS notes a reduction for higher-income filers: "The maximum deduction is reduced for taxpayers with modified adjusted gross income over $500,000 ($250,000 if married filing separately)."^[2]

The practical effect is a tiered benefit: full $40,000 cap available below the income threshold, reduced cap above it, with the underlying statute setting the reduction formula. The modified-AGI calculation is run as part of the personal return work for higher-income Miami filers.

Florida has no state personal income tax, so on the surface the SALT deduction is mostly about local property taxes for a pure-Florida filer. But many Miami-based business owners are partners or S-corp shareholders in entities with operations in states that DO have personal income taxes: New York, California, Illinois, New Jersey, Massachusetts. Those owners receive K-1 income that gets taxed at the source state, and the personal SALT cap then constrains how much of that state tax is deductible on the federal return.

This is where the pass-through entity tax election becomes important. By paying the state income tax at the entity level rather than the owner level, the entity gets a federal business deduction for the state tax above and below the personal SALT cap.

The IRS published the foundational PTET guidance in 2020. The IRS notices index references the rule under the title that begins "Notice 2020-75, Forthcoming Regulations Regarding" and continues with the deductibility framework for partnership and S-corp state-income-tax payments.^[5]

The notice and the state-level PTET regimes built on top of it together allow a partnership or S corporation to pay state income tax at the entity level, deduct it as a business expense on the federal entity return, and pass through the post-deduction income to the owners. The personal SALT cap then applies only to the residual personal state tax, not the entity-paid portion. For Miami owners with multi-state K-1 income, the entity-level election and the personal-return SALT claim have to be coordinated in the same filing cycle.

A Miami partner with a meaningful K-1 share of a New York-state operating partnership might be paying significant New York state tax on that income. Before PTET, that state tax flowed through to the personal return where the prior SALT cap constrained the federal deduction. After PTET, much of that state tax can be paid at the entity level and deducted as a federal business expense, lifting the constraint.

The right answer depends on the state, the entity type, the owner mix, and the modified-AGI level. For broader cross-border planning context that often sits alongside multi-state PTET decisions, see our ITIN application guide for Miami filers guide.