SALT cap workarounds
Provides education on the SALT cap workarounds, which can involve an entity-level tax and some form of corresponding offset against the owners’ personal taxes.
Before 2018, an individual generally could deduct an unlimited amount of state and local property and income taxes from income for federal income tax purposes.1 The Tax Cuts and Jobs Act changed that, effectively increasing taxes on many individuals who work or reside in high-tax states. Since 2018, an individual generally can deduct no more than $10,000 of state and local property and income taxes.2 This limitation will continue to apply until 2026.3
In response to this cap on the deductibility of state and local taxes (SALT), more than 20 states have enacted a workaround involving an entity-level tax and a (generally) offsetting tax benefit for its owners. The state imposes an income tax on a pass-through entity, such as a partnership, a limited liability company that’s classified as a partnership for federal tax purposes, or an S corporation. This tax is sometimes called a pass-through entity (PTE) tax. In most states, this tax is elective.
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Purpose of this material.
The information on this page and in the attached document is provided for informational and educational purposes only. It should be used solely for the purposes of discussion with your UBS Financial Advisor and your independent consideration. UBS does not intend this to be fiduciary or best interest investment advice or a recommendation that you take a particular course of action.
No tax or legal advice.
UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your personal tax and/or legal advisors regarding your particular situation.
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