House Bill Targets SALT Cap Workarounds and PTET Deduction for Traders and Service Professionals

Last Updated on June 3, 2025 by Robert Green

A Renewed Blow in the SALT Wars and a Wake-Up Call for High-Income Professionals

My parents once gave me a binary career choice: become a doctor or a lawyer. I took the road less traveled and became a CPA. While they respected my choice, none of us anticipated that the government would gradually single out respected service professionals—doctors, lawyers, accountants, financial advisors, and traders—for unfavorable treatment under the tax code.

This trend began in earnest with the 2017 Tax Cuts and Jobs Act (TCJA). While the TCJA created a 20% qualified business income (QBI) deduction for pass-through entities, it excluded “specified service trades or businesses” (SSTBs) above a certain income threshold. Professionals in health, law, financial services, consulting, and accounting faced income caps on the QBI deduction. In contrast, manufacturers, tech companies, and other non-SSTBs had no income cap; however, wage and property limits apply above an income threshold.

The House Bill’s New Blow to Service Professionals

On May 22, 2025, the House of Representatives passed “The One, Big, Beautiful Bill,” a sweeping tax reform proposal to renew and reshape the TCJA, which will mostly expire at the end of 2025. Buried in the new legislation is a provision that targets the same SSTBs once again—this time by stripping them of the valuable Pass-Through Entity Tax (PTET) deduction, which achieved a SALT cap workaround.

Under current law, the PTET election allows owners of pass-through entities to bypass the $10,000 federal cap on state and local tax (SALT) deductions by paying those taxes at the entity level. This workaround has been critical for high-income professionals in high-tax states like New York, California, and New Jersey.

But under the House Bill, individuals engaged in SSTBs, including:

• Health, law, accounting, and actuarial science
• Performing arts, consulting, athletics
• Financial services, brokerage, investing, and trading
• Any business where the principal asset is the reputation or skill of its owners or employees

…would no longer be eligible for the PTET deduction.

SALT Deduction Cap Adjusted

The House bill also proposes a permanent increase in the SALT (State and Local Tax) deduction cap, raising it from $10,000 to $40,000 starting in 2025. However, this expanded deduction would be gradually phased out for higher-income taxpayers.

According to the bill, the phase-out begins for single filers with modified adjusted gross income (MAGI) above $250,000 and for married joint filers above $500,000. The deduction is reduced by 20% for every $50,000 of income above these thresholds for single filers, and every $100,000 for joint filers. Once fully phased out, the cap returns to $10,000 for the highest earners.

While this increase may offer modest relief to middle- and upper-middle-income taxpayers in high-tax states, it does little for high-income professionals, particularly those already excluded from PTET deductions and who trigger AMT. The phase-out structure ensures that the most substantial SALT benefits remain out of reach for many service professionals and investment entities.

Will the AMT Make a Comeback?

The House bill includes a provision to permanently extend the increased Alternative Minimum Tax (AMT) exemption amounts and phase-out thresholds originally enacted under the TCJA. This move aims to prevent more taxpayers from falling into the AMT once the current provisions expire after 2025.

Before the 2017 TCJA, many upper-income taxpayers were pushed into the  AMT due to significant state and local tax deductions, which are not deductible for AMT purposes. The TCJA temporarily raised AMT exemption amounts and roughly doubled the standard deduction, shielding many from this parallel tax calculation.

However, with the new House bill aiming to renew and revise the TCJA framework, there’s a growing likelihood that AMT could once again become a significant factor in federal tax planning. Suppose key deductions like PTET are eliminated and SALT caps are phased out at higher incomes. In that case, more taxpayers—especially those in high-tax states—may find themselves subject to AMT and income tax liability, even without any meaningful change in their economic reality.

What The SALT Cap Workaround Means for Traders and Fund Managers

This change would remove a vital federal tax benefit for traders, asset managers, and proprietary trading firms, especially those qualifying for Trader Tax Status (TTS) and operating through S-Corps or partnerships. According to Proskauer Tax Talks, the denial of PTET deductions applies broadly to those trading or dealing in securities, partnership interests, or commodities.

Congress is effectively extending the SSTB income cap logic from the QBI deduction to the PTET deduction. That’s a punitive shift, taking what was once a SALT cap workaround solution and denying it based on your profession.

Widespread Use of PTET SALT Cap Workarounds

As of early 2025, 36 states and New York City have enacted Pass-Through Entity Tax (PTET) regimes to provide a workaround to the federal $10,000 cap on state and local tax (SALT) deductions. These laws allow pass-through entities—such as S-Corps and LLC/partnerships—to pay state income taxes at the entity level, enabling owners to deduct those taxes as business expenses from gross income on their federal returns. The entity Schedule K-1 passes through a state tax credit. The IRS authorized this approach in Notice 2020-75.

However, the availability and longevity of PTET programs vary by state. Some, like California, Illinois, and Michigan, have provisions set to expire after the 2025 tax year unless extended. This uncertainty, combined with the proposed federal restrictions on SSTBs, makes PTET planning especially urgent for traders and investment professionals.

The Senate Is Next—Time to Mobilize

The bill now moves to the Senate, where revisions are expected. However, if these PTET and SALT provisions are implemented, they will majorly impact 2025 tax planning. Asset managers and active traders may face larger federal tax bills, especially in states implementing PTET regimes to protect pass-through entities from the SALT cap.

“Based on recent articles about what the Senate may do with this bill, including completely rewriting it, the outcome is unpredictable at this time,” says Darren Neuschwander, CPA.

We’re watching this closely and will provide further updates as the legislation develops. If enacted, this provision will be a turning point in how the federal tax code treats service professionals, especially those in the trading and investment management space.

Darren Neuschwander, CPA, contributed to this blog post.