Senate Tax Bill Preserves SALT Workaround for Traders and SSTBs

Last Updated on July 3, 2025 by Robert Green

Update July 3: Final Tax Reform Bill Preserves SALT and PTET Deductions for All Pass-Throughs

House and Senate agree on a $40,000 SALT cap for 2025 and maintain full PTET deduction access.

In a fast-track move to finalize tax reform before the July 4 recess, the House on July 3 passed the Senate’s July 1 version of the One Big Beautiful Bill (OBBBA/H.R. 1) without any further amendments, sending the legislation directly to the President’s desk for signature.

The Senate’s final version included substantial improvements to SALT and PTET provisions compared to earlier drafts and the House bill.

Final SALT and PTET Provisions Now in the Bill:

• SALT Cap: Set at $40,000 for 2025, with 1% inflation indexing through 2029, before reverting to $10,000 in 2030. (See additional July 3 details below.)

• PTET Deduction: All limitations removed. The bill preserves full access to the PTET SALT deduction for all pass-through entities, with no carveouts for SSTBs, ensuring parity with C corporations and reducing complexity. The SALT cap workaround survived intact. 

Good news for traders and other professionals: In order to meet the July 4 deadline, the House accepted all of the Senate’s changes without alteration. As a result, these SALT and PTET provisions—favorable to pass-throughs and SSTBs—are now part of the final legislation, pending the President’s expected signature on July 4.

Update July 1: Senate Final Tax Bill Brings Good News for Traders
Crucially, the Senate removed the 50% limitation on the PTET deduction, preserving TCJA’s current law treatment and avoiding SSTB exclusions.

The American Institute of CPAs (AICPA) has expressed strong support for the changes made in the Senate’s final version of the “One Big Beautiful Bill Act,” particularly revisions to the state and local tax (SALT) provisions. The House-passed version of the bill would have increased the SALT cap to $40,000 but phased it out at high income levels—and controversially denied the SALT PTET (pass-through entity tax) deduction to specified service trades or businesses (SSTBs), including traders eligible for trader tax status, accountants, attorneys, and doctors. These professionals would have been subject to the SALT cap at the individual level and denied the pass-through SALT cap workaround that many businesses in 37 states currently use. Under current TCJA law, all pass-through business entities can utilize a SALT cap workaround solution if their resident state offers this option and they elect to use it. 

The June 28 Senate Finance draft proposed extending the $10,000 SALT cap and introducing a new 50% limitation on the PTET deduction that would have applied to all pass-through entities, not just SSTBs.

However, in the final text passed by the Senate on July 1, key SALT changes were made:

• The Senate-passed version would increase the SALT cap to $40,000 in 2025, $40,400 in 2026, and by an additional 1% in 2027-2029. The cap would revert to the current $10,000 in 2030.

• The Senate-passed bill also calls for phasing out the deduction at a modified adjusted gross income of $500,000 in 2025, but would set the phaseout threshold at $505,000 in 2026 and increase it by 1% thereafter. The Senate, like the House, would not reduce the cap to below $10,000 via income-based phaseouts.

• Crucially, the Senate removed the 50% limitation on the SALT PTET deduction, preserving TCJA’s current law treatment, allowing full deductibility of SALT PTET on state tax returns. The SALT cap workaround remains unchanged

This move was welcomed by the AICPA, which emphasized that the final bill maintains tax parity between pass-through entities and corporations, avoids complexity, and supports the competitiveness of small businesses. The organization warned that reimposing PTET limits would have introduced confusion and unfairness into the tax code.

As the bill proceeds to reconciliation, I will closely monitor the process to ensure the final legislation maintains the Senate’s more inclusive treatment of SALT and PTET deductions.

Update June 28: Senate Modifies SALT Cap and PTET Deduction in Latest Draft

On June 27, 2025, Senate Republicans released a revised version of their draft tax bill. Most notably, it increases the SALT deduction cap to $40,000 for tax year 2025, with a gradual phase-down through 2029, before reverting to the original $10,000 cap. Additionally, the Senate retains the PTET deduction for all pass-through entities, but introduces new limits: an individual’s total SALT deduction—including PTET—is capped at the sum of the standard $10,000 SALT deduction plus the greater of $40,000 or 50% of the PTET amount paid on their behalf. This still represents a more inclusive approach than the House version, which excludes SSTBs. This blog post is updated for the revised June 27 Senate bill.

Original article published June 25:
The Senate takes a more balanced approach to SALT and PTET rules, avoiding punitive carve-outs and restoring deductions for traders and service professionals.

Senate Republicans released a draft tax reform bill on June 16 that sharply diverges from the House’s approach to the state and local tax (SALT) deduction and the pass-through entity tax (PTET). Unlike the House version, which aggressively targets specified service trades or businesses (SSTBs), the Senate draft restores PTET deductions for all pass-throughs, offering welcome relief to traders, CPAs, and other professionals.

Senate Holds the Line on $10,000 SALT Cap.

The 2017 Tax Cuts and Jobs Act (TCJA) expires after 2025, caps the SALT itemized deduction at $10,000 annually. In response, 37 states enacted PTET regimes allowing pass-through entities to deduct state taxes at the entity level, effectively bypassing the SALT cap for eligible business owners. This is known as the SALT cap workaround solution. 

The House bill proposes raising the SALT cap to $40,000 with income-based phaseouts. It denies PTET deductions to SSTBs and retains the PTET deduction for non-SSTBs like manufacturers and tech companies. By contrast, the Senate draft initially kept the SALT cap at $10,000 as a placeholder.

However, the June 27 Senate revision expands the SALT deduction cap to $40,000 for 2025, with a gradual phase-down over four years, returning to $10,000 by 2030. This revision reflects negotiations aimed at easing the SALT burden in high-tax states.

PTET Deduction Extended to All Professions, with Limits

In a notable departure from the House bill, the Senate version eliminates SSTB exclusions. Instead, it applies a uniform PTET limitation: an individual’s total SALT deduction—including PTET—is capped at:

• The standard $10,000 SALT cap plus

• The greater of $40,000 or 50% of the PTET tax paid on their behalf.

This structure is intended to curb perceived abuses of high PTET payments while maintaining fair access to SALT relief. While more restrictive than the current law—which in many states allows near-total deduction—this framework avoids discriminatory carve-outs against service professionals. Under the Senate proposal, traders operating in PTET-eligible entities and qualifying for trader tax status (TTS) would retain access to this key deduction. However, sole proprietors, employees, and investment companies are not eligible for TTS and remain excluded.

Outlook and Next Steps

The Senate Finance Committee’s draft remains under discussion, with a floor vote anticipated as early as late June. If the Senate passes the bill, it will proceed to House-Senate reconciliation. The outcome will determine whether PTET parity and SALT deduction relief endure in the finalized legislation.

As many taxpayers discovered under the TCJA, SALT cap limitations have been a major driver of increased federal tax bills, especially in high-tax states. The Senate proposal takes a more balanced approach, extending PTET relief without penalizing service professionals.

GreenTraderTax will continue monitoring developments and advising traders and professionals on year-end planning implications.

PTET Deduction Cap (June 27 Senate Draft – Section 70601)

“An individual’s total SALT deduction, including any PTET passed-through, is limited to:

1. The regular $10,000 cap on SALT deductions ($5,000 MFS), plus

2. The greater of:

   • $40,000 ($20,000 for married filing separately), or

   • 50% of the total PTET paid on their behalf.

Additionally, PTETs that fail federal eligibility criteria—such as those in jurisdictions without individual income tax or with inflated entity-level rates—would be disallowed.”  (SALT Alert: Senate Tax Bill Targets SALT Cap Workarounds, Including New Limits on PTET Deductions, from Supra.com)

Darren Neuschwander, CPA, contributed to this article.