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CPAs Welcome Senate SALT Changes

Maureen Leddy, Checkpoint News  

· 5 minute read

Maureen Leddy, Checkpoint News  

· 5 minute read

As Republicans continue to move forward on their One Big Beautiful Bill Act (H.R. 1), the American Institute of CPAs (AICPA) is celebrating a revision to state and local tax (SALT) deduction provisions — including for pass-through entities.

The House-passed bill made what lawmakers in high SALT “blue” states view as an improvement over the current $10,000 deduction cap. The House bill would increase the cap to $40,000 (or $20,000 for married filing separately). The deduction would begin to phase out at $500,000 modified adjusted gross income under the House bill, until reaching $10,000.

However, much to the dismay of professional groups including AICPA, the House-passed bill also would eliminate the pass-through entity tax (PTET) SALT deduction for specified service trade or businesses (SSTBs). The bill would subject SSTBs — which include accountants, lawyers, and doctors — to individual SALT deduction limits. And it would tie the PTET SALT deduction to the Code Sec. 199A deduction.

The original Senate Finance Committee draft would have extended the current $10,000 cap — but the section-by-section summary indicated that was “the subject of continuing negotiations.” The Senate Finance draft also would have imposed a new limitation on those benefiting from the PTET SALT deduction, without regard to whether they are SSTBs.

Senate’s SALT rewrite.

The Senate’s SALT provisions, however, went through some big changes, as shared by the Senate Budget Committee on Sunday. Then, after an all night vote-a-rama, the Senate passed its version of the One Big Beautiful Bill Act midday July 1.

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 $500,000 modified adjusted gross income in 2025 but would set the phaseout threshold at $505,000 in 2026 and increase it by 1% afterward. The Senate, like the House, would not reduce the cap to below $10,000 via income-based phaseouts.

But of high interest to AICPA is the Senate’s choice not to limit the SALT deduction for pass-through entities. This is a departure from the House-passed bill and the initial Senate Finance draft.

“Unlike a prior version of the Senate bill, the bill does not disturb the treatment regarding deductibility of pass-through entity taxes in comparison to current law,” Steve Kralik, a managing director at Armanino, told Checkpoint. “The prior Senate version of the bill contained a 50% PTET limitation (along with a dollar increase in the limit),” he added.

AICPA President and CEO Mark Koziel welcomed the change, which he said will “ensure that the budget reconciliation bill continues to preserve parity between C corporations and pass-through entities.”

In Koziel’s view, as well as that of many state CPA groups, “imposing a new limit on the deduction of state and local taxes for pass-through businesses creates unnecessary complexity and disparity in the tax code and is harmful to millions of businesses nationwide.”

Not all agree with the Senate’s latest PTET SALT deduction approach, however. NYU Tax Law Center’s Chye-Ching Huang lamented the Senate’s plan to allow PTET workarounds to remain in place. “These strategies are called ‘workarounds’ for a reason — they involve running payments through a passthrough entity just to get around the SALT cap rules,” said Huang. “They undermine the reason for having a SALT cap in the first place.”

The Committee for a Responsible Federal Budget, too, criticized the Senate’s latest SALT proposal. “[W]hile the Senate version appears cheaper due to the fact it is scheduled to expire after five years, its actually far more generous,” the CRFB said in a June 28 post.

Among other things, the Senate version “fully protects SALT cap workarounds that allow many wealthy taxpayers to avoid the SALT cap altogether,” CRFB added. “Instead of offering larger SALT giveaways with new timing gimmicks, the Senate should consider a lower SALT cap and stronger limits on the deduction.”

CRFB calculated that a more limited SALT deduction could raise as much as $1 trillion.

What’s next?

“The Senate’s version of the bill will have to be reconciled with the House’s version which contained a limitation on deductibility of PTET for certain businesses providing services,” said Kralik. For the One Big Beautiful Bill Act to reach President Trump’s desk, the House and Senate will need to approve identical bill text.

 

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