New York Business Owners Got a SALT Break This Year. Most of Them Are Still Missing the Better Move.

The federal cap on state and local tax deductions was $10,000 for almost a decade. If you own a home and run a business in New York — one of the highest-tax states in the country — you’ve been watching thousands of dollars in state taxes disappear with no federal deduction to show for it.

That changed. The 2025 One Big Beautiful Bill raised the cap to $40,400 for 2026. For a lot of Long Island and New York business owners, that’s real money back on the table.

But there’s a catch, and there’s a better move most business owners are not making.

What the New SALT Cap Actually Does

The state and local tax (SALT) deduction lets you subtract what you paid in state income tax and property taxes from your federal taxable income. For New York homeowners, annual property taxes plus state income taxes routinely exceed $30,000 to $50,000. Under the old $10,000 cap, most of that was completely wasted.

The new cap is $40,400 in 2026 and rises by 1% per year through 2029 before reverting to $10,000 in 2030. This is not a permanent change — it has a sunset.

To use this deduction, you have to itemize. If your total itemized deductions (mortgage interest, SALT, charitable contributions) exceed the standard deduction ($30,000 for married filing jointly in 2026), itemizing makes sense. For most Long Island homeowners with mortgages, that math still works out.

The Phase-Out for Higher Earners

Here’s the catch. The full $40,400 deduction phases out for higher-income taxpayers. If your modified AGI exceeds $505,000, you start losing the benefit. The deduction never goes below $10,000 — but the window between $10,000 and $40,400 shrinks as income rises.

For high-earning business owners, the SALT cap expansion is less useful than it looks on paper. And that’s exactly where the second strategy becomes essential.

New York’s PTET: The Move That Beats the Cap

New York has a pass-through entity tax (PTET) that most business owners haven’t elected — and most of them should.

Here’s how it works. Instead of paying your New York state income tax personally (where it’s subject to the $40,400 SALT cap), your S-Corp or partnership elects to pay the state tax at the entity level. That payment is deductible as a business expense on your federal return — no SALT cap applies.

This is not a workaround or a gray area. The IRS specifically allows it. The state gives you a personal credit for the taxes paid at the entity level, so you’re not taxed twice. The federal deduction, though, happens at the business level where there is no cap.

Run the math on a simple example. A married business owner with $300,000 in New York taxable income might pay around $17,000 to $19,000 in state income tax. Under the individual SALT cap, they can deduct up to $40,400 total — but that cap also has to absorb their property taxes.

With a PTET election, the full $17,000-$19,000 in state income tax paid by the entity reduces federal taxable income as a business deduction, completely separate from the individual SALT cap. Their property taxes still flow through the individual return, using the $40,400 individual SALT cap. The two strategies work together.

The OBBBA Preserved PTET — That Was Not Guaranteed

When the One Big Beautiful Bill was being drafted, there were early proposals to eliminate or restrict the PTET deduction. They didn’t make it into the final law. PTET deductions at the entity level remain fully deductible, and the IRS has confirmed this is unchanged.

That matters because it removes uncertainty. PTET elections are worth making. The risk of the strategy being retroactively killed — at least for now — is off the table.

Who Should Be Electing PTET

If you run an S-Corp or partnership in New York and you pay significant New York state income tax, this election is worth evaluating every year. The election is made annually, so missing it one year doesn’t lock you out permanently.

The one scenario where it’s less compelling: if your S-Corp or partnership has multiple owners in different states, the mechanics get more complicated. Not impossible, but it requires coordination. That’s a reason to plan carefully, not a reason to skip it.

The Short Version

The SALT cap going to $40,400 helps New York business owners — especially if you’re not yet at the higher income phase-out. Use it for your property taxes.

But if you run an S-Corp or partnership, the PTET election lets your state income taxes live outside the cap entirely, as a deductible business expense. Most NY business owners are not doing this. The ones who are tend to save several thousand dollars more than the ones who aren’t.

It’s not complicated to set up — making the election and handling the entity-level filing is part of business tax preparation. It just requires doing the math in advance.

This post is for general educational purposes and does not constitute tax or legal advice for your specific situation. PTET rules and SALT deduction limits are based on 2026 federal and New York State law and are subject to change. Tax outcomes depend on individual income, filing status, and entity type. Consult a qualified tax professional before making decisions based on this content. Geiger Tax & Accounting, Amityville, NY — serving clients nationwide.