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Advisor education
The pass-through entity tax election
An alternative to owners facing the SALT cap
A single election can unlock meaningful savings
One of the most impactful opportunities for tax savings for business owners today may be a simple election on their state income tax return: the pass-through entity tax (PTET) election. Available to owners of pass-through business entities in most states with an income tax, the election shifts state income tax obligations from the owner to the business itself, which may result in significant overall tax savings.
A personal tax liability becomes a business deduction, without a SALT cap
The income taxes most business owners pay on their individual state tax returns are deductible on their federal returns — but only up to the state and local tax (SALT) cap ($40,400 in 2026). And that cap is subject to income phase-outs, meaning high-earning owners may see little or no benefit from the individual deduction.
The PTET election’s primary value lies in its ability to strategically navigate the SALT cap. Without the election, state income taxes flow through to owners personally — and any federal deduction for those taxes is capped. With the election, the business entity pays state income taxes on the owners’ allocable share of income and claims a full federal deduction under Section 162 of the Internal Revenue Code. Because that deduction is made at the entity level, it falls entirely outside the reach of the individual SALT limitation, reducing owners’ taxable income before it ever reaches their personal returns.
To prevent double taxation, states with PTET regimes provide individual owners with either a corresponding state tax credit or an income exclusion on their personal returns. In states that offer a full dollar-for-dollar credit, the net state tax cost to the owner remains neutral — and the federal savings are preserved.
Where the election is available
Thirty-six states and the District of Columbia currently have enacted some form of PTET legislation. If your client’s business operates in one of those states, the election may be available.
Nuveen offers a range of tax planning education for advisors and their business owner clients. Please consult your financial professional for more information and guidance with your specific situation. For financial professionals, please contact Nuveen at 800-221-9271.
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This material, along with any views and opinions within, are presented for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market, economic, or other conditions, legal and regulatory developments, additional risks and uncertainties, and may not come to pass. There is no promise, representation, or warranty (express or implied) as to the past, future, or current accuracy, reliability or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. This material should not be regarded by the recipients as a substitute for the exercise of their own judgment.
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