PTET in Private Equity Accounting Deals in 2025 and Beyond?
In connection with the first Trump administration’s tax bill known as the Tax Cuts and Jobs Act (“Jobs Act”), a cap on state and local tax deductions was instituted at $10,000 (“SALT Cap”) for tax years 2018 through 2025. The SALT Cap was applicable at the individual level and was not applicable to entities.
As a workaround for the SALT Cap, most states (and one locality) that have state or local income taxes have enacted so-called passthrough entity taxes (“PTET”). A PTET is a state or locality’s elective entity-level income tax on partnerships or S corporations (“Passthrough Entity”). The Passthrough Entity pays the income tax at the Passthrough Entity level and the individual owner of the Passthrough Entity is given a credit for such tax on such individual’s state tax return.
The SALT Cap is currently set to expire at the end of 2025. Many of the PTET laws of the various states will either expire at the end of 2025 or expire when the SALT Cap has expired. It is expected that in the second Trump administration that there would be a tax bill proposed within the first year before the expiration of the SALT Cap. It is unknown at this time whether the SALT Cap would be allowed to lapse, whether it would be removed or altered, or whether any contrary guidance to Notice 2020-75 could be issued. From published reports, President Trump is apparently in favor of eliminating the SALT Cap, but given that the budget reconciliation process will likely be needed to pass a tax bill, the SALT Cap might be needed to produce tax increases to offset other tax decreases.
Therefore, even though it is possible that the PTET may only still be around for 2025, it could be relevant for years to come and needs to be contemplated as part of any accounting deal that occurs while it is still relevant.
Accounting firm deals often involve complex tax issues, and it is important to understand their implications. To learn more about the role of PTET in accounting deals in 2025 and beyond, read the full article here.
If you have additional PTET questions please do not hesitate to reach out to the Matthew Hinderman, Russell Shapiro, or another member of LP’s Corporate practice.