Senate budget bill would preserve PTET SALT deduction

A revised version of the budget bill that passed a procedural vote in the Senate on Saturday would preserve the state and local tax (SALT) deduction for certain passthrough businesses, including accounting firms ­— a victory for the AICPA if that language becomes law.

Whether that happens remains uncertain. After initial doubt about whether it had enough support among the Senate’s slim Republican majority, the Senate voted 51-49 Saturday night to take up the bill. If the bill passes the Senate, it would then go back to the House for another vote. President Donald Trump has previously stated he wants to sign the One Big Beautiful Bill Act into law on Friday.

The revised Senate version of the bill would increase the SALT cap to $40,000 and adjust it for inflation. It drops language previously included that would have limited the ability of taxpayers to use passthrough entities to avoid the SALT cap.

A statement from AICPA President and CEO Mark Koziel, CPA, CGMA, applauded lawmakers for their commitment to ensuring “that the budget reconciliation bill continues to preserve parity between C corporations and pass-through entities so that all businesses can continue to grow the economy and invest in their communities.”

The statement also said: “Earlier versions of the legislation increased tax burdens for pass-through businesses across the country by imposing new limits on their ability to deduct state and local taxes. We are incredibly grateful to the Senate Finance Committee and members of the Senate and the House for their diligent work to reject new tax increases on pass-through entities and support the business community.

“As the reconciliation process continues, we urge members of the Senate and the House of Representatives to adopt the Senate’s position regarding pass-through entities and support the removal of new limitations of the SALT deduction.”

The AICPA has advocated for the preservation of the SALT deduction for specified service trades or businesses (SSTBs), mounting a campaign since the House-approved version of the budget bill was released in May.

CPA societies from 53 states and jurisdictions joined the AICPA in raising concerns about the House version because it would prevent SSTBs from deducting state and local income taxes at the PTE level. The House bill does not limit non-SSTBs and corporations from taking the deductions.

Text in the initial Senate Finance Committee version, released June 16, included a provision that would have limited the use of PTETs to get around the SALT cap while no longer specifically targeting SSTBs.

The Senate bill also would retain the current treatment of excess business loss carryforwards, which are treated as net operating losses and can therefore offset business and nonbusiness income. This was another win for the AICPA, which advocated for the change in a letter to congressional finance leaders earlier this week.

For a full roundup of the Senate bill, see “Details of Tax Changes in Senate Reconciliation Bill.” Also, the AICPA on Saturday published charts comparing tax and personal financial planning provisions of the Senate bill with the House bill and current law (free site registration required).

— To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Updates on individual tax and business tax are among the many topics on the agenda at the AICPA & CIMA National Tax Conference, Nov. 17–18 in Washington and online.