State Income Tax Deduction Under The One Big Beautiful Bill

On July 4, 2025, President Trump signed the One Big Beautiful Bill into law. The legislation makes far-reaching changes to the federal tax code and other parts of the government. The bill cuts certain taxes, changes funding for a number of federal programs, raises the debt ceiling by $5 trillion, and extends many of the provisions originally introduced in the 2017 Tax Cuts and Jobs Act (TCJA).

State Income Tax Deduction

Under previous law, the deduction for state taxes was limited to $10,000. Under the One Big Beautiful Bill, the limit is generally increased to $40,000 for 2025 and increases by 1% per year through 2029. In 2030 the limit returns to $10,000. The increased state tax deduction phases out for modified adjusted gross income over $500,000. The $500,000 amount also increases by 1% per year through 2029. At the maximum phase out (at $600,000 of modified adjusted gross income for 2025) the maximum state income tax deduction remains $10,000.

Since the new rules are more complicated than the previous rules, the decision of whether to make a PTET election to pay and deduct state taxes at the S Corporation or Partnership level is now more complicated. The election may no longer make sense for some companies that have made the election in prior years. It’s important to work with your tax advisor to determine whether the PTET election makes sense for your company.

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With major changes to tax rules, both individuals and business owners are encouraged to revisit tax strategies. A proactive approach will be essential to capture benefits, manage risk, and stay compliant as the new provisions take effect. If you have questions about the information outlined above, or need assistance with another tax issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.