On a 2026 federal return, an Oregon resident who itemizes can take an Oregon SALT deduction of up to $40,400 in combined state and local taxes, a sharp jump from the $10,000 ceiling that applied from 2018 through 2024.1Office of the Law Revision Counsel. 26 USC 164 – Taxes The higher cap shrinks for incomes above $505,000, and Oregon offers a separate entity-level workaround that can bypass the cap altogether for pass-through business owners. Which route helps you depends on how much you earn, how you file, and whether you own a share of a partnership, S corporation, or LLC taxed as either.
The 2026 Cap Amount
For the 2026 tax year, the state and local tax deduction is limited to $40,400 for single filers and married couples filing jointly. Married taxpayers filing separately get half: $20,200. The cap was raised by the One Big Beautiful Bill, enacted in mid-2025, which set the limit at $40,000 for 2025 and grew it by 1% for 2026. The same 1% annual bump continues through 2029. In 2030, the cap reverts to $10,000 unless Congress acts.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
The deduction covers state income tax paid, local taxes, and property taxes combined. Oregon’s income tax rates alone push many households past the old $10,000 cap, so the new ceiling restores meaningful relief for most itemizers.
The Phase-Out Above $505,000
The full $40,400 is only available to taxpayers whose modified adjusted gross income stays at or below $505,000, or $252,500 for married filing separately. Above that line, the cap shrinks by 30 cents for every dollar of income over the threshold. It cannot fall below $10,000, so the highest earners still keep that floor.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
A concrete example: an Oregon taxpayer with $600,000 in modified adjusted gross income is $95,000 over the threshold. Thirty percent of that excess is $28,500, which pulls the cap down from $40,400 to $11,900. At roughly $700,000 of MAGI, the cap hits the $10,000 floor and stays there. For earners in that range, the raised cap offers little, and the pass-through entity workaround becomes the more useful tool.
You Have to Itemize for It to Matter
The SALT deduction only reduces your federal tax if you itemize. For 2026, the federal standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your state and local taxes, mortgage interest, charitable contributions, and other itemized deductions do not add up to more than the standard deduction, the SALT cap has no effect on your personal return. For business owners in that position, Oregon’s entity-level election can still produce federal savings because it works before anything reaches your personal return.
Oregon’s Pass-Through Entity Workaround
Oregon’s Pass-Through Entity Elective Tax (PTE-E) lets a qualifying business pay Oregon income tax at the entity level rather than passing it through to owners’ personal returns. The entity-level payment is a deductible business expense on the federal return, and business expenses are not subject to the SALT cap. Owners then claim a refundable credit on their Oregon personal return for the tax the entity paid on their share. Oregon tax owed comes out roughly the same; federal taxable income drops by the full amount paid at the entity level, with no $40,400 ceiling.3Oregon Department of Revenue. PTE-E Rules Advisory Committee Summary
Who Can Elect
The election is open to entities taxed federally as S corporations or partnerships, including LLCs treated as either.4Oregon Department of Revenue. Pass-Through Entity Elective (PTE-E) Tax Sole proprietorships and C corporations are out. An LLC that elected C corporation tax treatment with the IRS does not qualify, even though it is organized as an LLC under Oregon law.
Every owner must be a qualifying member, which Oregon defines as individuals, estates, and certain trusts.5Oregon Public Law. Oregon Code 314.775 – Definitions for ORS 314.775 to 314.784 If a corporation or other non-qualifying entity holds an ownership interest, the election is unavailable. Nonresident owners are fine, and the electing entity can file a composite return covering them.4Oregon Department of Revenue. Pass-Through Entity Elective (PTE-E) Tax
The Rate Has Two Tiers
The PTE-E tax applies to each member’s distributive share of Oregon-source income, but the rate is tiered rather than flat:6Oregon State Legislature. Oregon Revised Statutes Chapter 314
- 9% on the first $250,000 of distributive proceeds
- 9.9% on amounts above $250,000
The $250,000 threshold applies to the entity’s total distributive proceeds, not per owner. A partnership with $500,000 in Oregon-source income pays $22,500 on the first $250,000 and $24,750 on the next $250,000, for a total of $47,250.4Oregon Department of Revenue. Pass-Through Entity Elective (PTE-E) Tax
How to Elect and File
The entity makes the election by filing Form OR-21 with the “Election” box checked by the return’s due date, including extensions.7Oregon Department of Revenue. Oregon Pass-Through Entity Elective Tax Return – Form OR-21 Instructions The election is annual and not binding on future years, so a business can opt in or out as the math changes.
Authorization has to come from either all members, or from an officer, manager, or authorized member who attests to that authority under penalty of perjury.7Oregon Department of Revenue. Oregon Pass-Through Entity Elective Tax Return – Form OR-21 Instructions A managing partner or LLC manager with the right standing in the operating agreement can usually sign without polling every owner.
After the return is filed, the entity issues each owner a Schedule OR-21-K-1 showing their share of distributive proceeds and their PTE-E tax credit. Order matters. If K-1s go out before the Form OR-21 is filed, the Oregon Department of Revenue may disallow the credits on individual returns.4Oregon Department of Revenue. Pass-Through Entity Elective (PTE-E) Tax
Estimated Payments
Electing entities make quarterly estimated payments on the same schedule as individuals: April 15, June 15, and September 15 of the tax year, then January 15 of the following year.4Oregon Department of Revenue. Pass-Through Entity Elective (PTE-E) Tax Estimated payments are required once the entity’s PTE-E tax reaches $1,000 for the year. The safe harbor is the same as for individuals: pay at least 90% of the current year’s liability or 100% of the prior year’s, whichever is less. Underpayments accrue interest at Oregon’s Tier One rate, which is 8% for 2026.8Oregon Department of Revenue. Annual Interest Rate Update for 2026
Is the Election Still Worth It at a $40,400 Cap?
Under the old $10,000 cap, almost any Oregon pass-through with meaningful income benefited from the election. At $40,400, the answer is more mixed. Three situations where the election still pays off:
- Owners with modified adjusted gross income above $505,000. The phase-out shrinks the personal cap toward the $10,000 floor, and the entity-level deduction bypasses the limit entirely.
- Owners who take the standard deduction. The SALT cap is irrelevant to someone who doesn’t itemize, but the PTE-E payment reduces federal taxable income at the business level before it ever reaches the personal return.
- Entities whose Oregon tax liability exceeds $40,400. Only the first $40,400 of combined state and local taxes fits under the personal cap. Shifting liability above that amount to the entity captures the full federal deduction.
The election makes less sense for a lower-income owner who itemizes, stays well under the MAGI phase-out, and has total state and local taxes under $40,400. In that case, the personal deduction already picks up the full amount, and the PTE-E filing adds complexity without a federal benefit. Because the election is made year by year, running the numbers at tax planning time each fall is the practical way to decide.