The One Big Beautiful Bill Act (OBBBA) is rewriting the rules of tax planning, with provisions that impact how businesses manage cash flow and maximize deductions. Among these changes are provisions that affect state and local taxes (SALT), including modifications to individual deductions, pass-through entity elections, and conformity issues across states. To unpack what this means for businesses and individual taxpayers, we sat down with Adam DoVale, KLR’s SALT Practice Leader, who brings extensive experience advising clients on multi-state tax planning and compliance. In this Q&A, Adam explains the key SALT changes under OBBBA and shares practical considerations for year-end planning.

Q: To start, what are the biggest changes to SALT under the OBBBA?
Adam DoVale: There are two major changes that stand out. First, on the individual side, the big one that everyone’s talking about is the SALT deduction. It went from being capped at $10,000 to $40,000, but if your income is over $600,000, it can actually drop right back down to $10,000. That’s new for a lot of people and definitely changes planning.

The other big change is around pass-through entity (PTE) taxes. Those elections have been around for a bit, but now they’re officially recognized in federal law. That’s encouraging, because we’re likely to see more guidance (and hopefully clarity) around how states apply those rules.

Q: How does this affect decision-making for PTEs versus individuals?
Adam: The change is significant because PTEs aren’t capped in the same way individuals are. This means you can potentially generate a larger deduction at the entity level than on an individual return. In the past, when the SALT deduction was capped at $10,000 for everyone, it was usually a no-brainer to make the PTE election to get more of the deduction through the entity. Now, because that deduction could be $40,000 or $10,000 depending on income, you really need to look at it owner by owner. For some people, the PTE election will still make sense. For others, it won’t, and there’s a cost to filing it, so we don’t want to do it just because it was the default before. Also PTE elections are usually binding on all partners; so ensuring everyone is aware of the outcomes for their particular tax burden is necessary for transparency and sound decision making. 

Q: What questions are you hearing from clients about these changes?
Adam: Clients are asking mainly about two things:

  1. How the changes affect their individual taxes and business PTE elections.
  2. State conformity—whether states will automatically adopt these federal changes or “decouple” from them (Decoupling means the state does not follow a federal tax rule and requires its own separate calculation). For example, some states may allow 100% bonus depreciation for federal purposes but carve out or limit it at the state level. We’re also seeing similar considerations around updated Research and Development (R&D) deductions.

Q: For multi-state businesses, what are the biggest challenges right now?
Adam: Conformity is the key challenge. You could have one federal rule, but states may adopt it differently, or not at all. Some states may decouple from federal provisions, while others accept them. This creates a layer of uncertainty that businesses must navigate carefully, particularly for general depreciation, bonus depreciation, and R&D provisions.

Q: Are there any implications for online sales or remote commerce?
Adam: Yes, though indirectly. A key consideration during OBBBA was redefining ‘solicitation’ in Public Law 86-272, which limits the state’s ability to impose income taxes on businesses, to provide more adequate protections to businesses. However, these provisions ultimately were not included, and in response you will see  states getting more aggressive about what creates “nexus”—meaning, what triggers a tax filing requirement.

Massachusetts is a good example. They recently took the position that even something like browser cookies or software could create taxable presence for income tax purposes. So, states are tightening the rules, and businesses selling online really need to pay attention to that.

Q: How are states considering budgetary impacts of these changes?
Adam: States are assessing how federal changes affect their revenue. For example, some states with rolling conformity to the federal changes might automatically adopt bonus depreciation provisions, while others may decouple. We could also see states enact net operating loss limitations to mitigate revenue impacts.

Q: What year-end advice would you give for state and local taxpayers?
Adam: For individuals, look at the SALT deduction changes and determine whether you should make or continue a PTE election. For some people, that election no longer adds value, only compliance costs.

For businesses, the focus is on state conformity and potential decoupling, particularly with depreciation and R&D deductions. This uncertainty affects Q4 estimates, tax provisions, and planning for 2025 returns. Multi-state businesses should closely monitor guidance from the states where they operate, because differences in treatment can create large swings in taxable income at each state level.

Q: Can you give an example of how federal and state differences could impact deductions?
Adam: Sure. Suppose a business is allowed 100% federal bonus depreciation for a property, but the state classifies it as 15-year property. A $1 million federal deduction could shrink to under $70,000 at the state level. These differences can significantly impact tax provisions, Q4 estimates, and planning strategies.

Q: Are you expecting more certainty from states before year-end?
Adam: I hope so. States typically act quickly when it comes to decoupling or adopting federal changes because taxpayers need clarity to file returns. Guidance may continue into early next year, so businesses should plan for potential adjustments during Q1 2026.

Curious what other tax strategies are being reshaped by OBBBA?
This conversation with Adam DoVale adds to our ongoing Inside OBBBA series, which has also featured insights from Dave Desmarais, Meyer Levy, Deb Pallasch, Brad Lombardi, and Joe Tamburo. Catch up on the latest discussions here:

Stay tuned as we continue to break down the provisions that matter most to investors, businesses, and their advisors.