The federal SALT cap is higher: $40,400 for 2026. But that higher cap phases down once modified adjusted gross income (MAGI) passes $505,000, and it bottoms out at $10,000. Many profitable business owners still end up with a $10,000 limit.
For Oregon pass-through owners, the planning isn’t over.
Oregon’s Pass-Through Entity Elective Tax (PTE-E) is still an important tool for eligible partnerships and S corporations. The entity pays the Oregon income tax instead of the owners. That lets the tax be deducted at the business level, outside the individual SALT cap.
In 2026, Oregon passed SB 1510, which extends the PTE-E through the 2027 tax year.
How Oregon’s PTE-E works
Each year, an eligible entity may choose to pay:
- 9% on the first $250,000 of distributive proceeds
- 9.9% on distributive proceeds above $250,000
Each owner generally gets a refundable Oregon credit for their share of the PTE-E tax the entity paid.
That can be valuable. But the federal and Oregon calculations don’t always move in the same direction.
The federal deduction creates an Oregon add-back
For federal purposes, the entity deducts the PTE-E tax it pays. Oregon then requires each owner to add their share of that deduction back when calculating Oregon taxable income.
The Oregon Tax Court’s Magistrate Division looked at this in Woolum v. Department of Revenue (TC-MD 240043R, April 21, 2026).
A California-resident partner argued he only needed to add back $5,888, the part he tied to Oregon-source income. The court disagreed. It required him to add back his full $29,827 share of the federal deduction.
The court’s reasoning:
- The add-back is meant to reverse the full federal benefit.
- Adding back the deduction and sourcing income to Oregon are two separate steps, and they can’t be combined.
Nonresident owners: be especially careful
For nonresidents, Oregon-source income is figured separately under Oregon’s sourcing rules (ORS 316.127). That calculation doesn’t shrink the add-back. Model each piece on its own.
Watch the credit for taxes paid to your home state
Nonresidents may claim an Oregon credit for income taxes “imposed by and paid to” their state of residence (ORS 316.131).
In Woolum, California credits fully offset the taxpayer’s California tax. Because no tax was actually paid, the court denied the Oregon credit.
2026 compliance checklist
- File Form OR-21 by the due date, including extensions. Oregon doesn’t accept late returns, and no return means no election.
- Pay the PTE-E tax by April 15. An extension to file is not an extension to pay.
- Confirm every owner qualifies. Owners generally must be individuals subject to Oregon personal income tax, or pass-through entities owned entirely by such individuals. Grantor trusts qualify, but most other trusts don’t.
- Match the entity’s federal deduction to each owner’s Oregon add-back.
- Calculate Oregon-source income separately.
- Track each owner’s refundable PTE-E credit.
- Use the new rule that lets an overpayment carry forward as next year’s estimated payment.
- Before claiming a credit for taxes paid to your home state, confirm that the tax was actually paid.
The takeaway
The Oregon PTE-E can still add real value. But it isn’t an automatic tax cut. The result depends on how five pieces fit together:
- The entity’s federal deduction
- The owner’s Oregon add-back
- Oregon-source income
- The refundable PTE-E credit
- Credits for taxes paid to other states
How is your business modeling the PTE-E for 2026?
The best answer may depend less on the election itself and more on how the federal and Oregon rules interact.
