Overview of Minnesota’s PTE Tax

The Minnesota Pass-Through Entity (PTE) tax has been a valuable tool for owners of partnerships, S corporations, and certain LLCs since its enactment. Designed as a workaround to the federal $10,000 state and local tax (SALT) deduction cap, the PTE tax allows qualifying entities to pay Minnesota income tax at the entity level, enabling owners to bypass the federal SALT limitation and claim a full deduction for state taxes on their federal returns. However, this benefit is set to expire soon, so taxpayers should prepare for the changes ahead.

Why Is the Minnesota PTE Tax Expiring?

The Minnesota Legislature enacted the PTE tax in direct response to the federal SALT cap, which limited the federal deduction for state and local taxes to $10,000 for individuals starting in 2018. The Minnesota statute specifically ties the PTE tax’s availability to the federal SALT cap. Recently, Congress raised the federal SALT cap to $40,000 and made it permanent, removing the previous sunset date. However, Minnesota is a static conformity state, meaning it does not automatically conform to federal changes. As a result, the Minnesota PTE tax is still scheduled to expire for tax years beginning after December 31, 2025, the same time the original federal law would have expired, unless the Minnesota Legislature enacts new legislation to extend the PTE option or update federal conformity to the most recent federal law regarding the SALT cap.

What Happens When the Minnesota PTE Tax Expires?

If the PTE tax expires as scheduled, Minnesota pass-through entities will no longer be able to make the PTE election for tax years beginning in 2026 and beyond. This means:

  • State income tax will revert to being paid at the individual owner level, not at the entity level.
  • Owners will remain subject to the federal SALT deduction cap on state taxes paid, with the allowable deduction limited to a maximum of $40,000 ($20,000 for married filing separate) and a minimum of $10,000, subject to adjusted gross income phaseout rules.
  • The entity-level federal deduction for Minnesota PTE tax, which has provided significant federal tax savings for many owners, will no longer be available.

 Is There a Chance the PTE Tax Will Be Extended?

As of August 2025, there is no pending or proposed legislation in Minnesota to extend or modify the PTE tax beyond its current expiration. The Minnesota Legislature is not in session until February 2026, so we will have to wait to see if legislation is introduced next year.

Conclusion

The scheduled expiration of the Minnesota PTE tax after 2025 marks a significant change for pass-through entity owners and their advisors. With no current legislative efforts to extend the provision, now is the time to review tax strategies with your Copeland Buhl representative and prepare for a return to the federal SALT deduction cap. Stay tuned for any developments from the Minnesota Legislature that could impact the future of the PTE tax in Minnesota. Contact us today to speak with one of our tax professionals.