Illinois SALT cap workaround now permanent — Plan your tax strategy
- Illinois decouples from federal bonus depreciation for qualified production property (QPP). Businesses with a significant Illinois presence that constructed or plan to construct qualified QPP should reevaluate their tax strategies, as the state will not follow the expanded 100% bonus depreciation under the federal One Big Beautiful Bill Act (OBBB).
- The law removes the previous expiration date, allowing partnerships and S corporations to continue electing the pass-through entity (PTE) tax and enabling partners/shareholders to claim a refundable credit for their share of the PTE tax liability.
- Illinois residents can keep claiming credits for elective PTE taxes paid to other states. The law extends the ability for Illinois residents to claim credits against their Illinois personal income tax for elective PTE taxes paid to other states, making multi-state tax planning more advantageous.
A newly enacted Illinois law decouples from the One Big Beautiful Bill Act’s (OBBB) deduction for bonus depreciation on qualified production property, and makes the state and local tax (SALT) deduction cap workaround election in Illinois permanent.
On December 12, 2025, Illinois Governor JB Pritzker signed into law S.B. 1911, which was the revenue omnibus bill that passed during the October veto session.
The law selectively decouples from Internal Revenue Code Sec. 168(n), created by the OBBB to effectively expand 100% bonus depreciation rules to include certain real property used in qualified manufacturing activities (qualified production property, or QPP) if constructed on or after January 20, 2025 and before January 1, 2029 and if placed in service no later than December 31, 2030.
Because Illinois generally uses “rolling” conformity to the Internal Revenue Code (the “Code”), meaning that it automatically follows all changes that Congress makes to the Code unless it acts to decouple from them, this change may come as a surprise to businesses that placed QPP in service before this law change. Now that Illinois has retroactively decoupled from Sec. 168(n), companies with a significant Illinois presence that either already constructed QPP before the law change or plan to do so before 2029 may need to reevaluate their plans in light of the reduced Illinois tax benefit.
This law also removed the January 1, 2026 expiration date for Illinois’ SALT deduction cap workaround election, also referred to as Illinois’ pass-through entity tax or “PTE tax”, as well as for the eligibility of Illinois residents to claim a credit for other states’ PTE Taxes.
The PTE tax, which took effect in 2021, allowed partnerships and S corporations to pay an optional tax of 4.95% on the entity’s net income. Partners and shareholders of electing entities received a refundable credit equal to their share of the PTE tax liability.
Because the OBBB extended the SALT deduction cap until 2029, Illinois’ elective PTE tax will remain beneficial from 2026 to 2029 under this new law. As a result, taxpayers who have historically benefited from the Illinois PTE tax should generally plan to continue opting into that tax for tax year 2026.
This law also extends the ability of Illinois residents to claim credits against their Illinois personal income tax for their share of other states’ PTE taxes. Illinois, like most other states, entitles its residents to a credit for income taxes that they paid to other states on income also taxed by Illinois.
Even though Illinois’ credit for tax paid to other states does not apply to mandatory PTE taxes imposed by other states (such as California’s 1.5% corporate income tax imposed on S corporations), Illinois’ PTE tax law made other states’ elective PTE taxes eligible for the tax credit. As a result, Illinois residents who made PTE tax elections in both Illinois and at least one other state for any year from 2021 to 2025 should generally continue to find that approach beneficial for 2026 and beyond.
How Wipfli can help
Take control of your Illinois tax strategy. Connect with Wipfli’s advisors to maximize your SALT deduction benefits and stay ahead of legislative changes. The firm’s tax advisors are ready to answer your questions.
