In 2017, Congress passed the Tax Cuts and Jobs Act, which—among other things—placed a $10,000 annual limit on state and local tax (SALT) deductions for federal income tax purposes. In response, most states with a state income tax have passed a version of a PTET to allow SALT payments to be deducted at the pass-through entity (PTE) level, which is not subject to the annual limit. PTEs include partnerships, limited liability companies, and S corporations. Indiana has moved expeditiously in 2023 to join these states.
The first bill passed and signed by Governor Holcomb in the 2023 legislative session is SEA 2, which creates an election for PTEs to adopt a PTET. To maximize this potential benefit, the legislation was fast-tracked, and is retroactively applicable to the 2022 tax year. SEA 2 further enhances the credit for taxes paid to other states, by allowing PTE owners the credit for PTET paid by the entity in other states. This change in the credit is also retroactive, but with even further backward reach, as it is effective back to 2019. Ice Miller is proud to have played a prominent role in making this valuable election available to Indiana businesses and their owners.
We understand that there are over 150,000 PTEs filing returns in Indiana, and this new law presents potentially significant tax savings opportunities for PTE owners. For PTEs with multi-state operations and/or owners in multiple states, this analysis can be complex, and other facts and circumstances of a particular taxpayer can impact decisions on the election. It is important that your situation be analyzed promptly to maximize any potential benefits and, for that reason, we encourage you to talk with your tax advisors and tax return preparers regarding this development at your earliest opportunity
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