Freedom Has A Framework

WHY THIS MATTERS

The Deduction Came Back. The Question Is Whether It Came Back For You.

For seven years, the federal deduction for state and local taxes was capped at $10,000. For anyone paying real property taxes in a real state, that was not a limit. It was a deduction that quietly stopped mattering.

The One Big Beautiful Bill Act quadrupled it. Forty thousand dollars for 2025. Forty thousand four hundred for 2026.

Then it built a trapdoor underneath.

The larger cap phases down once your income crosses a line, and if you clear the far end of that line you are returned to $10,000 … the same place you started, except now you have spent a year believing you had something.

Between those two points sits a stretch of income taxed at a rate that appears on no chart, in no bracket table, and in almost none of the coverage.

That stretch is the actual story.

The government doesn’t reward effort. It rewards structure.

Edward Collins, JD, CFP®, AAMS, RFC

LET’S DIVE RIGHT IN

Congress Quadrupled The SALT Cap. Then It Hid A Bracket Inside It.

Start with what changed, plainly.

The cap on state and local tax deductions rose from $10,000 to $40,000 for 2025 and $40,400 for 2026. It climbs about 1% a year from here. And on the first day of 2030, it reverts to $10,000.

So this is not a new rule. It is a five-year window with an expiration date already written into it.

Now the part that decides whether any of it reaches you.

The larger cap is reduced by 30 cents for every dollar your modified adjusted gross income exceeds $505,000 in 2026. The reduction stops when the cap hits $10,000 … it never goes below that.

Run the arithmetic to its end and the window closes at roughly $606,000 of MAGI. Above that line, the quadrupled cap is a headline you read about someone else.

The Bracket That Isn’t On The Chart

Here is what almost nobody is writing about.

Inside that band … from $505,000 to about $606,000 … every additional dollar of income does two things at once. It gets taxed. And it destroys thirty cents of deduction.

For a married couple filing jointly, most of that stretch sits in the 35% bracket. Losing thirty cents of deduction on every dollar adds another 10.5 cents of federal tax on top.

Thirty-five percent becomes 45.5%.

Not on a tax table. Not in a bracket chart. It is a phantom bracket manufactured by a phase-out, and it is roughly one hundred thousand dollars wide.

Add state income tax and the all-in marginal cost on that band clears half of every additional dollar for earners in a high-tax state.

One caveat, stated honestly: this bites only if your actual state and local taxes are at or above the cap across that range. If your real SALT is $12,000, the phase-out costs you nothing, because you were never using the room. For the readers of this letter … property taxes on more than one address, plus a state income tax … you are using the room.

A tax bill isn’t just a number. It’s a report card … of your structure.

Same Income. Two Completely Different Answers.

Now put two people side by side. Both earn $550,000. Both sit squarely inside the phantom bracket.

The first is a W-2 professional. Surgeon, executive, partner on a salary. For that person, MAGI is close to a fact. There is no dial. The phase-out simply happens to them, and the 45.5% band is not a planning problem … it is weather.

The second owns the business that produces the income. That person has a dial the first one does not.

It is called the pass-through entity tax election … PTET for short. More than thirty states now permit a partnership or S corporation to pay the owner’s state income tax at the entity level, where it is deducted as an ordinary business expense rather than dying against a personal cap.

And here is the piece worth the whole issue: earlier versions of this bill would have restricted PTET. The House limited it. The Senate limited it. The final law, signed July 4, 2025, removed those limits entirely … including for specified service businesses like law, medicine, accounting, and investment management, which had every reason to expect the door would close on them.

The workaround everyone assumed was on borrowed time was left standing.

The Part Most People Miss

Read the two sections above together and something falls out that almost no coverage connects.

PTET does not just move a deduction. It lowers the income that the phase-out is measured against.

When the entity pays the state tax, the income reported on the owner’s K-1 drops. Adjusted gross income drops with it. And the SALT phase-down is calculated on modified adjusted gross income.

Which means a PTET election can walk an owner down the phantom bracket … and in some cases underneath it … restoring access to a cap they had already been phased out of.

That is not a loophole. It is a sequence. The election is made first, and the deduction that survives is measured on what is left.

Whether it works in your specific case depends on the state, the entity, the size of the election, and the arithmetic. Some states add the tax back. Some do not. This is a question to put in front of your Team with actual numbers … not a conclusion to reach from a newsletter.

What PTET Does Not Solve

Be careful not to over-read the election.

PTET routes around the income tax half of your SALT. It does nothing for the property tax half.

For a family carrying property taxes on a primary residence and a second address, property taxes alone can consume $40,000 before a dollar of state income tax enters the conversation. That half still runs into the cap, and it is still governed by the phase-out.

Which is why the answer is rarely “use PTET” or “use the higher cap.” For most owners at this income level it is both … the election handles one half, and what it does to your MAGI determines how much cap survives for the other.

Now We’re Going To UPLEVEL … Because This Was Never About A Deduction

Step back and look at what actually happened here.

Congress raised a number. Then it wrote a second rule that decides who gets to touch it. And the difference between the person who benefits and the person who does not is not effort, income, or even tax bracket.

It is entity structure. One taxpayer has an election available. The other does not. Same income, same state, same property taxes … opposite outcomes.

This is the thing this letter says every week, and the tax code keeps proving it: you do not have a tax problem. You have a structure problem.

Walk it through the Real Wealth Matrix and the whole picture is one deduction pulling on all four pillars.

• Preserve Wealth … a five-figure swing decided by an election, not by earning less.
• Protect Wealth … the entity that makes the election is the same entity holding your liability exposure. You do not get to design one without designing the other.
• Position Wealth … every dollar that stops leaking to a state is deployable capital. Tax reduction is the manufacturing of acquisition power.
• Pass on Wealth With Intention … this cap expires in 2030. Any structure built to exploit it should be built to survive it.

Four pillars, one line on a return. Fragmented advice cannot hold that together. One integrated design can. That is what we build inside Uplevel By Design, LLC.

The Date On The Wall

One more thing before you close this.

The $10,000 cap returns January 1, 2030. That is not a rumor or a projection … it is written into the statute that created the increase.

So whatever you build around this, build it knowing the window has a closing date on it. Structures made for a five-year rule and abandoned in year six are how people end up paying for architecture they no longer use.

We covered this last week from a different direction, and it applies here too: the law does not stay signed.

Your Next Move

Four moves. All of them yours to make this week.

• Find your line. Pull last year’s return and locate your modified adjusted gross income. Then place yourself: below $505,000, inside the band to roughly $606,000, or above it. Those three positions get three genuinely different answers, and everything else in this issue depends on which one you are in.
• Ask your CPA one question. “Are we making a PTET election in every state where we can … and what does it do to my MAGI?” The second half of that question is the one that usually goes unasked.
• Add up your real SALT. Property taxes on every address you own, plus state income tax. If the total is under $10,000, none of this touches you. If it is over $40,000, the phase-out is costing you real money right now.
• If you are a W-2 earner in that band, ask the harder question. You have no PTET lever, and that is precisely the point. The question is not how to rescue this year’s deduction … that year is already written. It is whether you have any real business activity … consulting, board work, a side venture, rental operations … that is currently being run without a structure around it. Relabeling a salary is not a strategy and does not survive scrutiny. Building a genuine entity around genuine activity is a different conversation, and it is the one worth having.

Four moves. Not one of them requires permission from anybody.

Because the number moved … but who gets to use it was decided by structure. It always is.

This newsletter is educational. It is not personal tax, legal, or financial advice. The figures here reflect the law as enacted and are stated for the 2026 tax year unless noted; 2025 amounts differ. Illustrative marginal-rate math assumes a married couple filing jointly in the 35% federal bracket who itemize and whose actual state and local taxes meet or exceed the cap across the phase-down range … change any of those facts and the arithmetic changes with them. PTET treatment varies materially by state. Every situation is different … always consult your own Team of qualified professionals before acting on anything discussed here.

Sources: One Big Beautiful Bill Act (enacted July 4, 2025), amending IRC §164(b)(6) … analyses by Venable LLP, Kirkland & Ellis LLP, and Withum on the final Act’s treatment of pass-through entity tax elections.