The California Pass Through Entity Tax for a Rental LLC: Is It Still Available for 2026?

Published August 10, 2026

California's elective pass through entity tax let a qualifying rental LLC pay 9.3 percent at the entity level and hand owners a credit, working around the federal SALT cap. Under current law it does not apply to the 2026 tax year, and the statute is scheduled for repeal.

The short answer

No. Under Revenue and Taxation Code section 19900, California's elective pass through entity tax applies only to taxable years beginning on or after January 1, 2021 and before January 1, 2026. Section 19906 repeals the whole program by December 1, 2026. Unless the Legislature passes a new law, a rental LLC taxed as a partnership or S corporation cannot make this election for the 2026 tax year.

Last verified: August 10, 2026

What the pass through entity tax was for

The elective tax, sometimes called the PTE tax or the SALT cap workaround, let a qualifying business pay California income tax at the entity level instead of leaving that tax to flow through to the owners' personal returns. Revenue and Taxation Code section 19900(a)(1) set the rate at 9.3 percent of the entity's qualified net income, which section 19900(a)(2) defines as the sum of each owner's pro rata or distributive share of income plus any guaranteed payments.

The point of routing the tax through the entity rather than the individual was federal, not state. A business paying its own state income tax deducts that tax as an ordinary business expense on its federal return, with no cap. An individual paying California income tax on the same income through a personal itemized deduction was capped by the federal SALT limitation in Internal Revenue Code section 164(b)(6), historically $10,000. Owners who made the election got a tax credit on their personal California return for their share of the entity level tax paid, so the same dollar of state tax effectively moved off the capped personal side and onto the uncapped business side.

Who actually qualified

Not every rental LLC could use this. Revenue and Taxation Code section 19902 defines a "qualified entity" as one taxed as a partnership or S corporation, with owners who are exclusively corporations under section 23038 or individual taxpayers under section 17004, and excludes publicly traded partnerships and entities in a combined reporting group. Read plainly, that excludes a single member LLC taxed as a disregarded entity, since a disregarded entity is neither a partnership nor an S corporation. A husband and wife LLC taxed as a partnership, or a multi member LLC electing S corporation status, could potentially qualify. A single owner holding a Torrance or Hawthorne rental in a single member LLC could not, because there is no separate entity level return for the election to attach to.

Even in years the election was available, it wasn't free. Section 19904 required a qualified entity to prepay by June 15 of the taxable year an amount equal to the greater of 50 percent of the prior year's elective tax or $1,000. Miss that prepayment and the entity lost the ability to make the election for that year entirely.

Why 2026 is different

Section 19900's own text limits the elective tax to years before January 1, 2026, and section 19906 sets a hard repeal date of December 1, 2026 for the entire part of the code, sections 19900 through 19907. Section 19906 also has an earlier trigger: if Congress repealed the federal SALT cap in section 164(b)(6) before December 1, 2026, the California program would go inoperative even sooner. That trigger didn't fire, Congress raised the cap instead of repealing it, to $40,000 for 2025 and $40,400 for 2026 under the newer section 164(b)(7), before it steps back to $10,000 in 2030. Either way, the plain text of section 19900 means a California qualified entity has no elective tax to make for a 2026 taxable year under current law.

What this means for a South Bay rental LLC right now

If your rental LLC made the election and prepaid for 2025, that year's mechanics still apply and the credit still flows to owners' 2025 personal returns in the ordinary course. Looking forward into 2026, there is nothing to elect and nothing to prepay by June 15, because the statute that created both no longer reaches that year. If you have treated the mid year prepayment as a recurring calendar item, take it off the 2026 calendar until, and unless, new legislation revives the program.

It's also worth noting the workaround mattered less for a straightforward rental LLC than for an operating business with significant pass through profit, because rental property taxes were never subject to the personal SALT cap to begin with. They belong on Schedule E as a trade or business expense, not as a personal itemized deduction. The PTE election was about the entity's California income tax on rental profit, not the property tax on the building itself.

FAQ

Can I still prepay for the 2026 pass through entity tax to lock in a deduction?

No. Section 19904's prepayment mechanism exists only for taxable years the underlying election in section 19900 covers, and that section stops at years beginning before January 1, 2026. There is no 2026 prepayment to make under current law.

Does this affect a single member LLC that owns a rental?

Not directly, because a single member LLC taxed as a disregarded entity was never a "qualified entity" under section 19902 in the first place. It was taxed as a partnership or S corporation that mattered, not the disregarded single owner structure.

Could the California Legislature bring the pass through entity tax back for 2026 or later?

That would require new legislation. Section 19906 repeals the existing program as written; nothing in the statute as currently enacted extends it. Watch for a new bill if this matters to your entity, and confirm the current status with a CPA before assuming either outcome.

What happened to the credit I received from a prior year's election?

Credits attached to a prior qualifying year, such as 2024 or 2025, are governed by that year's rules and are claimed on the personal return for that year in the ordinary course. The 2026 sunset doesn't reach back and undo an election properly made in an earlier available year.

This is general information, not tax advice. Confirm your entity's structure, any prior year elections, and the current status of this program with a CPA before you plan around it.

Topics: taxes, pass-through entity tax, california llc, rental property

Get a free management quote

Back to the Schofield Properties blog

Schofield Properties is a family run property management company at 323 Richmond St, El Segundo, CA 90245. We have managed the South Bay since 1972 and personally oversee about 186 doors today. Book a call to talk about your property.