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Published July 15, 2026
CA lets qualifying pass-through entities pay a 9.3% elective tax and pass owners a state credit. June 15 prepayment applies.
California's pass-through entity elective tax lets a qualifying rental LLC or partnership pay a 9.3 percent state tax at the entity level, which is deductible on the federal return and gets passed back to owners as a California tax credit, effectively working around the federal $10,000 SALT cap. Senate Bill 132 extended this election through tax years beginning before January 1, 2031, and, starting with 2026, a missed or short June 15 prepayment no longer disqualifies the election outright.
If you hold rental property inside a multi-member LLC, partnership, or S corporation taxed as a pass-through, your California income normally flows straight to your personal return, where it is subject to the federal $10,000 cap on state and local tax deductions enacted in 2017. The PTET election, created under Revenue and Taxation Code Part 10.4.1 (added by Assembly Bill 150 in 2021, refined by Senate Bill 113 in 2022, and now extended by Senate Bill 132, signed June 27, 2025), lets the entity itself pay a 9.3 percent tax on its qualified net income. That payment is deductible at the entity level on the federal return, which is not subject to the SALT cap the same way a personal itemized deduction is. Each owner then gets a corresponding credit against their personal California tax.
This only works for entities taxed as partnerships or S corporations with at least one owner who is an individual, trust, or estate. A single-member LLC with only one owner and no other qualifying members typically cannot make the election, per Franchise Tax Board guidance, because the statute requires qualified taxpayers who are owners of the electing entity.
Under the original rules, an entity had to make a prepayment by June 15 of the tax year, equal to the greater of 50 percent of the prior year's elective tax or $1,000, or the election was void for that year entirely. That all-or-nothing rule caught a lot of small entities off guard, especially first-year filers with no prior-year payment to benchmark against.
SB 132 changed the consequence for tax years 2026 through 2030. A missed or short June 15 prepayment no longer voids the election. Instead, each owner's PTET credit is reduced by 12.5 percent of that owner's pro rata share of the shortfall. It is still a real cost to miss the deadline, but it is no longer a cliff that wipes out the whole benefit for the year.
Most small rental LLCs do not think of themselves as PTET candidates because they associate the election with operating businesses, not real estate holding companies. But if your rental LLC or partnership has net rental income flowing through to individual owners who itemize, and those owners are already near or over the $10,000 SALT cap from mortgage interest, property tax on their primary residence, and other state taxes, the PTET election can meaningfully lower their combined federal and state tax bill. The tradeoff is cash flow: the entity has to fund the 9.3 percent payment before owners see the offsetting credit on their own returns.
This is entity-level tax strategy, and it needs to be modeled against your specific ownership structure, prior-year payments, and each owner's total SALT exposure. It is not something to decide from a blog post.
If your rental holdings sit inside a partnership, LLC taxed as a partnership, or S corporation with individual owners, ask your CPA whether a PTET election makes sense for 2026 and whether you need to make the June 15 prepayment to avoid the 12.5 percent credit reduction under SB 132's revised rules.
If you would rather have someone flag these deadlines for you before they pass, that is part of what we do for owners who bring us into their bigger financial picture.
This is general information, not legal or tax advice. Confirm with a licensed professional before you act.
Last verified: July 2026.
Topics: taxes, ptet, salt cap, rental llc, california tax, pass-through entity
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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.
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