Connecticut taxes for professional practices: the PET, New York income, and practice real estate

Connecticut adds its own layer to the strategies on this site: an elective pass-through entity tax, New York returns for Fairfield County owners who work across the state line, and separate rules for depreciation and real estate. This guide explains how each works in 2026.

Key numbers: PET 6.99% · owner credit 87.5%, refundable · 2026 SALT cap $40,400, down to $10,000 at about $606,000 of MAGI · corporation business tax 7.5%, $250 minimum · commercial conveyance tax 1.25% state + 0.25% town, paid by the seller · bonus depreciation added back, recovered over four years.

Whether to elect Connecticut's pass-through entity tax

Electing usually makes sense if the owners' federal SALT deduction is already full. The election moves Connecticut income tax onto the practice's return, where it's deductible federally. Its cost is the 12.5% that owners don't get back as a credit, less the Connecticut tax they save because the PET also lowers the income they report. For owners in the top bracket, that net cost is about 5.5% of the tax.

How the PET works

• Who can elect: partnerships, LLCs taxed as partnerships, and S corporations. The tax has been optional since 2024.
• Rate and base: 6.99% of noncorporate owners' Connecticut-source income, plus resident owners' share of other income that no other state taxes. A partnership's base includes guaranteed payments, but an S corporation owner's W-2 salary is outside it.
• Credit: owners who pay Connecticut income tax get a credit for 87.5% of their share, refunded to the extent it exceeds their Connecticut tax. Corporate owners get none.
• Election: check the box on a timely filed Form CT-1065/CT-1120SI, including one filed on extension, and file Form CT-PET. The election is annual and irrevocable, and it can't be made on an amended return.
• Deadlines for calendar 2026: the return and payment are due March 15, 2027. Form CT-PET EXT extends the time to file, not the time to pay, to September 15, 2027. Estimates are due April 15, June 15, September 15, and January 15 if the required annual payment is $1,000 or more.

When electing helps federally in 2026

The PET pays off when the federal tax saved on the deduction exceeds the net Connecticut cost. That cost is the 12.5% that isn't credited, less the Connecticut tax owners save on the lower income they report, which comes to roughly 5.5% of the PET for top-bracket owners. The practice deducts the full PET (IRS Notice 2020-75) outside the owners' SALT caps, and each owner then claims the credit on their Connecticut return.

An owner whose personal Connecticut tax wouldn't be deductible anyway almost always passes that test. The 2026 SALT cap of $40,400 shrinks by 30% of MAGI above $505,000, reaching $10,000 at about $606,000, and property tax on a Fairfield County home can use up that amount on its own. Connecticut assesses property at 70% of market value, so a $2.5 million Greenwich house is assessed at $1,750,000. At Greenwich's rate of 10.125 mills for fiscal 2027, which runs from July 1, 2026 to June 30, 2027, the house's tax is $17,718.75.

The case is weaker for an owner with MAGI under $505,000 and room left under the cap. Because one election covers every owner, model each owner separately. In a partnership, the agreement should say how the PET is charged to each partner.

A cash-method practice deducts PET in the year it's paid, so practices that want the deduction on the 2026 federal return usually pay by December 31, 2026, even though the last estimate isn't due until January 15, 2027. The IRS hasn't addressed payments made before the election itself, which is made with the return filed in 2027.

Worked example: a Greenwich medical practice

For two owners with full SALT caps, electing on $2 million of practice income saves at least $34,251 a year. This is a hypothetical illustration, not a client result.

Dr. A and Dr. B own a Greenwich internal medicine practice 50/50 through an LLC taxed as a partnership. Both are Connecticut residents who file jointly, work only in the Greenwich office, and have MAGI far above $606,000 and home property tax above $10,000. Practice income for 2026, including guaranteed payments, is $2,000,000, and both are in the 37% federal bracket.

The example conservatively assumes the deduction doesn't also lower the owners' Connecticut tax, and it ignores self-employment tax. QBI doesn't enter into it, because each household's taxable income is above the $553,500 joint level where a medical practice's QBI deduction ends.

How Connecticut taxes partners and S corporation owners

Connecticut starts from federal AGI, so K-1 income flows through much as it does federally. Residents are taxed on all of it, and nonresidents on their Connecticut-source income.

• For a nonresident owner, such as a partner who lives in Westchester, the practice pays composite income tax at 6.99% on the Connecticut-source share, less any PET credit. If that's the partner's only Connecticut income, the practice's filing can satisfy the partner's own filing requirement.
• An S corporation owner's salary counts as wages, subject to Connecticut withholding, and stays out of the PET base.
• Because the QBI deduction comes after AGI, it doesn't reduce Connecticut tax. Pre-tax retirement contributions, including cash balance plan contributions, do reduce it.

When work in New York creates New York tax

Work creates New York tax only when it is done in New York. New York taxes nonresidents on services performed there and on a partner's share of a firm's New York income, but not on fees from New York residents treated or advised in a Connecticut office.

A Stamford partner who works in the firm's Manhattan office, or a Greenwich physician who also operates at a New York hospital, files a nonresident Form IT-203. Connecticut still taxes residents on all their income and then allows a credit (Schedule 2 of Form CT-1040) equal to the least of the New York tax on that income, the Connecticut tax times the New York share of Connecticut AGI, or the Connecticut tax itself.

As a hypothetical illustration, take a Stamford law partner who files jointly with $1,200,000 of income, of which $300,000 (25%) is allocated to New York. Her 2026 Connecticut tax is $83,780. New York computes tax on all $1.2 million as if she were a resident (about $81,100 after its $16,050 standard deduction) and takes 25% of it, about $20,275. Connecticut's limit is 25% of $83,780, or $20,945, so her credit is $20,275 and she pays Connecticut $63,505. Her total state tax stays $83,780, so New York changes where she pays but not how much.

That result holds only while New York's rate is lower. New York's 2026 joint rate is 6.85% up to $2,155,350 of taxable income and 9.65% above it, with higher rates over $5 million. At high incomes, recapture applies the top bracket's rate to all taxable income. Above roughly $2.2 million of joint income, the extra New York tax isn't credited.

Owners who work in New York should also know these rules:

• New York has its own PTET, a separate elective entity-level tax that is elected online by March 15 of the tax year, which means March 15, 2027 for 2027. Connecticut credits residents for their share of a substantially similar entity-level tax paid to another state.
• Partners with more than $150,000 of self-employment earnings allocated to New York City owe the MCTMT at 0.60% of those earnings, or 0.34% in Westchester and the other Zone 2 counties.

How Connecticut taxes professional corporations

A professional corporation taxed as a C corporation pays the corporation business tax and can't use the PET. With an S election, a PC doesn't pay corporation tax on its income and can elect the PET.

• The corporation business tax is 7.5% of Connecticut net income or, if greater, the capital base tax (1.6 mills for 2026, 1.1 for 2027, zero from 2028), with a $250 minimum.
• Profit left in the PC is taxed twice, at 7.5% and again as dividends, so many PCs pay out most profit as compensation.
• Depreciation is computed as if bonus depreciation didn't exist.
• A calendar-2026 Form CT-1120 is due May 17, 2027, since May 15 falls on a Saturday. With an extension, it is due November 15, 2027.
• For S status, Connecticut follows the federal election, and a PC already registered for the corporation tax notifies DRS through myconneCT.

Owning the practice building in Connecticut

Connecticut adds three items to the federal building analysis: conveyance tax on the sale, town property tax, and a bonus depreciation add-back.

Conveyance tax when the practice buys a building

The seller pays conveyance tax when the deed is recorded. Commercial property pays 1.25% to the state plus 0.25% to the town. Targeted investment communities, which in Fairfield County include Bridgeport, Norwalk, and Stamford, may add up to 0.25% more, so confirm the rate with the town clerk. You'll pay it when you sell. On a $3,000,000 Greenwich sale, the 1.5% comes to $45,000. Selling more than 50% of the building's LLC instead triggers the controlling interest transfer tax of 1.11% of the property's value.

Property tax on the building

Towns assess property at 70% of market value as of October 1 and tax the assessment at their mill rate (dollars per $1,000). In Fairfield County, OPM's fiscal 2027 rates, based on the October 1, 2025 grand list, run from 10.125 mills in Greenwich to 37.73 in Stratford. If Dr. A and Dr. B's real estate LLC owns a $3,000,000 Greenwich building, its assessment is $2,100,000 and its fiscal 2027 tax is $21,262.50, before any sewer or tax district charge.

Stamford and Norwalk tax by district, so use the district rate. For fiscal 2027, district rates run from 24.31 to 25.14 mills in Stamford, plus 1.39 mills in its downtown special services district, and from 22.9816 to 24.6708 mills in Norwalk. The practice must also declare its furniture, fixtures, and equipment to the town assessor by November 1 each year, and a late filing adds a 25% penalty to the assessment.

Bonus depreciation from cost segregation

Connecticut adds bonus depreciation back and spreads it out. Individual owners, and practices paying the PET, add back 100% of federal bonus depreciation and subtract 25% of it in each of the next four years. The §179 deduction works similarly, with 80% added back. If a cost segregation study gives the Greenwich building LLC $600,000 of bonus depreciation, the owners add back $600,000 in year one and subtract $150,000 in each of years two through five. For owners in the 6.99% bracket, that moves $41,940 of Connecticut tax into year one and returns $10,485 in each of the next four years.

Common mistakes

Most errors involve deadlines or an assumption that the federal treatment carries over.

1. Missing the PET election, which can't be added on an amended return.
2. Paying PET in January and expecting a deduction on the prior year's federal return.
3. Electing without modeling owners who still have room under the SALT cap.
4. Treating fees from New York clients seen in Connecticut as New York income, or skipping New York returns for work done there.
5. Expecting a federal cost segregation deduction to cut Connecticut tax in year one.
6. Using a single Stamford or Norwalk mill rate instead of the district rate.

How Summer Associates helps

Summer Associates, based in Stamford, models the PET election owner by owner, prepares Connecticut and New York returns for partners who work in both states, and plans the Connecticut side of practice real estate, from cost segregation add-backs to property and transfer taxes.

This guide is general education based on federal and Connecticut law as of 2026-11-15. State rules differ and facts matter. Before acting, get advice for your situation from Summer Associates or another qualified advisor.