Oregon imposes tax changes following the 2026 legislative session

During the 2026 Oregon legislative session, lawmakers passed several tax-related measures, including Senate Bill (SB) 1507, related to Oregon’s disconnection from the One Big Beautiful Bill Act (OBBBA), and SB 1510, which extended Oregon’s state and local tax (SALT) cap workaround.

Explore these changes and what they could mean for you and your business below.

OBBBA decoupling legislation enacted by SB 1507

Oregon conforms to the IRC definition of federal taxable income on a rolling basis, meaning the state automatically adopts any federal changes. 

While the OBBBA was being negotiated by Congress, the Oregon legislature considered pausing the state’s rolling conformity but ultimately took no action during the 2025 legislative session. SB 1507 now disconnects Oregon from several key provisions.

SB 1507 key provisions

• The OBBBA permanently restored 100% bonus depreciation for qualified property.  Bonus depreciation, which was scheduled to phase out by 2026 under the Tax Cuts and Jobs Act of 2017 (TCJA), is preserved permanently under the OBBBA. Starting in 2026, Oregon has decoupled from the federal bonus depreciation provisions, and businesses will be required to add back bonus depreciation claimed under IRC Section 168(k). Specifically, the legislation states “there shall be added to federal taxable income for Oregon tax purposes the difference between the amount allowable as a deduction under Section 168(k) of the Internal Revenue Code as applicable to the tax year of the taxpayer and the amount allowable as a deduction under Section 168(k) of the Internal Revenue Code as amended and in effect on December 1, 2017.”[BS1] 
• The OBBBA expanded the income tax exclusion for gain from the sale of qualified small business stock (QSBS) under IRC Section 1202. Oregon completely decoupled from the gain exclusion under IRC Section 1202, including both the historic and expanded provisions starting in 2026.
• The OBBBA created a new deduction for auto loan interest paid on the purchase of certain new cars. Oregon has decoupled from this auto loan interest deduction.

Also included in SB 1507 is a $1,000 income tax credit business owners may claim for each new job created that pays at least 150% of the minimum wage; however, the credit is capped at 10 new jobs.

Prior to claiming the credit, a taxpayer is required to receive written confirmation of eligibility from the Oregon Business Development Department. The credit may not exceed the tax liability of the taxpayer, and any unused credit may be carried forward.

These changes apply to tax years beginning, or property placed in service, on or after January 1, 2026. The new jobs credit continues through 2031.

PTE changes enacted by SB 1510

The TCJA introduced a $10,000 cap on the federal SALT deduction for individuals. In response, many states, including Oregon, introduced a Pass-Through Entity Tax. This allowed S-corps, partnerships, and LLCs taxed as pass-through entities to make an annual election to have their income taxed at the entity level to fully maximize the SALT business deduction.

In Oregon, the Pass-Through Entity Elective Tax (PTE-E) was previously set to expire at the end of 2025.

SB 1510 extends the PTE-E election to tax years beginning before January 1, 2028. Additionally, it will allow overpayments to be credited against quarterly payments. The PTE-E was reinstated in the exact same form, despite a number of proposed changes to improve the program.

Because SB 1510 won’t take effect until June of 2026, the Oregon Department of Revenue (DOR) released interim guidance regarding how to handle this period.

First quarter estimated PTE-E payments

The DOR will accept estimated payments due on April 15, 2026, and apply them to the PTE-E account; the entity must be registered prior to making the PTE-E payments.

Second quarter PTE-E payments including first quarter amounts

The DOR stated it won’t assess penalties and interest on those who miss the first quarter estimated payment by April 15, 2026, provided they include it with the second quarter estimated tax payment that’s timely paid by June 15, 2026. This only applies to tax year 2026. If you make timely payments by June 15, 2026, and underpayment penalties and interest are assessed, you may submit a waiver request to the DOR.

Application of 2025 PTE-E overpayments to 2026 tax year

If the 2025 return hasn’t been filed and there’s an overpayment, a taxpayer can include on line 32 of Form OR-21, the Oregon Pass-Through Entity Elective Tax Return, the amount of refund it wants applied as a payment to the 2026 tax year’s estimated PTE-E tax.

If the 2025 return has already been filed and the overpayment was assigned to be carried over to the 2026 return, it will be treated as an estimated payment.

If the 2025 return has already been filed and the overpayment was refunded, no overpayment will be applied to the 2026 tax year.

Moving 2025 PTE-E payments to the 2026 tax year

If a taxpayer didn’t elect or timely file a 2025 PTE-E return, they must request a refund on Revenue Online for the estimated payments for the 2025 tax year. They won’t be moved to the 2026 tax year.