Summary

Real estate generally is owned and operated through “pass-through” entities that allow income to pass through to individual owners rather than taxing the income at the entity level. Pass-through entities such as partnerships, limited liability companies (LLCs), S corporations, and REITs are ideal for real estate because they give investors flexibility in how they structure the risks and rewards of these capital-intensive and relatively illiquid businesses.

Congress permanently extended the 20-percent pass-through deduction in the One Big Beautiful Bill Act (OB3 Act), signed into law on July 4, 2025. More recently, Democratic members of Congress have introduced legislation to repeal the pass-through deduction for taxpayers with incomes over $1 million and restructure partnership taxation.

Over the last two years, RER has submitted three amicus briefs (e.g., RER submission in Soroban, December 2025) in support of taxpayers challenging the government’s recent assertion that limited partners are subject to self-employment taxes (SECA) unless the LP is also passive investor. The government position, which could have significant negative consequences for real estate partnerships, is inconsistent with the intent, language, and spirit of the 1977 statute that exempts limited partners from SECA.

Key Takeaways

Our pass-through regime is a competitive strength of the U.S. tax system. Most countries rely on inflexible corporate regimes that provide little ability for an entrepreneur to tailor the capital and ownership structure to meet the needs of the business and its investors.

Half of the 4 million partnerships in the U.S. are real estate partnerships, and real estate activity constitutes a large share of pass-through business activity.

Publicly traded REITs allow small investors to invest in diversified, commercial real estate using the same single tax system available to partners and partnerships.

Small and closely-held businesses drive job growth and entrepreneurial activity in the U.S. Entity choice is a differentiator that contributes to our entrepreneurial culture.

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Summary

The Hart-Scott-Rodino Act (HSR) requires parties to certain mergers and acquisitions to file premerger notification reports with the Federal Trade Commission (FTC) and Department of Justice (DOJ) and observe a waiting period before closing. Since 1996, the FTC has exempted certain real estate transactions from HSR reporting requirements because these acquisitions are unlikely to violate antitrust laws.

In May 2026, RER submitted comments urging the FTC and DOJ to preserve the real estate exemptions, warning that removing them would impose substantial costs and delays on lawful real estate transactions without delivering any clear antitrust benefit. RER emphasized that real estate markets remain local, highly fragmented, and shaped by property type, geography, zoning rules, neighborhood characteristics, and other market-specific factors.

Key Takeaways

The real estate exemptions were adopted in 1996 because certain categories of real property acquisitions were considered unlikely to violate antitrust laws.

The exemptions cover several categories of real property acquisitions, including office, residential, retail, hotel, warehouse, agricultural, recreational, and other rental real estate assets.

The agencies have not provided evidence that circumstances have changed materially since the exemptions were adopted, or that exempted real estate transactions have had a negative effect on competition.

Eliminating the exemptions would impose new regulatory burdens, increase costs, slow closings, disrupt market liquidity, and create additional uncertainty at a time when capital formation remains critical to investment and development.

Removing the exemptions would not be a targeted way to address concerns about single-family housing acquisitions by large institutional investors, and could instead increase costs for homebuilders and residential developers working to address the nation’s housing shortage.

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Summary

A “carried” interest is the interest in partnership profits that a general partner receives from the investing partners for managing the investment and taking on the entrepreneurial risks of the venture, such as funding pre-development costs, guaranteeing construction budgets, and potential litigation. Carried interest is also granted for the value the general partner adds beyond routine services, such as business acumen, experience, and relationships. Carried interest may be taxed as ordinary income or capital gain depending on the character of the income generated by the partnership.

In the past year, both Republican and Democratic leaders have proposed making policy changes that would increase the tax burden on carried interest.

Since carried interest and its tax treatment first emerged as a controversial political issue in 2007, RER has consistently opposed legislative proposals to tax all carried interest at ordinary income rates.

Key Takeaways

Carried interest is essential to real estate investment, supporting housing development, economic growth, and the modernization of U.S. infrastructure.

Carried interest is not compensation for services. General partners receive fees for routine services (leasing, property management). Those fees are taxed at ordinary tax rates.

Proposals to tax all carried interest as ordinary income would result in an enormous tax hike on the 2.2 million real estate partnerships and 9.7 million real estate partners across the country who develop, own, and operate income-producing real estate.

Unfair retroactive application of carried interest legislation to existing partnerships would distort the economics of private-sector agreements with unknown and potentially damaging consequences for real estate markets and the overall economy.

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Summary

Created in 2017, Opportunity Zones (OZs) are designated, low-income census tracts where qualifying investments are eligible for reduced capital gains taxes. By channeling investment where it is needed, OZs help stimulate jobs, generate economic opportunity, and improve the built environment in low-income communities. The decentralized design of OZs allows more investors and stakeholders to participate in the market and invest in these projects.

The One Big Beautiful Bill Act (OB3 Act), signed into law on July 4, 2025, permanently extended the OZ tax incentives and made a number of helpful reforms that will further increase the provisions’ positive impact in low-income communities.

Key Takeaways

In their short tenure, OZs have created jobs and spurred billions of dollars of new investment in economically struggling communities across the country.

Opportunity Funds finance affordable, workforce, and senior housing; grocery-anchored retail centers; and commercial buildings that create spaces for new businesses and jobs.

In 2020, the White House Council of Economic Advisers estimated that the Opportunity Funds had raised $75 billion in private capital in the first two years following the incentives’ enactment, including $52 billion that otherwise would not have been raised. The council projected this capital could lift one million people out of poverty, decreasing poverty in OZs by 11 percent.

Despite major hurdles such as COVID-19 and high interest rates, more recent estimates suggest OZs have attracted over $120 billion in capital.

Today, 72 percent of U.S. counties contain at least one OZ, and 32 million people live in the 8,764 OZ-designated census tracts.

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Summary

For over 100 years, with one brief exception (1987-1990), the U.S. has taxed long-term capital gain at a lower rate than ordinary income. Previous administrations have proposed raising capital gains tax rates and taxing unrealized gains.

RER encourages Congress to continue to support investment and job creation with a meaningful capital gains incentive.

Key Takeaways

Unlike other tax policies, such as immediate expensing, the capital gains preference only rewards smart, productive investments that generate profits.

The reduced capital gains rate partially offsets the higher risk that comes with illiquid, capital-intensive real estate projects, as well as the economic effects of inflation.

High taxes on capital income make it harder to attract the investment needed to rebuild our urban centers. Opportunity Zone capital gains incentives facilitated $75 billion in new investment in low-incomecommunities in the first two years after enactment.

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Summary

Currently, the tax code allows taxpayers to defer capital gain when exchanging real property used in a trade or business for a property of a like-kind. In 2025, a group of House Democrats introduced legislation that would impose restrictions on such transactions. RER advocates for preserving the current tax treatment of like-kind exchanges.

Key Takeaways

15-20 percent of commercial transactions involve a like-kind exchange. Exchanges get languishing properties into the hands of new owners who improve them and put them to their best use.

Academic and outside research has found that exchanges spur capital expenditures, increase investment, create jobs for skilled tradesmen and others, reduce unnecessary economic risk, lower rents, and support property values.

Like-kind exchanges allow businesses to grow organically with less unsustainable debt, creating a ladder of economic opportunity for minority-, veteran-, and women-owned businesses and cash-poor entrepreneurs that lack access to traditional financing.

Land conservation organizations rely on exchanges to preserve open spaces for public use or environmental protection.

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Summary

The 2017 tax bill included strict new limits on the deductibility of business interest, generally restricting this to 30 percent of the taxpayer’s EBITDA (earnings before interest, tax, depreciation, and amortization). However, the bill also included a key provision that allows commercial real estate (a real property trade or business) to opt out of the interest limitation. The One Big Beautiful Bill Act (OB3 Act) included a provision that will allow more real estate businesses to fully deduct their business interest and qualify for 100 percent bonus depreciation on their nonresidential, interior improvements.

Key Takeaways

Debt is a fundamental part of a real estate entity’s capital structure and, in addition to property acquisition costs, is used to finance day-to-day operations like meeting payroll, buying raw materials, making capital expenditures, and building new facilities.

The ability to finance investment and entrepreneurial activity with borrowed capital has driven jobs and growth in the U.S. for generations. America’s capital markets are the deepest in the world and provide our economy with a valuable competitive advantage.

Commercial banks are the dominant source of financing for commercial real estate investment. Like other entrepreneurs, small and medium-sized real estate developers and investors lack access to equity markets and rely on traditional lending to grow and expand.

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Summary

Foreign investment is a major source of capital for U.S. commercial real estate, but new federal regulations, a wave of state-level restrictions, and proposed legislation threaten to deter the deployment of global capital in U.S. assets.

First, in April 2024, the Treasury Department issued final regulations that greatly expanded the reach of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), creating a new and unprecedented “look-through” rule that in effect would raise the tax burden on inbound real estate capital. Tax regulations proposed by the Trump administration in October 2025 would repeal the 2024 look-through rule. Separately, in December 2025, Treasury issued final Section 892 regulations and proposed new regulations that could disrupt inbound real estate investment from foreign governmental entities.

Second, at the state level, 20 states have enacted restrictions on foreign investors in real estate and agricultural land, and eight states have considered similar measures.

Third, Congress recently considered a tax proposal—known as Section 899—that would impose higher U.S. tax rates on income, dividends, and capital gains earned by investors from foreign countries deemed as maintaining “unfair” tax regimes. Section 899 was ultimately dropped from the One Big Beautiful Bill Act (OB3 Act) and a recent OECD agreement to carve out U.S. companies from the global minimum tax agreement has significantly reduced the likelihood that Section 899 will be revived.

Key Takeaways

With approximately $1.5 trillion of U.S. commercial real estate debt coming due in the next three years, foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance, or sell their properties.

Discouraging foreign investment weakens U.S. competitiveness, raises the cost of capital for U.S. developers, and undermines efforts to revitalize urban cores, modernize infrastructure, and expand the housing supply.

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