Partnerships & Pass-Through Taxation

Real estate generally is owned through “pass-through” entities that allow income to pass through to individual owners rather than taxing the income at the entity level. Partnerships promote and attract investment by allowing owners to allocate economic returns based on investors’ appetite for risk. Our pass-through tax and regulatory rules create greater flexibility in the ownership and operation of businesses, support risk-taking, and contribute to the economic dynamism that differentiates the United States from other countries. 


In 2017, Congress reduced the corporate tax rate by 40% and created a new 20% deduction (section 199A) for pass-through business income to avoid putting businesses organized as partnerships, S corporations (S corps), and real estate investment trusts (REITs) at a competitive advantage.  The pass-through business income deduction is scheduled to expire at the end of 2025.  Congress should permanently extend section 199A.  Failure to extend the deduction would effectively penalize small, closely held, and entrepreneurial businesses relative to large C corporations.

Beyond preserving tax parity with corporations, the pass-through deduction serves important public purposes. The availability of the pass-through deduction is tied directly to the hiring of workers and the investment of capital in productive equipment and property.

Any new tax legislation should avoid the unintended consequences and potential harm caused by the stacking of tax increases on pass-through entities which, when combined, would severely increase the tax burden on these job-creating businesses.


Recent tax legislation proposed and considered by Congress would significantly increase the combined tax rate on pass-through businesses. Half of the country’s four million partnerships are real estate partnerships. Real estate investment, new construction and development, and rental businesses constitute a significant share of pass-through business activity. Studies have shown the significant economic value real estate partnerships generate.

Pass-through entities such as partnerships, Limited Liability Corporations (LLCs), S corps, and REITs, are ideal for real estate investment because they give investors flexibility in how they structure the risks and rewards of the business. The benefits of pass-through taxation help compensate real estate owners for the additional risks and challenges associated with the ownership of large, capital-intensive, and relatively illiquid assets.

For more information and recent updates, reference our resources below.

Capital Gains
Like-Kind Exchanges (LKEs)
Partnerships & Pass-Through Taxation
Carried Interest
Step-Up in Basis
Opportunity Zones (OZs)
Unrealized Gains ("Billionaire Tax")