Tag: Partnerships & Pass-Through Taxation

Congress Delivers Historic Tax and Budget Package to Trump’s Desk for July 4th Signing

Posted on by abigail_grenadier

After months of high-stakes negotiations, Congress this week passed the sweeping One Big Beautiful Bill Act, a comprehensive reconciliation package that overhauls tax policy, restructures federal spending, and advances numerous Real Estate Roundtable (RER) priorities as it heads to President Trump’s desk for signature. (Roll Call, July 3)

State of Play

  • The House passed the final version of the One Big Beautiful Bill Act this afternoon, following a narrow vote of 218–214, capping off weeks of negotiations and delivering a legislative victory to Republican leaders ahead of the July 4 deadline. In the end, two Republicans—Reps. Thomas Massie (R-KY) and Brian Fitzpatrick (R-PA)—joined all Democrats in opposing the bill. (The Hill, July 3)
  • “With one big, beautiful bill, we are gonna make this country stronger, safer, and more prosperous than ever before, and every American is going to benefit from that,” said House Speaker Mike Johnson (R-LA). “Today we are laying a key cornerstone of America’s new golden age.” (Politico, July 3)
  • The Senate passed the sweeping budget bill in a 51-50 vote on Tuesday, after almost 24 hours of debate, amendments, and a “vote-a-rama” that ended with Vice President JD Vance casting the tiebreaking vote in favor of passage. Three GOP senators—Rand Paul (R-KY), Thom Tillis (R-NC), and Susan Collins (R-ME) voted no. (Axios, July 2)
  • In an interview after the bill’s Senate passage, Senate Majority Leader John Thune (R-SD) acknowledged that the decision to make the measure’s business tax cuts permanent impacted its savings and overall strategy. “We really believed that permanence was the key to economic growth because it creates certainty,” he said. “All the models that we saw showed that you got more growth with permanence.” (PoliticoPro, July 1)

Roundtable Advocacy

  • The final legislation advances a broad array of policies that support capital formation, real estate investment, and housing development, while repealing harmful proposals like Section 899 and preserving longstanding tax rules vital to CRE.
  • “This legislation represents a meaningful step toward strengthening communities, expanding housing opportunities, and supporting long-term economic growth,” said Jeffrey DeBoer, President and CEO of RER. “By advancing policies that encourage investment and preserve small business tax parity, Congress is helping to revitalize neighborhoods, create jobs, and ensure all Americans benefit from a stronger built environment.
  • DeBoer added, “We are, of course, disappointed that the overall bill is predicted to increase the deficit and national long-term debt. However, we hope that the pro-growth aspects of the bill will narrow both by significantly growing the economy and providing revenues greater than those now projected.  Likewise, we are concerned with predictions by some regarding the impact of spending cuts on research and needed health care for Americans.”
  • RER’s advocacy efforts were particularly successful in eliminating several provisions that would have severely impacted CRE, including Section 899, known as the “revenge tax,” and harmful limitations on state and local tax deductions for pass-through businesses.
  • Speaking to Bisnow regarding the impact of the tax provisions on real estate, Ryan McCormick, RER’s SVP and Counsel, said, “From the bill’s investment in housing and low-income communities to its fair treatment of entrepreneurial and pass-through businesses, the legislation strikes the right balance … it should spur job-creating capital investments in commercial properties across the nation.” (BisNow, July 1)

Tax Policy

  • The final legislation includes several tax provisions that will provide significant benefits to commercial real estate and support long-term economic growth:
  • Permanent Business Tax Cuts: The bill makes permanent several business tax deductions from the 2017 Tax Cuts and Jobs Act (TCJA), including the Section 199A deduction for pass-through businesses and interest deductibility rules under Section 163(j).
  • Section 899: Late last week, lawmakers removed the Section 899 provision known as the “revenge tax” from the bill after the Treasury Department secured an international tax agreement with G7 countries. RER strongly advocated for changes to the measure, warning that the tax would have deterred foreign investment in U.S. commercial real estate and weakened capital formation.  (Roundtable Weekly, June 27) (BisNow, July 1) (Commercial Property Executive, July 1)
  • Opportunity Zones: OZs are now a permanent feature of the tax code, though deferral periods for eligible gains are shortened through the end of 2026—a technical issue that RER will continue to address in discussions with Congress and Treasury.
  • Low-Income Housing Tax Credit (LIHTC): The bill preserves and enhances the LIHTC program, supporting the construction of affordable housing nationwide.
  • Bonus depreciation & expensing: Full expensing and 100% bonus depreciation for qualifying property are restored and made permanent, providing significant cash flow benefits for property owners undertaking capital improvements.
  • SALT workarounds preserved: The final bill drops proposed changes to state and local tax deductibility on pass-through business income, preserving current law that allows deductibility through state pass-through entity tax regimes.
  • Condominium construction tax accounting: The legislation includes provisions the RER has advocated for since 2015, allowing condo developers to use the completed contract method of accounting, aligning tax liability with actual receipts.
  • Excess business losses: The revised Senate bill avoids a controversial proposal from earlier drafts that would have permanently siloed active pass-through business losses, instead opting to extend current law under Section 461(l) without restricting taxpayers from using those losses against wages and investment income. This approach preserves flexibility for entrepreneurs, start-ups, and two-earner households and avoids undermining the principle of measuring true net income.

Energy Tax Credits

Sustainable Renewable Energy Concept With Wind Turbines, Solar Panels And City Buildings Background.
  • For months, clean energy tax incentives enacted under the Inflation Reduction Act (IRA) have been a point of contention in both the House and Senate, with several Republican lawmakers urging leadership to take a more targeted approach to scaling back the IRA’s provisions—while maintaining incentives that support both traditional and renewable energy sectors. (RW, April 25) (CBS News, July 1)
  • Ultimately, the final legislation significantly scales back the IRA’s clean energy tax incentives by accelerating the phase-out of wind and solar credits, while dropping a controversial excise tax on projects using foreign components and preserving eligibility for already planned or approved developments that begin construction before mid-2026. (PoliticoPro, July 1) (Bloomberg, July 1)
  • The Section 48E Investment Tax Credit (ITC) for wind and solar projects remains in the tax code, but projects that begin construction 12 months after the bill’s enactment must be placed in service by the end of 2027.
  • The Section 179D deduction for energy-efficient commercial building construction and retrofits is now limited to projects that begin construction by June 30, 2026.
  • Similarly, the 45L tax credit for energy-efficient new residential construction expires for homes “acquired” after June 30, 2026.
  • Importantly, ENERGY STAR’s current budget for FY2025 was not affected by any of the funding rescissions in the final bill.
  • At this week’s BOMA International Conference, RER’s SVP and Counsel Duane Desiderio joined John Boling (VP, Advocacy & Building Codes, BOMA International) for a panel discussion on ENERGY STAR Portfolio Manager, highlighting the program’s legal foundation, bipartisan economic appeal, and importance to real estate stakeholders. (Commercial Property Executive, July 2)
  • RER will continue engaging with lawmakers through the annual appropriations process to ensure that FY2026 federal funding bills (for spending starting October 1) support ENERGY STAR. (Commercial Property Executive, July 2)

What’s Next

  • With the One Big Beautiful Bill Act heading to the president’s desk, attention now turns to the appropriations process and additional reconciliation opportunities.
  • Speaker Mike Johnson has expressed interest in pursuing additional budget reconciliation efforts, a process that Congress can undertake at the end of the fiscal year.
  • In an interview on Fox News Tuesday, Johnson said, “This is just a step in a sequence of events. We’re intending to do more reconciliation work. The plan is to do one in the fall for FY26 budget year and we can also squeeze in a third one for FY27 before this Congress is up.” (Politico, July 2) (Punchbowl News, July 2)

RER will continue to provide in-depth analysis in the coming days and weeks on the reconciliation bill’s implications for commercial real estate, including technical implementation, market impacts, and policy recommendations.

Real Estate Industry Mobilizes for Pro-Growth Tax Provisions in Megabill

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As Congress works to meet a July 4 deadline for sweeping reconciliation legislation, The Real Estate Roundtable (RER) and partner organizations are calling on Senate leaders to align with House-passed tax measures that strengthen Main Street businesses by expanding the Section 199A deduction, protecting the Opportunity Zones program, and advancing a lower capital gains rate to drive long-term investment.

Section 199A

  • RER and nearly 100 other organizations sent a letter to Senate Finance Committee Chair Mike Crapo (R-ID), calling for the Senate to follow the House’s lead in expanding the Section 199A deduction from 20% to 23%. (PoliticoPro, June 26)
  • The Senate version originally would have made the deduction permanent but limited SALT deductibility, resulting in higher effective tax rates for many pass-throughs. But in a positive development announced today by Punchbowl News, Senate Republicans plan to entirely drop those new limits as part of a pending deal with the House GOP.
  • The House approach would maintain tax parity with C corporations and help ensure that small businesses—including real estate partnerships—can continue to invest, grow, and hire.
  • “Expanding Section 199A will help preserve tax parity between pass-through businesses and larger public corporations while helping ensure the Senate bill does not raise taxes on millions of Main Street businesses,” the coalition wrote. (Letter, June 25 )

Opportunity Zones

  • Using the “current policy baseline,” the Opportunity Zone program is now projected to generate $66 billion in savings rather than costing $7.5 billion under traditional estimates, making it appear as a revenue raiser rather than a tax cut. (PoliticoPro, June 27)
  • Senate Budget Committee Chair Lindsey Graham (R-SC) said,  “We need a current policy baseline to make tax cuts permanent, and we need Opportunity Zones to help urban and rural poor areas, so we’ll just press on — no matter what.”

Capital Gains Bill Introduced

  • Reps. French Hill (R-AR) and Greg Steube (R-FL) introduced the Revitalizing Investment, Savings, and Entrepreneurship (RISE) Act to lower the top federal capital gains rate to 15%, aiming to boost investment and long-term economic growth. (Rep. Hill Press Release, June 24)
  • The RISE Act would restore a bipartisan policy that was in place from 2003 to 2012.
  • “To build a stronger, more prosperous future, we need policies that unlock capital, reward risk-taking, and drive real growth for all Americans. That is exactly what the RISE Act delivers,” said Rep. Hill.

As negotiations continue, RER remains focused on advancing tax policies that foster capital formation, protect real estate investment, and support Main Street employers nationwide.

Sen. Wyden Introduces New Tax Bills Targeting Partnerships Tax Rules

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Senate Finance Committee Ranking Member Ron Wyden (D-OR) introduced two bills aimed at overhauling the taxation of partnerships this week, reviving a longstanding effort with major implications for commercial real estate.

Why It Matters

  • Although the legislation faces little chance of advancing this Congress, it signals Democratic priorities for any future tax package, particularly if control of Congress shifts after the 2026 elections.
  • According to Sen. Wyden’s press release, partnerships are “a preferred tax avoidance strategy for wealthy investors and mega-corporations.” He continues, “you can bet we’ll have this on the shelf when it comes time for Democrats to pass an agenda that cleans up the harm Trump is doing to American families.” (Sen. Wyden Press Release, June 17)
  • The PARTNERSHIPS Act is an updated version of Sen. Wyden’s 2021 partnership reform discussion draft. While he has not shared the JCT revenue table, his press release states that the proposals would raise $727 billion over 10 years.

  • The legislation would make fundamental changes to how debt, gains, and deductions are allocated among partners—departing from established practices that reflect real estate economics and contractual obligations.

Bill’s Key Provisions 

  • Partnership debt: The PARTNERSHIPS Act would rewrite Section 752 rules to require all partnership debt be allocated according to profit shares, disregarding real estate partners’ actual economic risk, contractual guarantees, and repayment obligations. This could significantly alter basis allocation and impact deductions, losses, and gains—though a six-year transition period would apply.

  • Allocation of partnership items: One of the major reforms proposed in the prior discussion draft was eliminating the “substantial economic effect (SEE)” safe harbor for allocating partnership items among the partners. The PARTNERSHIPS Act preserves the SEE rules while creating a specific rule for certain related-party partnerships. Under the Act, these partnerships would be required to allocate items consistent with contributed capital.

  • Allocation of built-in gains with respect to contributed property: The bill would eliminate two of the three options available to partnerships for allocating built-in gain among the partners when property is contributed to a partnership.
  • Net investment income tax: Mirroring the Biden budget, the bill would expand the 3.8% net investment income tax to include active pass-through business income not currently covered.

Roundtable Advocacy

  • RER has consistently advocated for fair treatment of partnerships—emphasizing their vital role in driving investment, job creation, and entrepreneurial risk-taking. As nearly half of all U.S. partnerships are in real estate, RER continues to urge Congress to strengthen, not undermine, the long-standing tax rules that support pass-through businesses and economic development.
  • RER, along with 23 national real estate organizations, previously led a comment letter on Sen. Wyden’s proposal in 2021, and will continue to advocate against provisions that mischaracterize partnerships as “tax scams.” (Letter, Sept. 2021 | RW, Sept. 2021)

  • Earlier this year, RER commissioned a comprehensive study by professors at Syracuse University and USC to analyze and address the important role of partnerships in the U.S. economy. 

RER’s Tax Policy Advisory Committee (TPAC) is reviewing how this research can further counter misleading narratives as tax policy discussions evolve.

“One Big Beautiful Bill” Moves Through to the Senate as House Republicans Unite on Trump Tax Plan

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House Speaker Mike Johnson (R-LA) met his self-imposed Memorial Day deadline as dissenting factions within the caucus reached an agreement on a series of last-minute changes, culminating in a razor-thin vote (215-214) on the One Big Beautiful Bill Act early Thursday morning. The budget reconciliation measure—which has wide implications for CRE—now goes to the Senate, where a similar tug of war could play out. (Ways & Means Press Release, May 22)

State of Play

  • The House Budget Committee voted late Sunday night to advance President Donald Trump’s One Big Beautiful Bill Act after several GOP hard-liners on the Committee blocked the measure from moving forward last Friday. (ABC News, May 19)
  • President Trump traveled to Capitol Hill Tuesday morning to deliver a message to House Republicans impeding the massive bill, a critical part of his domestic agenda: stop fighting and get it done as soon as possible. (NBC News, May 20)
  • The chamber took action, clearing the sprawling package in an early-morning vote Thursday after days of marathon meetings, intense negotiations that spanned both ends of Pennsylvania Avenue, and a series of swift changes to the bill, which were crucial in coalescing Republicans around the measure. (The Hill, May 22)
  • House Ways and Means Chair Jason Smith (R-MO) said that he’s been working “hand in glove” with Majority Leader John Thune (R-SD) and Senate Finance Committee Chair Mike Crapo (R-ID) on the tax package and had crafted it intentionally so it could survive the Senate’s rules. “I think 90 to 95 percent of the bill is going to be pretty much very similar,” he said previously. (Bloomberg, May 22)

Implications for CRE

  • The legislation includes an extension of the 2017 tax cuts, while maintaining the full deductibility of state and local business property tax deductions (also known as “Business SALT”) and preserving the current treatment of carried interest, two key priorities for The Roundtable in the current tax negotiations.
  • Additionally, the pass-through deduction under Section 199A would increase from 20 percent to 23 percent for qualifying income, including REIT dividends and the real estate operating income of partnerships and other pass-through entities. A late addition to the bill will allow REITs greater flexibility in their use of taxable REIT subsidiaries. (The Hill, May 21)
  • The bill extends the Opportunity Zone (OZ) tax incentives through 2033, with several updated eligibility criteria and new benefits for rural areas. This legislation also calls for a new round of OZ designations by state governors. (Mortgage Point, May 22)
  • Other positive developments include an expansion of the low-income housing tax credit and the reinstatement of 100 percent expensing for qualifying leasehold and nonresidential property improvements.
  • Now, the Senate will debate and craft its version of the bill, which it aims to pass by July 4. (The Hill, May 21; CNBC, May 22)

The Roundtable’s Position

  • RER expressed support for the House’s budget reconciliation measure. The extension of TCJA policies, preservation of property tax deductibility, continued capital gains treatment for carried interest, increased investment in affordable housing, and enhanced pass-through deduction are all positive developments. 
  • “Taken as a whole, the tax proposals in the Chairman’s amendment will spur needed investment in our nation’s housing supply, strengthen urban and rural communities, and grow the broader economy to the benefit of all Americans,” said RER President and CEO Jeff DeBoer in a recent statement following the House Ways and Means Committee’s bill markup last week.

What’s Next       

  • The action on the tax and fiscal legislation now shifts to the U.S Senate where Republicans are operating under similar tight margins.
  • Senate Republican leaders have not yet decided whether they will mark up the reconciliation bill in the various committees of jurisdiction. Finance Chairman Crapo could bring a substitute amendment straight to the Senate floor sometime in June.

RER will work to ensure that these hard-fought victories are protected in any final tax package.

The Roundtable Shares 2025 Tax Legislative Agenda with Lawmakers

Posted on by Trey Jackson

Responding to a request for input from the chairs of the House Ways and Means Committee and Ways and Means Tax Policy Subcommittee, The Real Estate Roundtable submitted comments on the pending expiration of the Tax Cuts and Jobs Act of 2017 and ways in which tax policy can support long-term investment, economic stability, and the creation of affordable housing. (Letter, Oct. 2)

Roundtable Recommendations

The letter from Roundtable President and CEO Jeffrey DeBoer urges lawmakers to ensure that any major tax legislation in 2025 retain or include:

  • The reduced tax rate on long-term capital gains. The capital gains rate is critical for driving long-term real estate investment and fostering job creation. Raising capital gains rates, taxing unrealized gains, or double-taxing gains at death would deter entrepreneurship, increase costs, and reduce economic mobility.
  • Tax fairness for partnerships and pass-through entities. Half of the nation’s tax partnerships are real estate-related, making these provisions vital to the industry’s success.  Section 199A, which provides a 20% deduction on pass-through business income (including REIT dividend income), allows privately held businesses to compete on a level playing field with large corporations.
  • Like-kind exchanges. Section 1031 allows for the deferral of capital gains through real estate exchanges and helps gets languishing properties into the hands of new owners who will invest in, and improve, them.  Retaining section 1031 is vital to promoting reinvestment in communities, creating opportunities for minority and small business owners, and improving struggling properties.
  • Tax rules that encourage, rather than deter, foreign investment in U.S. real estate. Targeted changes to the outdated and discriminatory Foreign Investment in Real Property Tax Act (FIRPTA) could unlock capital for large-scale real estate and infrastructure projects that create jobs and spur economic development.
  • Incentives for affordable housing, energy efficiency, and community revitalization. The Roundtable supports expanding the low-income housing tax credit (LIHTC), improving the real estate-related clean energy tax provisions in the Inflation Reduction Act, and introducing new incentives for the conversion of obsolete commercial buildings into affordable housing. The letter also calls for a long-term extension of Opportunity Zone (OZ) tax incentives and preserving carried interest tax rules that recognize and reward sweat equity with capital gains treatment.

The Roundtable is committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports critical policy objectives, including accessible and affordable housing and safe and healthy communities.

IRS and Treasury Unveil New Rules Aimed at Partnership “Basis-Shifting” Transactions

Posted on by Trey Jackson

This week, the IRS and Treasury Department announced a multistage regulatory initiative aimed at regulating certain partnership transactions that shift the tax basis of assets and generate additional depreciation deductions, reduce taxable gains, or increase deductible losses. (IRS-Treasury Press Release, June 17)

Guidance Package

IRS building in Washington DC
  • In Notice 2024-54, Treasury and the IRS indicated they intend to issue proposed regulations governing certain transactions that affect the basis of property held by a partnership or distributed by a partnership. The guidance will focus on partnerships that involve related parties or tax-indifferent parties. 
  • Related parties could include family members, corporations and their shareholders, and other entities and businesses with common or overlapping ownership.  It is unclear from the guidance where the administration believes the targeted abuses generating inappropriate tax benefits are most likely to arise (e.g., corporate mergers, family offices, real estate, etc.). 
  • The rules will apply to cost recovery deductions and gain/loss calculations for tax years ending after June 17, 2024, thus covering deductions, gains, or losses attributable to transactions completed in prior years. 

Roundtable Concerns

  • A principal concern voiced at this week’s RER Tax Policy Advisory Committee meeting is related to the broad scope of the new rules. Rather than focusing specifically on identifiable, abusive transactions, Notice 2024-54 states that the forthcoming regulations will provide “mechanical rules applicable to all covered transactions without regard to the taxpayer’s intent and without regard to whether the transactions could be abusive or lacking in economic substance.”
  • Moreover, the Notice states that the regulations will only apply if the transaction results in a basis increase for the relevant property.  “If, and to the extent, property has been allocated a basis decrease, the proposed rules would not apply.”
  • The new rules thus apply to a transaction regardless of whether the transaction is abusive or lacking in economic substance, but only if they result in a negative outcome for the taxpayer.  If the same mechanical rules would generate a positive result for another taxpayer, they are disregarded.  In sum: Heads, IRS wins; tails, taxpayer loses. 

Additional Developments:

Other elements of the regulatory initiative include:

  • Proposed regulations (REG-124593-23) identifying some partnership-related-party basis adjustment transactions as transactions of interest and requiring disclosures by participants and material advisers. 
  • Revenue Ruling 2024-14 notifying taxpayers that it will apply the codified economic substance doctrine to challenge certain basis-shifting transactions. 
  • The IRS Office of Chief Counsel also announced the formation of a new associate office focused exclusively on partnerships, S corporations, trusts, and estates. (TaxNotes, June 17)

The Roundtable’s Tax Policy Advisory Committee will continue its discussion of the partnership basis-shifting issue and how best to respond on its next TPAC Zoom meeting.