A buried provision in Minnesota's HF2438 taxation bill restores a valuable tax election for property owners—but only through the end of 2027.
Most real estate and property management owners don't realize that Minnesota has quietly revived a tax election that could meaningfully reduce their federal tax burden—but only if they act before the window closes.
On January 1, 2026, Minnesota reenacted the pass-through entity (PTE) tax election, a provision buried in HF2438, the state's taxation bill on financing and operation of state and local government. The election allows partnerships, limited liability companies taxed as partnerships, and S corporations to pay an entity-level income tax on behalf of their owners. Here's why that matters.
Under this election, your business entity pays Minnesota income tax at the highest individual rate—currently 9.85%—on the entity's net income. In return, owners receive a credit against their individual Minnesota tax liability. The real benefit, however, is federal: the entity-level tax payment generates a federal SALT (state and local tax) deduction that is claimed at the entity level, not passed through to individual owners.
This matters because federal law caps individual SALT deductions at $10,000 per year. For real estate partnerships, LLCs, and S corporations with significant income, that $10,000 ceiling often means owners lose deductions they would otherwise claim. By paying tax at the entity level, the PTE election allows the business to deduct the full state tax payment federally, bypassing the individual cap entirely.
The PTE tax election applies to:
If your property management or real estate business is structured as one of these entities, you may be eligible. Sole proprietorships and C corporations do not qualify.
This is where urgency enters the picture. HF2438 revived the PTE tax retroactively to January 1, 2026—meaning eligible businesses may be able to claim the benefit for tax years already underway. However, the election expires for taxable years beginning after December 31, 2027. That means 2027 is the last year you can elect into this provision.
The provision is codified in Article 2, Section 9 of HF2438, which amends Minnesota Statutes § 289A.08, subdivision 7a (pages 33, lines 33.1–33.5).
If you own or manage real estate through a partnership, LLC, or S corporation, review whether the PTE tax election makes sense for your situation. The calculation depends on your entity's net income, your individual tax bracket, and your current SALT position. Because the window closes after 2027, decisions made now affect your 2026 and 2027 tax filings.
This is not a decision to make alone. Work with your tax advisor or CPA to model the benefit for your specific circumstances and to ensure your entity files the election correctly with the Minnesota Department of Revenue.
Source: HF2438, Article 2, Section 9 (amending Minn. Stat. § 289A.08, subd. 7a).