A tax provision most property owners have never heard of just got extended—and it could save thousands annually for those who qualify.
Most real estate and property management owners in Minnesota don't realize they may have access to a federal tax workaround that could save them thousands of dollars per year. That workaround—the pass-through entity (PTE) tax election—just got extended, and it's worth understanding before your next tax year.
If you own property through an S-corporation, partnership, or LLC taxed as a partnership, you normally pay Minnesota income tax on your share of profits at the individual level. That creates a problem: federal tax law caps the SALT deduction (state and local taxes you can deduct) at $10,000 per year, regardless of how much you actually pay in state income tax.
The PTE tax election changes this. It allows your business entity itself to pay Minnesota income tax at the entity level instead of passing profits through to you as an individual owner. When the entity pays that tax, it generates a federal tax deduction that bypasses the $10,000 SALT cap entirely. For property owners and managers paying significant Minnesota income tax, this can mean real money back.
This is not a new idea—Minnesota created the election years ago—but it's the single broadest direct tax-savings mechanism available to small business owners in the state.
HF2438 is a comprehensive state taxation bill. Buried in Article 2, Section 9 (page 33), it extends the PTE tax election through taxable years beginning after December 31, 2027. The extension is retroactively effective from January 1, 2026.
In plain terms: if you own qualifying real estate or property management businesses, you can continue using this election through the end of 2027 and beyond—giving you a clear planning window.
The PTE election is available to owners of:
It does not apply to C-corporations or sole proprietorships. If you own rental properties, manage commercial real estate, or operate a property management company through one of these entity types, you should review whether the election makes sense for your situation.
The benefit scales with income. Owners paying higher Minnesota income tax see larger federal deductions and correspondingly larger tax savings.
If you haven't already elected into the PTE tax system, the extension through 2027 gives you a defined planning horizon. If you're already using it, you know your strategy is locked in through the end of 2027.
This is not tax advice—you should consult your accountant or tax advisor about whether the PTE election makes sense for your specific situation. But the fact that Minnesota has now extended this provision through 2027 means it's worth a conversation with your tax professional before your next return.
Source: HF2438, Article 2, Section 9, amending Minn. Stat. § 289A.08, subd. 7a; effective retroactively January 1, 2026, through taxable years beginning after December 31, 2027.