The One Big Beautiful Bill Act (OBBBA) rewrote the rules for partnership tax planning in 2026. If you’re still working off 2024 playbooks, you’re leaving money on the table.
This guide covers the specific changes that affect partnerships, the strategies that work now, and the year-end moves you should be making. Whether you manage a two-person LLC or a multi-member real estate partnership, these are the planning opportunities that matter this year.
Key Takeaways: 2026 Partnership Tax Planning
- QBI deduction is now permanent with higher thresholds ($75K single / $150K joint) and a new $400 minimum deduction
- SALT cap increased to $40,000, but PTET elections bypass the cap entirely for partnerships
- 100% bonus depreciation restored for property placed in service after January 19, 2025
- Section 179 limit doubled to $2.5 million with $4 million phase-out threshold
- Year-end planning should start in Q4, not March when options close
For a complete overview of how partnerships work, see our partnership taxation guide.
Table of Contents
What Changed for Partnerships in 2026
The OBBBA delivered significant wins for pass-through entities. Here’s what partnership owners need to know:
QBI Deduction Made Permanent
The qualified business income (QBI) deduction under Section 199A is no longer set to expire. The 20% deduction on qualified business income stays in the tax code permanently, with updated thresholds:
- Phase-in begins at $75,000 for single filers (was $50,000)
- Phase-in begins at $150,000 for joint filers (was $100,000)
- New $400 minimum deduction for taxpayers with at least $1,000 in QBI who materially participate
SALT Cap Increased
The state and local tax deduction cap increased from $10,000 to $40,000. For partners in high-tax states, this means more of your state income taxes are deductible at the individual level. But the bigger opportunity is the pass-through entity tax election, which we’ll cover next.
Bonus Depreciation Restored
The 100% bonus depreciation that was phasing down came back. For property placed in service after January 19, 2025, partnerships can deduct the full cost in year one. This is particularly valuable for equipment-heavy businesses and real estate partnerships doing cost segregation studies.
Section 179 Limits Doubled
The Section 179 expensing limit jumped to $2.5 million (from $1.25 million), with a $4 million phase-out threshold. Partnerships can now expense significantly more equipment in the year of purchase. See our complete Section 179 deduction guide for details on qualifying property.
Pass-Through Entity Tax (PTET) Elections
The SALT cap workaround that most partnership owners should be using.
PTET allows partnerships to pay state income tax at the entity level instead of passing it through to partners. The partnership gets a full federal deduction for the state tax paid. Partners then receive a credit on their state return.
Why This Matters
The $40,000 SALT cap limits how much state and local tax individuals can deduct. But when the partnership pays state tax directly, that payment is a business expense. No cap.
For partners in states like California, New York, or New Jersey, this can mean thousands in additional federal deductions.
Which States Offer PTET
Most states with income taxes now offer some form of PTET election. The rules vary by state, including:
- Election timing (some require advance elections, others allow retroactive)
- Payment deadlines
- Credit mechanisms for partners
- Treatment of nonresident partners
If your partnership operates across multiple states, you’ll need to navigate each state’s rules. Our multi-state partnership filing guide covers the complexity.
When PTET Makes Sense
PTET benefits partners who:
- Live in high-tax states
- Would otherwise hit or exceed the $40,000 SALT cap
- Have partnership income that generates significant state tax liability
It generally doesn’t help partners in no-income-tax states or those well below the SALT cap.
Maximizing the QBI Deduction for Partnerships
The 20% QBI deduction can reduce your effective tax rate substantially, but it comes with limitations that require planning.
How QBI Works for Partners
Partnerships don’t claim QBI directly. Instead, qualified business income flows through to partners on Schedule K-1. Each partner calculates their own deduction based on:
- Their share of the partnership’s qualified business income
- Their total taxable income
- Their share of W-2 wages paid by the partnership
- Their share of the unadjusted basis of qualified property
The Income Limits
Below the threshold ($75,000 single / $150,000 joint), you get the full 20% deduction without limitation.
Above the threshold, limitations kick in based on W-2 wages and property basis. The deduction phases out completely for specified service trades or businesses (SSTBs) above $175,000 single / $350,000 joint.
Strategies for Maximizing QBI
- Aggregation elections — If you own interests in multiple businesses, aggregating them can help meet W-2 wage limitations. Once aggregated, the combined W-2 wages apply across all businesses.
- SSTB analysis — Determine whether your partnership qualifies as a specified service business. The rules have gray areas. A business that’s partially SSTB may be able to separate qualifying activities.
- Income timing — If you’re near the threshold, timing income recognition or deductions can keep you in the full deduction zone. Accelerating expenses or deferring revenue in the right year makes a difference.
- The $400 minimum — New for 2026, taxpayers with at least $1,000 in QBI from businesses where they materially participate can claim a minimum $400 deduction regardless of limitations.
For more on optimizing this deduction, see our QBI deduction guide.
Depreciation and Section 179 Strategies
Restored bonus depreciation and higher Section 179 limits create significant planning opportunities.
100% Bonus Depreciation
For qualified property placed in service after January 19, 2025, partnerships can deduct 100% of the cost in year one. This applies to:
- New and used equipment (if new to the taxpayer)
- Qualified improvement property
- Certain computer software
- Film, television, and theater productions
Section 179 Expansion
The $2.5 million Section 179 limit means most partnerships can expense their equipment purchases immediately. Key differences from bonus depreciation:
- Section 179 requires the business to have taxable income
- Phase-out begins at $4 million in total property placed in service
- Can be used selectively (bonus is all-or-nothing by class)
Strategic Timing
With 100% deductions available, timing asset purchases becomes a planning tool:
- Accelerate purchases to generate deductions in high-income years
- Defer purchases when partners have lower income or NOLs to use
- Consider partner basis before large depreciation deductions
Cost Segregation for Real Estate
Partnerships holding real property can use cost segregation studies to reclassify building components into shorter-lived property categories. Combined with bonus depreciation, this accelerates significant deductions into year one.
The depreciation flows through to partners, but each partner must have sufficient basis to absorb the deduction.
Retirement Plan Contributions for Partners
Retirement contributions reduce self-employment tax and provide tax-deferred growth.
SEP-IRA Contributions
Partners can contribute up to 25% of net self-employment income to a SEP-IRA. For 2026, the maximum contribution is $69,000. The partnership doesn’t make contributions directly. Instead, each partner funds their own SEP based on their distributive share.
Solo 401(k) Considerations
Partners in certain partnerships may qualify for Solo 401(k) plans, which allow higher contribution limits through combined employee and employer contributions. However, the rules for partners are restrictive. If the partnership has employees other than owners, Solo 401(k) generally won’t work.
Contribution Deadlines
SEP-IRA contributions for 2026 can be made up to the extended filing deadline of the partnership return (September 15, 2026, if extended). This gives partners flexibility to determine their income before committing to contribution amounts.
Coordination Among Partners
Partners don’t have to make equal retirement contributions. Each partner decides based on their individual tax situation. But if the partnership sponsors a plan, contribution formulas may need to be consistent.
Year-End Planning Checklist for Partnerships
Start these conversations in Q4, not March.
1. Evaluate Entity Structure
Is partnership taxation still optimal? For profitable partnerships with modest debt, an S-Corp election might reduce self-employment taxes. For debt-heavy businesses, partnership structure usually wins.
2. Evaluate PTET Election
If your state offers PTET and partners are hitting the SALT cap, make the election. Some states require elections before year-end.
3. Accelerate or Defer Income
Based on partners’ individual situations, consider timing of:
- Invoice collection (cash basis partnerships)
- Project completion (accrual basis)
- Large sales or dispositions
4. Maximize Deductions
Before year-end:
- Purchase and place equipment in service
- Make retirement contributions
- Pay deductible expenses
5. Verify Partner Basis
Before making distributions, verify each partner has sufficient basis. Distributions exceeding basis trigger gain. The partner basis calculation determines distribution treatment.
6. K-1 Preparation
Schedule K-1s must be issued to partners by the March 15 filing deadline. Start gathering information early:
- Capital account changes
- Debt allocations
- Special allocation items
- Partner guaranteed payments
7. Consider Estimated Tax Adjustments
If 2026 income will be significantly different from prior year, partners should adjust Q4 estimated payments to avoid penalties or excess withholding.
Frequently Asked Questions
What is the partnership filing deadline for 2026?
March 15, 2026 for calendar-year partnerships, or the 15th day of the third month after the tax year ends. Form 1065 must be filed by this date, with Schedule K-1s issued to partners. An extension to September 15 is available by filing Form 7004.
Can partnerships deduct state and local taxes in 2026?
Yes. Partnerships can make PTET elections in most states to deduct state income taxes at the entity level, bypassing the $40,000 individual SALT cap. The partnership pays state tax directly and deducts it as a business expense. Partners receive a credit on their state returns.
How does bonus depreciation work for partnerships?
Partnerships claim 100% bonus depreciation at the entity level for qualifying property placed in service after January 19, 2025. The deduction passes through to partners on Schedule K-1, subject to each partner’s basis limitations. Partners without sufficient basis cannot use the deduction currently.
What is the QBI minimum deduction?
Starting in 2026, taxpayers with at least $1,000 in aggregated QBI from qualified trades or businesses where they materially participate can claim a minimum $400 deduction. This helps taxpayers whose QBI deduction would otherwise be limited or eliminated by the W-2 wage and property basis limitations.
Should I convert my partnership to an S-Corp?
It depends on income level, self-employment tax burden, and business debt. Partnerships offer basis flexibility, including partner debt. S-Corps offer self-employment tax savings on distributions above reasonable salary. For a detailed comparison, see our partnership vs S-Corp guide.
Take Action on 2026 Partnership Tax Planning
The 2026 changes create real opportunities, but only if you act on them. Permanent QBI, restored depreciation, higher Section 179 limits, and PTET elections are tools. They work when you plan around them.
Start with your entity structure. Evaluate whether your current setup still makes sense. Then work through the year-end checklist before December, not in March when options close.
If you want to discuss specific strategies for your partnership, our team specializes in partnership tax services and works with pass-through entities year-round.