PARTNERSHIPS Act

This bill tightens and simplifies many tax rules for business partnerships and certain investors. It standardizes how some partners must split income and losses, closing gaps that let people shift tax results within a partnership, and adds related reporting rules and guidance from the IRS . When partners add property to a partnership, gains built into that property must be shared using a single remedial method, and an older time limit that let some of that gain escape tax is removed . The bill also sets clear rules for when a partnership must “revalue” its assets after certain events, with an exception for smaller partnerships that meet a gross receipts test unless they choose in . Debt inside partnerships would be split among partners by their profit shares, with special treatment for true partner loans; this starts for tax years after 2025, and any one-time tax from the change can be paid over six years . Retired partners and heirs count as partners until their interests are fully cashed out, and some older liquidation payment rules are repealed to simplify treatment .

For high earners, the 3.8% net investment income tax would also apply to certain business income. If your modified adjusted gross income is above $400,000 ($500,000 for joint filers), the tax would be based on the larger of your “specified” net income or regular net investment income, with a gentle phase-in above the threshold. It also clarifies what is and isn’t counted, and applies similar rules to trusts and estates . The bill further shuts down tax-free “swap fund” moves that let investors diversify appreciated stocks without recognizing gains, by treating these transfers as taxable in more cases, including some partnerships and certain investment companies . Finally, it updates loss rules so that worthless securities or partnership interests are treated as losses when a clear event shows they’re worthless, rather than waiting until year-end, and confirms that abandoning such assets counts as that event .

Key points

• Who is affected:
  • Partners in business partnerships, including retired partners and heirs .
  • High-income individuals above $400k ($500k joint), and certain trusts and estates .
  • Investors using “swap funds” or similar diversification structures .
• What changes:
  • Standardized allocation of partnership items; new revaluation and reporting rules .
  • Partnership debt allocated by profit share; elective 6-year payment for any transition tax .
  • Built-in gains must be recognized under one method; repeal of time limit that deferred some taxes .
  • NIIT applies to more business income for high earners, with clarified definitions and thresholds .
  • Taxable treatment for more swap-fund-style transfers; clearer loss timing for worthless assets and partnership interests .
• When:
  • Many changes apply after enactment; partnership debt rules start for tax years after Dec. 31, 2025, with an installment option for related taxes .