Ohio Pass-Through Entity (PTE) Tax Election for Rental Real Estate Owners and Investors
If you own Ohio rental real estate through an LLC taxed as a partnership, Ohio’s Pass-Through Entity (PTE) Tax Election (IT 4738) may offer a valuable tax-saving opportunity.
How the Election Works
Ohio allows pass-through entities, such as partnerships and s corporations, to pay state income tax at the entity level. For tax years beginning in 2023 and later, the tax rate is 3% of qualifying Ohio income.
The Biggest Benefit: Federal Tax Savings
The primary advantage of the PTE election is that the Ohio tax is generally deductible at the entity level for federal income tax purposes. This can reduce the taxable income passed through to the owners and potentially bypass the federal SALT deduction limitation imposed on individuals.
In many cases, owners receive corresponding Ohio tax credits, helping avoid double taxation while still capturing the federal deduction.
When the Election Makes Sense
The Ohio PTE election is often beneficial when:
- The owners are individuals
- Income is primarily Ohio-source
- The business is consistently profitable
- There are no significant multistate tax issues
Potential Drawbacks
Before electing, consider that:
- The election is annual but generally irrevocable for the year.
- All owners participate—there is no opt-out.
- Additional filing and estimated tax requirements apply.
- Certain tax credits or multistate situations may reduce the benefit.
Bottom Line
For many Ohio real estate partnerships, the Ohio PTE election is a smart tax strategy that creates a federal deduction while preserving Ohio tax benefits for the owners. To learn more about the Ohio Pass-Through Entity Tax election, visit Ohio’s resources for businesses page.
Contact Matthew Tomko at mtomko@tomkocpa.com to learn more or connect with us at the link below.
Your Ohio Pass-Through Entity Tax Strategy Starts Here
Let Tomko CPA guide your real estate partnership through every step!
The material appearing in this communication is for informational purposes only and should not be construed as advice of any kind, including legal, accounting, tax, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by professionals, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Changes in tax laws or other factors could affect the information provided in this communication.
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