Thumbs Down: Partnership Taxes

If you're involved in a multistatereal estate partnership, some statetax collectors are looking for you topay up sooner. Most states now havelaws ordering partnerships to withholdestimated state taxes fromincome distributed to out-of-stateinvestors. Although there is no increasein tax rates, you will gettapped for your tax obligation at thesame time you receive your distributioncheck, rather than being able topay taxes voluntarily when yourreturn is due. The result is that youlose the use of that money—in somecases for as long as 15 months. Thecost of increased tax paperwork,especially for partnerships that investin properties in several states,could potentially cut into the totalamount of the distribution.