Academic finance has explored the effect of taxes on corporate capital structure in great detail. By contrast, the effect of taxes on the capital structure of partnerships, REIT's, and related entities has received little attention. The present paper shows that, under general conditions, the values of partnerships and REIT's are invariant to leverage, contradicting the sparse literature in the area. A proof similar to that of Modigliani‐Miller is employed. The effect of real world imperfections is also examined.

Academic finance has explored the effect of taxes on corporate capital structure in great detail. By contrast, the effect of taxes on the capital structure of partnerships, real estate investment trusts, and related entities has received little attention. The present paper shows that, under general conditions, the values of partnerships and real estate investment trusts are invariant to leverage, contradicting the sparse literature in the area. A proof similar to that of Modigliani-Miller is employed. The effect of real world imperfections is also examined.