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ARTICLE · 01 APRIL 2026

Preferred Equity: Key Tax Considerations

Mayer Brown
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This Legal Update concludes our three-part series on preferred equity in private capital markets, exploring key tax considerations for preferred equity investments. For background on preferred equity’s core features, structural implementation, and use cases...

United StatesTax
Jason Bazar
Jason Bazar
Lucas Giardelli
Lucas Giardelli
Jonathan A. Dhanawade
Jonathan A. Dhanawade
Stephanie Wood
Stephanie Wood
Amir A. Rousta
Amir A. Rousta
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This Legal Update concludes our three-part series on preferred equity in private capital markets, exploring key tax considerations for preferred equity investments. For background on preferred equity’s core features, structural implementation, and use cases, see Part 1 of this series: Preferred Equity: Another Option in the Private Capital Liquidity Toolkit. For how preferred equity compares to senior debt, mezzanine debt, and common equity legal risks, see Part 2 of this series: Preferred Equity: Comparing Alternatives and Managing Legal Risks.

Executive Summary

Preferred equity investments involve important US federal income tax considerations. As discussed in the prior installments in this series, preferred equity occupies a hybrid space between debt and equity—offering contractual priority over common equity while remaining subordinated to debt. This positioning, combined with the instrument’s economic features, makes careful tax structuring essential. Unlike interest expense in

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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