Opportunities and Enhancements for Real Estate in the One Big Beautiful Bill Act

On July 4, 2025, President Trump signed into law H.R. 1, commonly referred to as the One Big Beautiful Bill Act (OBBBA), which represents a sweeping overhaul of various provisions from the Tax Cuts and Jobs Act (TCJA) and introduces a host of permanent and temporary tax changes. Initially passed by the House of Representatives on May 22, 2025, and subsequently amended and approved by the Senate on July 1, 2025, the final version of OBBB codifies a range of reforms with broad implications for real estate developers, investment funds, and small business owners. 

Below is a summary of key real estate–related provisions, including a brief description of current law and how that would be altered under the final legislation. 

Enhancement of IRC Sec. 199A  

The TCJA created IRC Sec. 199A, which allows taxpayers to deduct up to 20% of their qualified business income (QBI), subject to wage and capital limitations. Income from certain Specified Service Trade or Businesses (SSTBs), where the principal asset is the skill or reputation of one or more owners or employees (such as law, accounting, healthcare, consulting, financial services, and performing arts) are excluded above certain income thresholds. 

The OBBBA makes the 20% QBI deduction permanent. While the SSTB phaseout thresholds remain intact ($197,300 for single filers and $394,600 for married filing jointly in 2025) the phase-in amounts increase in 2026 from $50,000 to $75,000 (or $100,000 to $150,000 in the case of a taxpayer filing a joint return). There is also a new $400 minimum deduction if taxpayers have at least $1,000 in QBI, both adjusted for inflation. REIT qualified dividends continue to benefit from the 20% QBI deductions without limitations. 

Extension of 100% Bonus Depreciation 

Under the TCJA, bonus depreciation began phasing out after 2022 (reduced by 20% per year between 2023 and 2026) and was scheduled to sunset entirely after 2026. For 2025, the deduction is 40%. 

The OBBBA permanently extends 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, and eliminates the phase-out schedule previously enacted under the TCJA. Notably, no sunset date is provided for qualified property, making the 100% bonus depreciation effectively permanent, unless changed by future legislation.  Note states have varying rules regarding bonus depreciation.   

For real estate, “qualified property” generally includes: 

• MACRS property with a recovery period of 20 years or less (e.g., land improvements, certain FF&E); and  
• Qualified Improvement Property (QIP): defined as interior improvements made by the taxpayer to non-residential real property after the building is first placed in service. This includes items such as drywall, interior doors, ceilings, electrical, plumbing, and HVAC, but excludes building enlargements, elevators, escalators, and structural framework. 

Further, taxpayers also have the option to elect a 40% transitional bonus rate (60 percent for certain property) for the first taxable year ending after January 19, 2025. This is likely to help taxpayers who don’t want to take the full 100% write-off immediately. 

Special Depreciation Allowance for Qualified Production Property 

In addition, the OBBBA adds IRC Sec. 168(n), which permits 100% depreciation for non-residential real property that qualifies as qualified production property (QPP), for the taxable year in which such property is placed in service. For purposes of this provision, QPP is property that is: 

• Used by the taxpayer as an integral part of a “qualified production activity,” 
• Placed in service in the U.S. or any possession of the U.S., 
• The original use of which commences with the taxpayer, 
• Construction of which begins between January 20, 2025, and December 31, 2028, and 
• Which is placed in service before January 1, 2031. 

Depreciation claimed on QPP is subject to IRC Sec. 1245 recapture upon sale if, at any time during the 10-year period beginning on the date that it was placed in service by the taxpayer, it ceases to be used as an integral part of a qualified production activity. 

Importantly, QPP specifically excludes any non-residential real property used for offices, administrative services, lodging, parking, sales activities, research activities, software engineering activities, or other functions unrelated to manufacturing, producing, or refining tangible personal property. 

Finally, a “qualified production activity” includes the manufacturing, production, or refining of tangible personal property, but only if the activities result in a substantial transformation of the property. 

Increased IRC Sec. 179 Expensing Limits 

The OBBBA raises the expensing limit under IRC Sec. 179 from $1.0 million to $2.5 million and the phase-out threshold from $2.5 million to $4.0 million, effective for property placed in service in tax years beginning after December 31, 2024.  

Although several states do not conform to the bonus depreciation rules, as noted above, many states conform to the federal IRC Sec. 179 expensing provisions. Additionally, the IRC Sec. 179 deduction cannot exceed the taxpayer’s aggregate active trade or business income for the year. Any disallowed amount due to this limitation may be carried forward to future years. 

Reinstatement of Depreciation, Amortization, and Depletion Add-Back for IRC Sec. 163(j) 

The TCJA amended IRC Sec. 163(j), which, in broad terms, limited a subject taxpayer’s deduction for business interest expense to the aggregate of: 

• 30% of the taxpayer’s Adjusted Taxable Income (ATI), and 
• the taxpayer’s excess business interest income. 

ATI is calculated by adjusting the taxpayer’s taxable income and/or loss by adding or subtracting certain enumerated items. For taxable years beginning before January 1, 2022, taxpayers were able to add back interest, taxes, depreciation, amortization, and depletion in determining ATI (thus increasing the 30% limitation against which deductible business interest expense is measured). For taxable years beginning after December 31, 2021, the add-back was limited to only interest and taxes.     

The OBBBA permanently restores the depreciation, amortization, and depletion add-back to taxable income when computing a taxpayer’s ATI for tax years beginning after December 31, 2024. However, the OBBBA excludes subpart F, GILTI (now called Net CFC Tested Income) and IRC Sec. 78 gross-up amount from ATI calculations effective for tax years beginning after December 31, 2025.  

Restoration of the add back for depreciation, amortization, or depletion increases the taxpayer’s ATI and the amount of business interest expense the taxpayer may be able to deduct without limitation under IRC Sec. 163(j). This increased business interest expense limitation may be relevant for real estate activities that are weighing the cost vs. benefit of an IRC Sec. 163(j)(7)(A)(ii) Electing Real Property Trade or Business Election. Such an election may no longer be necessary or beneficial given the potentially larger prospective ATI threshold. 

The OBBBA also introduces a new ordering rule that requires that the IRC Sec. 163(j) limitation be applied prior to any interest capitalization provisions—except for interest capitalized under IRC Secs. 263A(f) (property produced by the taxpayer) and 263(g) (straddles) effective for tax years beginning after December 31, 2025.  The revised ordering rule for interest capitalization may restrict certain tax planning strategies previously used to manage the IRC Sec. 163(j) limitation, and such strategies may now require reevaluation.  

Permanent Limitation on Excess Business Losses 

The TCJA introduced the Excess Business Loss (EBL) limitation under IRC Sec. 461(l), which applies to non-corporate taxpayers and was scheduled to expire after 2028. Under the TCJA provisions, EBL losses become part of a taxpayer’s Net Operating Loss (NOL) and can be credited against other types of income in the year following the EBL limitation. 
 
The OBBBA removes a prior proposal—originally included in both the House and Senate drafts—that would have permanently restricted excess business losses from pass-throughs to only offset other business income. Under that proposal, losses could not be used to offset wages, interest, dividends, or other types of non-business income. As passed, the OBBBA keeps the current rule, which defers these losses for one year and allows them to be carried forward as part of an NOL in the following year. This approach preserves some flexibility for taxpayers to use the losses in future years, rather than permanently limiting how they can be applied.  

Carried Interest 

Contrary to repeated calls from President Trump to end the carried interest “loophole,” the bill retains longstanding partnership tax laws that reward risk-taking and ensure capital gain treatment is not limited only to taxpayers with cash to invest.  

Extension of Limitation on Deduction for Qualified Residence Interest 

The TCJA temporarily suspended the deduction for interest on home equity indebtedness—unless the borrowed funds were used to buy, build, or substantially improve the home that secures the loan—and reduced the acquisition indebtedness cap from $1,000,000 ($500,000 MFS) to $750,000 ($375,000 MFS) for debt incurred after December 15, 2017. 

The OBBBA makes these limitations permanent, locking in the $750,000 cap on acquisition debt and continuing to disallow interest deductions on home equity loans used for personal expenses. Only interest on loans used to improve or acquire the taxpayer’s primary or secondary residence remains deductible under the cap. 

Additionally, beginning in 2026, mortgage insurance premiums will be treated as qualified residence interest, making them permanently deductible under the revised rules. 

Termination of Miscellaneous Itemized Deductions 

Prior to the enactment of the TCJA, certain Miscellaneous Itemized Deductions were allowed as a deduction against taxable income to the extent they exceeded 2% of a taxpayer’s adjusted taxable income. The TCJA made these deductions non-deductible for certain taxpayers for taxable years beginning after December 31, 2017, and before January 1, 2026. The OBBBA makes these expenses permanently non-deductible. 

Taxpayers with activities that otherwise generate significant 2% portfolio deductions (e.g. real estate debt funds not treated as engaged in a trade or business) may want to consider the impact that this provision and the permanent non-deductibility of an entire ‘class’ of expenses may have on their after-tax returns, and structure their activities and assets so as to minimize the creation of 2% portfolio deductions (e.g. by potentially utilizing REIT or subsidiary REIT structures where possible).     

Increase in State and Local Tax Deduction Cap 

The TCJA capped the state and local (SALT) deduction for individuals at $10,000 ($5,000 for MFS) through 2025. This provision was set to expire on December 31, 2025, at which point the $10,000 cap noted above would not apply.   

The OBBBA temporarily increases the SALT deduction limitation to $40,000 ($20,000 MFS) for the 2025 taxable year. The deduction begins to phase out once a taxpayer’s AGI exceeds $500,000 ($250,000 MFS). The deduction is reduced by 30% of the amount by which the taxpayer’s modified adjusted gross income (MAGI) exceeds the applicable limit but cannot go below $10,000 ($5,000 MFS). The $40,000 annual deduction cap and MAGI threshold amounts will increase by 1% each year starting in 2026 through 2029. Beginning in 2030, the cap will revert to $10,000, unless new legislation is passed. 

Limitations on Pass-Through Entity Tax Workarounds 

In reaction to the TCJA SALT limitation, many states created elective pass-through entity-level income taxes to allow these entities to pay and deduct state and local taxes. This effectively allows owners of pass-through entities (PTE) to circumvent the SALT cap. The IRS indicated it would allow these workarounds in Notice 2020-75. 

Although both the House and Senate bills included limitations that would have significantly reduced the effectiveness of SALT cap workaround regimes—including proposals to restrict the deduction for certain SSTBs—the final bill omits all such provisions. As enacted, the OBBBA preserves the current treatment of state pass-through entity tax (PTET) workarounds without imposing additional limitations. 

Deferral of Income for Condominium Developers 

Previously, developers of condominium buildings with five or more units are required to use the percentage-of-completion method of accounting. This means they must recognize income and pay taxes on the expected profit from pre-sold units as construction progresses, even if the sale has not closed and no proceeds have been received. This often results in significant phantom income, creating a mismatch between taxable income and available cash flow. While rowhouses or townhomes (horizontal construction) are treated as separate buildings and can qualify for the completed contract method, vertical construction (e.g., high-rise condos) does not qualify for the completed contract method other than buildings with four or fewer units. 

The OBBBA repeals this rule by allowing the completed contract method to be applicable to all residential construction contracts—defined as contracts where at least 80% of the estimated costs relate to the construction of residential units. Developers are now permitted to use the completed contract method for both regular and AMT purposes. This now defers income recognition until the contract is substantially completed, better aligning tax liability with project delivery and cash flow. 
This change applies to contracts entered into in taxable years beginning after the date of the enactment of this act and is expected to significantly benefit developers of high-density, vertical housing projects. It is expected to reduce early-stage tax burdens, mitigate cash flow mismatches, and stimulate additional housing construction in urban and high-cost markets. 

Modification of the Qualified Opportunity Zone (QOZ) Program 

The OBBBA permanently extends the Qualified Opportunity Zone (QOZ) program, replacing the previous fixed expiration with new 10-year QOZ designation periods going forward. New, stricter eligibility criteria will apply to QOZ designations and contiguous tracts will no longer be eligible. Under the revised QOZ program, taxable recognition of deferred gains, also known as inclusion events, will generally occur five years after investments into QOFs are made (if such investments are not sold earlier), rather than a fixed recognition date under the original program.  

Benefits for investors in QOZs have been adjusted. The deferred gain basis step-up is now limited to 10%, applicable when investments are held for at least 5 years, whereas deferred gains were previously eligible for up to a 15% step-up.  

The 10-year basis to FMV step-up remains in the QOZ program, however with an important modification to what FMV is used for the step-up. If a QOF investment is sold before the 30th anniversary of the date of the investment, the FMV of the investment on the date of sale is used (i.e., the basis is stepped up to FMV on the date of sale, thereby eliminating any gain). Conversely, if the investment is sold on or after the 30th anniversary of the date of the investment, the FMV of the investment on the 30th anniversary is used (i.e., the basis is stepped up to the FMV on the date of the 30th anniversary). 

The new QOZ program reflects an effort to incentivize more investment in rural areas. One such benefit is an increase in the deferred gain basis step-up from the default 10% to 30% for investments held for at least 5 years. A second major benefit of investing in rural areas is that the substantial improvement requirement for QOZ property is reduced to only 50% of the original depreciable basis, rather than 100%, in the case of property in a QOZ that is comprised entirely of a rural area.  

Also included in the OBBB are increased reporting requirements for QOFs and QOZ businesses that aim to boost transparency and accountability within the program. 

Affordable Housing Credit Expansion 

The OBBBA permanently increases the 9% Low-Income Housing Tax Credit (LIHTC) allocation by 12%, effective beginning in 2026. 

In addition, the 50% bond financing threshold test for the 4% housing credit will be lowered to 25% permanently.  This change is effective for properties placed in service after December 31, 2025, if bond levels are at least 5% of the basis in land and building with an issue date after December 31, 2025. 

Furthermore, the New Markets Tax Credit is made permanent, eliminating the need for reauthorization in future years. 

The re-instatement of 100% bonus depreciation and interest expense add-backs under §163(j), discussed above, benefit affordable housing development as well. 

Clean Energy Tax Incentives 

The OBBBA makes significant changes to many of the clean energy credits included in the Inflation Reduction Act of 2022 (the “IRA”). Projects that began construction before 2025 and are planning on claiming production tax credits (PTCs) or investment tax credits (ITCs) under IRC Secs. 45 and 48 are generally unaffected by the OBBBA. However, the OBBBA provides a broad range of changes to other energy tax credits that were introduced or extended by the IRA. The OBBBA makes substantial cuts to the tech-neutral tax credits for solar and wind and eliminates certain other energy tax credits (e.g., those for hydrogen, EVs, and homeowners), but other technologies and activities (e.g., geothermal, carbon capture, nuclear, clean fuel production) experienced fewer claw backs of the benefits provided by the IRA.  
 
While the OBBBA substantially impacts a full range of energy tax credits and deductions applicable to various industries, the following is a summary of key changes to energy tax credits and deductions affecting real estate only: 

Commercial Energy Projects 

• Clean Electricity Production Tax Credit (IRC Sec. 45Y) and Clean Electricity Investment Tax Credit (IRC Sec. 48E), for Solar, Wind, and Other. The OBBBA adds a placed-in-service deadline for solar and wind facilities of December 31, 2027, and applies to facilities that begin construction after July 4, 2026 (i.e., more than 12 months after the enactment of OBBBA). It also disallows credits for solar electric heating and small wind residential property if the taxpayer rents or leases the property, which applies to taxable years beginning after July 4, 2025 (i.e., after enactment of the OBBBA).  

Both IRC Secs. 45Y and 48E begin to phase out in 2032. Except for solar and wind facilities that have a special placed-in-service date (as previously mentioned), the phase out is determined by reference to the time when “beginning of construction” (“BOC”) begins. Qualifying facilities that  begin construction: 

• • Before 2034 are entitled to 100% of the credit; 
  • During 2034 are entitled to 75% of the credit; 
  • During 2035 are entitled to 50% of the credit; and 
  • After 2035 are not entitled to any credit. 

For the IRC Sec. 48E tax credit (ITC), facilities that begin construction on and after June 16, 2025, are subject to the same domestic content thresholds  as the PTC. New domestic content thresholds are generally: 

1. 45% for BOC in 2025,  
2. 50% for BOC in 2026, and  
3. 55% for BOC in 2027.  

Facilities that began construction before June 16, 2024, can utilize a 40% threshold., An Executive Order issued on July 7 directs the Treasury to issue new and revised guidance on “beginning of construction,” which has broad application in the realm of energy tax credits. 

• IRC Sec. 179D Deduction. The IRC Sec. 179D deduction, which generally applies for certain ground-up energy-efficient construction projects (or energy-efficient “retrofits”) for commercial building property, is effectively eliminated by the OBBBA’S addition of a new beginning of construction deadline of June 30, 2026.
• Energy Efficient Home Credit (IRC Sec. 45L). The IRC Sec. 45L tax credit, which was available to eligible contractors for construction or manufacture of new energy efficient homes, has been repealed by OBBBA for qualified homes acquired after June 30, 2026. 

Accelerated Depreciation for Energy Property 

• Repeal of 5-Year MACRS for Certain Energy Property. IRC Sec. 168(e)(3)(B)(vi), which allowed 5-year MACRS cost recovery for certain energy property and qualified clean energy facilities, property, and technology, will be terminated after December 31, 2025.  

Residential Credits 

• Residential Clean Energy Credit – IRC Sec. 25D. The placed-in-service deadline for the Residential Clean Energy Credit for incurring expenditures is moved up to December 31, 2025 (pre-OBBBA, it was December 31, 2034). 
• Energy Efficient Home Improvement Credit – IRC Sec. 25C. The placed-in-service deadline for the Residential Clean Energy Credit, for incurring expenditures, is moved up to December 31, 2025 (pre-OBBBA, it was December 31, 2032). 

EV Related Credits 

• Electric Vehicles (“EV”) – IRC Secs. 25E, 30D and 45W. The deadlines for acquiring an eligible vehicle under the following IRC code sections is moved up to September 30, 2025 (pre-OBBBA, it was December 31, 2032), effectively eliminating these credits: 
  • IRC Sec. 25E - Previously Owned Clean Vehicle Credit; 
  • IRC Sec. 30D – Clean Vehicle Credit;
  • IRC Sec. 45W – Qualified Commercial Clean Vehicle Credit. 
• EV Charging Stations – IRC Sec. 30C. The placed-in-service deadline for Alternative Fuel Vehicle Refueling Property is moved up to June 30, 2026 (pre-OBBBA, it was December 31, 2032). 

IRC Sec. 899 (Revenge Tax) 

Earlier drafts of the OBBBA included a proposed IRC Sec. 899, which would have allowed the Treasury Department to impose retaliatory taxes on foreign governments, entities, or individuals from countries with “discriminatory” tax policies. The proposal drew strong criticism from the international business community and raised concerns about potential trade and treaty conflicts. Following negotiations with other G7 nations, this section was removed from the final version of the bill signed into law on July 4, 2025.  

The exclusion reflects a shared understanding among G7 members that the undertaxed profits and income inclusion rules under Pillar 2 should not apply to U.S.-parented groups. However, in a joint statement, Congressional tax writers noted that IRC Sec. 899 could reappear in future legislation. Foreign governments and investors with U.S. exposure should continue monitoring for developments.  

REIT Taxable REIT Subsidiary (TRS) Asset Test 

The TCJA reduced the aggregate value that TRSs (Taxable REIT Subsidiary) could represent to 20% of a REIT’s gross assets from 25%. The OBBBA restores the prior 25% threshold beginning with taxable years after December 31, 2025, providing REITs with expanded flexibility in structuring service-oriented or taxable operations. 

1099-MISC and 1099-NEC Reporting Threshold Increased 

The American Rescue Plan Act required that, businesses must file an information return—such as Form 1099-MISC or 1099-NEC—for payments totaling $600 or more made to a payee in the course of a trade or business. A copy of the form must also be provided to the recipient. 
 
The OBBBA raises the reporting threshold to $2,000 per payee, effective for payments made beginning in 2026.  

As the above shows, the OBBBA will have a significant impact on the real estate industry. While many of the enhancements and changes in the bill are ultimately beneficial for taxpayers, these changes may still lead to additional complexity for taxpayers in the coming months and years. If you are affected by the changes in the OBBBA, contact us below to see how we can assist.