Article | by Geffen Mesher

What does the “One Big Beautiful Bill Act” (OBBBA) really mean for the real estate world? Is it ultimately helpful? Harmful? A lot of hype? Let’s dig into the income-tax implications for real estate investors, developers, landlords, and professionals. This article highlights important real-estate-related tax provisions in the OBBBA, focusing on a few well-publicized provisions and lesser-known, but impactful, changes.

We’ll start by reviewing some of the most prominent provisions aimed at increasing after-tax cash flow and encouraging property improvement. It’s also important to note that many of these provisions have been made permanent, eliminating the need for periodic renewals, reducing uncertainty in timing of benefits, and enabling long-term planning.

100% Bonus Depreciation allowing an immediate deduction of qualified property has been made permanent. Previously, bonus depreciation was phasing down, with 2025 only receiving a 40% immediate deduction. This represents an immediate win for the recovery of personal property, land improvements, tenant build-outs, and most other interior commercial building improvements. The 100% deduction is available on qualifying property acquired after 1/19/2025. Note that the binding-contract rules apply: the placed-in-service date is less relevant than the date the asset was acquired by entering a binding contract. For example, if you entered a contract to buy qualified property on 1/1/2025 and placed it in service after 1/19/2025, you won’t get the 100% deduction; you will fall under the previous rules and receive only 40% bonus depreciation.

Section 179 expensing on certain qualified business property increases significantly for property placed in service starting 1/1/2025. The initial expense limit is $2,500,000 and begins to phase out at an increased threshold of $4,000,000 of assets placed in service. The limitations will be adjusted annually for inflation. Unlike bonus depreciation, Section 179 expensing can be elected on an asset-by-asset basis and is effective on the placed-in-service date. This creates a unique opportunity to analyze the benefits between Section 179 and property not yet eligible for 100% bonus depreciation (binding contract entered into before 1/20/2025). However, review the ownership structure carefully: non-grantor trusts cannot claim Section 179 deductions, so using Section 179 should be considered case by case.

Business-Interest Limitation. For those subject to Section 163(j) in 2025 and beyond, the calculation reverts to the more favorable prior method. The new limitation calculation allows depreciation and amortization to be added back, applying the 30% limitation test to Adjusted Taxable Income using EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than EBIT.

Qualified Business Income (QBI) Deduction was made permanent. Originally enacted in the 2017 Tax Cuts & Jobs Act (TCJA), it allows a 20% deduction (subject to limitations) for qualified business income from partnerships, S corporations, sole proprietorships, certain Real Estate Investment Trust (REIT) dividends, and publicly traded partnership income. The benefit was set to expire in 2025.

Increased State & Local Tax (SALT) Deduction. A heavily negotiated change raises the itemized-deduction cap from $10,000 to $40,000. The new limit is effective for 2025, increases to $40,400 in 2026, and rises an additional 1% in 2027, 2028, and 2029. Phaseouts apply to high earners, defined as those with modified adjusted gross income (MAGI) exceeding $500,000 in 2025, $505,000 in 2026, and 1% higher each year thereafter. Though potentially limited, the deduction will never fall below $10,000 for any itemizer, and the higher cap is set to revert to $10,000 in 2030. This change should allow greater state, local, and personal-property tax deductions for most itemizers.

Opportunity Zones are made permanent. Significant changes and enhancements to this program will be covered in a separate article.

Section 1031 exchanges of like-kind real estate remain unchanged. This incredibly beneficial provision often finds itself in legislative crosshairs but escaped any restrictions in the OBBBA.

Passthrough-Entity State-Tax Deduction remains unchanged, allowing a federal deduction for state income taxes elected to be paid at the entity level. With the increased SALT itemized deduction to $40,000, the benefit of a state passthrough-entity deduction program may diminish under the new law and will require annual analysis.

Now let’s review some of the more nuanced and less publicized provisions that contain a mix of helpful and harmful changes.

Termination of several real-estate-related energy credits and deductions:

• New Energy Efficient Home Credit (Section 45L): unavailable for homes acquired after June 30, 2026.
• Energy Efficient Commercial Building Deduction (Section 179D): unavailable for property whose construction begins after June 30, 2026.
• Residential Clean Energy Credit (Section 25D): ends for expenditures made after December 31, 2025.
• Energy Efficient Home Improvement Credit (Section 25C): ends for property placed in service after December 31, 2025.
• Alternative Fuel Vehicle Refueling Property Credit (Section 30C): ends for property placed in service after 6/30/2026. Installation of EV charging stations, often required in new developments, will no longer benefit from a credit of up to 30% of costs.

Loss of 5-year statutory recovery period for energy property (e.g., solar panels) for construction beginning after 12/31/2025. This likely reduces the upfront tax benefit of clean-energy investments by removing the shorter recovery period and potential bonus depreciation.

Sale of Qualified Farmland Property — Capital gain may be spread over four years on sales occurring after 7/4/2025. Land leased to a qualified farmer and used as farmland for the preceding 10 years qualifies if sold to a qualified farmer, with the land restricted to farm use for 10 years after sale.

Lower qualified-residence interest-deduction limitation was made permanent. Itemized deductions for mortgage interest are limited to acquisition debt of up to $750,000 (rather than reverting to $1,000,000 in 2026).

Limitation on Excess Business Losses was made permanent. Originally a TCJA revenue raiser set to expire in 2028, it limits the net trade- or business-loss offset against other income (wages, interest, dividends, etc.). Excess losses become net-operating-loss carryovers. The threshold for 2025 is $626,000 (joint filers), adjusted annually for inflation. This can be a trap for the unwary if large depreciation deductions are expected to wipe out taxable income but exceed the threshold.

Considering these provisions, the OBBBA is a mix of helpful and, to a lesser extent, harmful changes for the real estate sector. For many investors and developers, permanent 100% bonus depreciation, higher Section 179 expensing, the permanent QBI deduction, an increased SALT cap, and continued access to Opportunity Zones and Section 1031 exchanges are substantial positives that should support investment and development. Nevertheless, the loss of energy incentives, permanent excess-business-loss limitations, and continued restrictions on mortgage-interest and SALT deductions for high-income taxpayers temper some benefits. Although several provisions extend the TCJA permanently, the Act does not fundamentally alter real-estate taxation but does provide long-term certainty and new planning opportunities.

Ultimately, the OBBBA appears more helpful than harmful for most taxpayers in the real-estate industry. As always, the details matter, and careful consultation with your tax professional will be required to understand and optimize your tax outcomes.

Geffen Mesher’s team is available to assist you with questions related to these updated rules. Please contact our professionals for more information at INFO@GMCO.COM.