On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law — a sweeping tax and spending reconciliation law that cements several key provisions from the 2017 Tax Cuts and Jobs Act and introduces new incentives for developers, landlords, and investors.
For real estate professionals, this legislation was a win, with several key incentives extended or expanded.
1. Preserved and Permanent Tax Incentives
- 20% pass-through (Section 199A) deduction: OBBBA makes permanent the 20% deduction for pass-through and REIT income, including rental income and REIT distributions. For married couples, the deduction phase-in threshold is now $150,000 (up from $100,000), and $75,000 for single filers, beginning phase-out above $394,600.
- 100% bonus depreciation: full first-year expensing for qualified property, including nonresidential improvements, equipment, and machinery, is now permanently restored — a powerful lever for cost segregation strategies.
- Business state and local tax deduction (PTET): full deductibility of business-related state and local taxes remains intact, maintaining tax efficiency for high-tax states.
- Like-kind (1031) exchanges kept alive: 1031 deferrals remain valid, allowing continued tax-deferred exchanges of investment properties.
- Business interest limitation: OBBBA reinstated the EBITDA-based calculation for the business interest deduction limit, increasing the taxpayer’s ability to write off this expense. We cover this change in depth in our article on business interest limitations for syndications.
2. Enhanced Incentives for Development and Community Investment
Opportunity Zones (OZ): the program is now permanent, with updates that include a rolling five-year deferral for original gains, 10-year tax-free treatment retained, a 10% basis step-up for standard OZ investments (elevated to 30% for rural OZs, which also benefit from lower improvement thresholds), and a reduced substantial-improvement threshold of 50% (rather than the standard 100%) for rural areas, defined as locations outside cities or towns of 50,000 people or contiguous urbanized areas.
Low-Income Housing Tax Credit (LIHTC): annual allocations increase permanently by roughly 12%. Noncompetitive 4% credits become easier to access thanks to a reduced bond-financing threshold, now at 25%, down from 50%.
New Markets Tax Credit (NMTC): now has permanent status, enhancing equity-based financing opportunities in community development projects.
Qualified production property expensing: a new provision grants 100% expensing on qualified production property tied to manufacturing or production in the U.S., for construction starting between January 20, 2025 and December 31, 2028, and placed in service by 2030.
Phantom-income fix for pre-sold units: developers of condominiums can now use completed-contract accounting to avoid phantom income under percentage-of-completion rules.
3. Estate, Gift, and Local Tax
Estate and gift tax exemption raised: the unified exemption is permanently increased to $15 million per individual ($30 million per married couple), indexed for inflation — vital for preserving family-held real estate businesses and simplifying multigenerational planning.
SALT (state and local tax) deduction: increased from a $10,000 to a $40,000 limit on the federal deduction for state and local taxes, phasing out for incomes between $500,000 and $600,000.
4. Other Notable Provisions
No carried interest reforms: the current favorable tax treatment for carried interest remains unchanged — good news for sponsors and fund managers.
Real Estate Investor Spotlight: Meet Sarah, the Savvy Landlord
Sarah owns and manages a small rental portfolio: three multifamily buildings. Last year, she earned $120,000 in net rental income after expenses. Sarah qualifies as a real estate professional and uses cost segregation.
Under OBBBA, here’s how her 2025 taxes look:
- Section 199A deduction (20%): deducts $24,000 (20% of $120,000), lowering taxable income.
- Bonus depreciation: suppose she bought new HVAC and common area lighting systems for $200,000. She now deducts the full amount in one year, reducing taxable income by another $200,000.
- 1031 flexibility: she sold one property and reinvested the proceeds, with no immediate capital gains.
- Full PTET deduction: business real estate taxes are fully deductible.
- Estate planning: her retirement and succession plan, passing her buildings to heirs, is now streamlined with the increased $15 million estate exemption.
The result: Sarah’s taxable income drops well below her gross rental income, and she retains the flexibility to reinvest via 1031 and plan generational transfer using the enhanced exemptions.
Why Investors Should Act Now, and Thoughtfully
- Permanency breeds confidence: unlike prior sunsets, OBBBA’s permanence in key deductions empowers long-term planning and pro forma modeling.
- Timing matters: for Opportunity Zone investors, there’s a transition period — 2026 is a cutoff year for current OZ rules, and the new basis step-up and deferral regime applies starting in 2027.
- Talk to your CPA, tax attorney, or advisor: proper structure, election timing, and documentation will help maximize your benefit.
In Summary
The One Big Beautiful Bill is a win for real estate investors. Integrating these provisions into your investment strategy can yield exceptional tax efficiency, allowing investors and business owners to redeploy their savings back into the economy, bringing benefit to local communities.
Take your tax savings and go make a difference, investors. Reach out to us to discuss how these changes fit into your investment strategy.
