How does the OBBB change tax law for real estate owners and investors?
After it passed the House and Senate via narrow votes, President Trump signed the One Big Beautiful Bill (OBBB) Act into law on July 4. What does this mean for real estate owners, firms and investors?
From a tax perspective, the OBBB’s biggest change is ending most clean energy tax deductions and credits. Beyond that, the new law extends many current rules and also restores some previously sunsetting or expired provisions.
Let’s dive into the main elements that could affect your tax burden moving forward.
Key changes to tax law for real estate in the OBBB
If you own or develop real estate, the OBBB makes changes to tax law you should know about. Here are the key elements:
1. 100% bonus depreciation is back.
The OBBB restores 100% bonus depreciation. For many real estate investors, this is the biggest change in the bill from a tax perspective.
Reinstituted under the 2017 Tax Cuts and Jobs Act (TCJA), 100% bonus depreciation allowed property owners to claim 100% depreciation on qualified property upfront rather than spreading depreciation out over the property’s lifetime. However, the provision began sunsetting in 2023 and was scheduled to phase out entirely by 2027.
The OBBB changes that. Property placed into service after January 19, 2025 will now be eligible for 100% bonus depreciation. Taxpayers should look to maximize their depreciation by segregating costs of shorter useful lives through cost segregation studies to maximize this benefit.
2. The opportunity zone provision is now permanent.
Opportunity zones are another provision of the TCJA that has been updated by the OBBB. This program offered investors a way to defer capital gains by investing in qualified opportunity funds (QOFs). These QOFs would then invest this money into qualified property.
However, as with bonus depreciation, the opportunity zone provision had been slated to expire. The OBBB now makes the program permanent by establishing a long-term framework that will allow investors to again defer taxes on qualified investments made beginning on January 1, 2027.
The OBBB generally doesn’t change the basic mechanics of how the original provision worked. But here are a few new aspects that will affect future investments:
- New reporting requirements: OBBB has implemented new reporting designed to increase oversight and transparency related to the economic impact of QOF investments.
- Decennial zone selection: Beginning on July 1, 2026, states must designate a new round of opportunity zones every 10 years. The new opportunity zones will be effective as of July 1, 2027.
- New incentives for rural investment: There are new incentives for investing in a qualified rural opportunity zone fund, including an increased step-up in basis after five years to 30% instead of the traditional 10%.
- Five-year deferral: For investment in QOFs starting after December 31, 2026, the gain will be subject to a five-year deferral and will no longer be subject to a recognition event based on a fixed date. As long as the QOF is held for that five-year period, the originally deferred gain will receive a 10% step-up.
3. There are new rules for Section 163J.
As interest rates have remained high, many real estate companies have felt the weight of higher costs to buying or refinancing a property. The business interest limitation was a considerable problem since you could no longer add back depreciation, depletion and amortization in the calculation of adjusted taxable income beginning in 2022.
This often meant you would lose the ability to deduct all of your business interest expenses.
OBBB restores the addback of these items and may allow for more interest to be deducted in the current year for businesses subject to these limitations. Real estate businesses will want to look closer at the cost/benefit analysis of electing to be a real property trade or business under Section 163J due to this reinstatement.
4. Section 199A is now permanent.
The qualified business income deduction (Section 199A) allows owners of pass-through businesses like LLCs, partnerships or S-corps to deduct 20% of qualified business income on their individual taxes, subject to certain qualifications. Though originally set to expire as of December 31, 2025, the qualified business income deduction has now been made permanent.
5. Section 179D is about to expire.
Section 179D, the energy-efficient commercial building deduction, offers a tax deduction for property owners who make certain upgrades to HVAC, hot water, lighting and building envelope.
However, the OBBB ends section 179D for projects that begin construction after June 30, 2026. Therefore, if there are projects that you would be completing in the future that could qualify for 179D, we recommend moving up the timeline if it’s feasible to get the benefit of 179D.
6. Section 45L is also ending soon.
The energy-efficient new home credit (Section 45L) offers a tax credit per home for building or substantially rehabilitating energy-efficient homes. This credit is also now ending on June 30, 2026, for homes to be sold or leased to qualify
7. There are additional changes relevant from a real estate tax perspective.
Here are three more noteworthy tax changes that will likely have some effect on the real estate world:
- Qualified production property: The OBBB introduces a new tax incentive to promote factory construction by allowing building operators to take a 100% first-year depreciation deduction on qualified production property.
- Low-income housing tax credit (LIHTC): Beginning in 2026, there is now a permanent 12% allocation increase for the LIHTC. The private bond threshold was also lowered from 50% to 25% for projects meeting certain qualifications.
- New markets tax credit (NMTC): The new market tax credit is now permanent.
What should real estate owners, investors and firms do now?
Now that the OBBB is law, what should you do next? Real estate owners, investors and firms should assess the tax implications on current and future deals.
In many cases, your main priority here is to consider how you can maximize your 100% bonus depreciation deduction. Conduct a cost-segregation study to identify how you might benefit from bonus depreciation and what property could be eligible.
You should also pay close attention to any projects involving clean energy. Because clean energy deductions and credits are now set to expire as early as mid-2026, you’ll need to act fast if you want to remain eligible.
Here, it’s important that you work with an advisor who can help guide you through the process of qualifying for clean energy incentives. This is much easier to do if you start this now rather than diving into a project and later trying to work backwards to meet requirements.
How Wipfli can help
We advise real estate clients on how to reduce tax burden and strengthen financial performance. Ask our team for help mapping out your tax strategy, qualifying for 100% bonus depreciation or meeting clean energy requirements before those incentives end. Learn more here or visit our tax policy center for further details on how tax law is changing.
