OBBBA introduces permanent tax changes for real estate, enhancing deductions, Opportunity Zones, REIT flexibility, and LIHTC benefits.
The One Big Beautiful Bill Act (OBBBA) was signed into law late last week. While OBBBA introduces wide-ranging tax changes for all sectors, the real estate industry faces a distinct set of opportunities and challenges. Below, we explore what these changes mean for owners, developers, and investors — and how to prepare.
For a comprehensive overview of the tax provisions in OBBBA, including restoration of full R&D deduction, extended current tax rate brackets (adjusted for inflation), higher limit for state and local tax (SALT) deductions, and larger estate and gift tax exemption, see our full summary: Tax Bill Signed Into Law: What It Means for You and Your Tax Strategy.
Key highlights for real estate
- Permanent 20% pass-through deduction (Section 199A): Solidifies long-term planning for real estate professionals operating through partnerships, LLCs, and S corporations. This could influence decisions around entity structuring and income allocation.
- Restored and expanded 100% bonus depreciation and Section 179 expensing: Real estate businesses can use these tools to accelerate deductions (or in some cases immediately deduct cost of qualifying property) on property improvements and equipment — especially relevant for cost segregation studies and renovation-heavy projects.
- Section 163(j) business interest deduction relief returns for 2025: You could benefit from increased interest expense deductions, as depreciation and amortization will once again be eligible to be added back when calculating limitation. This reverses the 2022 – 2024 restriction and could improve cash flow planning for leveraged projects.
- Revamped and permanent Qualified Opportunity Zone (QOZ) program: QOZ is now permanent, with several key updates:
- Post-2026 investments must recognize gains after five years (with a 10% basis bump).
- Beginning late-2026 new zones will be introduced in 10-year cycles, with a new “rural opportunity zones” category offering even more generous incentives, including a 30% basis increase when held for 5 years and a reduced 50% threshold for substantial property improvements.
- QOFs and Qualified Opportunity Zone Businesses (QOZBs) will both be subject to expanded reporting requirements, signaling a push for greater transparency and oversight.
- Accelerated phaseout for energy tax credits: Certain Inflation Reduction Act incentives, namely Section 179D deductions and Section 45L credits, will sunset for new projects starting after
June 30, 2026. Review your timelines and consider fast-tracking eligible improvements. - Real Estate Investment Trust (REIT) flexibility and Low-Income Housing Tax Credit (LIHTC) program:
- Effective January 1, 2026, REITs can hold up to 25% of assets in qualified subsidiaries (up from 20%), offering flexibility in portfolio structure.
- The LIHTC program gets a restored 9% fixed credit rate, a permanent 12% increase in annual state credit allocations, and a reduced bond financing threshold for 4% credit projects.
- Permanent new markets tax credit: Provides more long-term certainty for developers, investors, and community planners, making it easier to structure multi-year real estate projects with confidence.
What didn’t change
Notably, the final bill left several high-profile tax provisions unchanged:
- Section 1031 like-kind exchanges, the taxation of carried interest, and the pass-through entity tax (PTET) workaround for the SALT cap all remain intact.
- Additionally, proposed changes to excess business losses (EBL), corporate SALT limitations, and the controversial Section 899 “Retaliatory Tax” were ultimately dropped from the legislation.
Note: the OBBBA did make the existing EBL provision permanent.
What should you do now? CLA can help
Now is the time to take a fresh look at your tax strategy. Whether it’s modeling the impact of depreciation and interest expense changes, reevaluating your entity structure, or planning around credit phaseouts, proactive planning can help you stay ahead and take advantage of available benefits.
Let us help you with scenario modeling and strategic consultations to clarify how these changes could affect your 2025 tax position and deal flow and financing strategies, and help you chart a strong path forward.