Opinion: Anticipated tax changes impacting real estate industry

Erica Smith

The tax reform legislation now being finalized by Congress through the “One Big Beautiful Bill Act” will usher in myriad tax changes relevant to the real estate industry. The bill provides several opportunities for tax savings while also repealing some tax breaks beneficial to businesses active in real estate. Each provision provides a unique opportunity for tax planning as the tax landscape changes.

Bonus depreciation and expensing limits
The act contains provisions allowing for 100% bonus depreciation for certain property placed in service after Jan. 19. This allows for 100% of the acquisition costs for qualified property to be deducted upfront. While early versions of the bill phased out bonus depreciation in 2029, the act makes the bonus depreciation provision permanent.

Alongside this provision, the act increases the limit on deductions of acquisition costs for tangible personal property, such as equipment, machinery, improvements to business buildings, and certain agricultural storage structures under Section 179. In the updated legislation, the maximum allowed deduction increases from $1 million to $2.5 million and phases out after $4 million in purchases. Both items may provide taxpayers with increased tax savings as they place property in service.

Qualified business income deduction
Under the act, taxpayers can also deduct qualified business income under Section 199A. The act makes this deduction permanent and keeps the percentage used to calculate the deduction at 20%. By rendering the deduction permanent, Congress provides good news to sole proprietorships, partnerships, S corporations, and certain trusts and estates as they can continue claiming a QBI deduction.

Tax credits and incentives
In the realm of tax credits and incentives of interest to taxpayers in the real estate industry, the act expands some tax credits for low-income housing while getting rid of incentives related to energy efficient buildings. On the Low-Income Housing Tax Credit front, the proposed legislation expands the scope of the credit by increasing the credit ceiling, modifying tax-exempt bond financing rules to include more types of property, widens the “difficult development area” definition to include Indian and rural jurisdictions, and decreases the bond financing threshold. For real estate practitioners looking to develop in these areas, the LIHTC is more viable after the passage of the bill.

The act did strike a blow against energy efficient buildings. Under IRC Section 179D, taxpayers could deduct anywhere between $0.58 to $5.65 per square foot for buildings that achieve at least 25% energy savings through modifications to lighting, HVAC systems, electrical systems and ventilation systems. The act introduced a provision permanently repealing the deduction for property that began construction after June 30, 2026 – spelling a potential end to tax incentives for energy efficient construction.

SALT Deduction
The act increases the state and local tax deduction, known as SALT, from $10,000 to $40,000 in a welcome move for taxpayers in states with higher taxes. From 2026 through 2028, the SALT cap will increase by 1% each year. In 2029 and thereafter, the SALT cap will revert back to $10,000.

The act provides a wealth of tax changes for tax years ending on Dec. 31 and onward. Many of these provisions will require an increased level of tax planning. Taxpayers involved in the real estate industry will want to factor these changes in as they look towards current and future tax years.

Follow the passage of the bill as it clears its final hurdles in Congress on the way to the president’s desk.

Erica Smith is a partner with Forvis Mazars LLP. She can be reached at erica.smith@us.forvismazars.com.