The One, Big, Beautiful Bill Act (OBBA) is here, and real estate investors face a complex landscape of new policies that can dramatically impact returns. The bill introduces sweeping changes that will reshape planning strategies for decades to come, creating both challenges and opportunities for property investors. From syndicators to REIT shareholders, from 1031 flippers to passive LPs (Limited Partners), nearly every real estate investor is affected by this bill.
This article examines how the Act’s provisions affect every aspect of real estate investment, from acquisition and improvement strategies to disposition planning and entity structuring, providing you with actionable insights to maximize returns in this new tax environment.
Table of Contents
- Permanent bonus depreciation benefits
- Business interest deduction modifications
- Qualified business income deduction extension
- Opportunity zone program enhancements
- State and local tax deduction changes
- Partnership and entity structure considerations
- Real estate investment trust modifications
- Rural and agricultural property provisions
- Maximizing returns under the new tax landscape
Permanent bonus depreciation benefits
President Trump’s signature legislation introduces a host of changes for tax incentives and investment. But for real estate investors, the most significant change is the bill’s
permanent restoration of 100% bonus depreciation for qualifying property. The days of complex phase-out schedules and uncertain sunset dates are now over. Instead, investors can rely on the new depreciation rule for the foreseeable future.
The implications for property improvement strategies are profound. Rather than spreading deductions over multiple years, you can immediately expense qualifying components like building systems and equipment. This creates opportunities for dramatic improvements in short-term cash flow, particularly during renovation-heavy periods.
Cost segregation studies are more valuable than ever. These analyses identify building components eligible for accelerated depreciation, potentially transforming significant portions of a property’s cost basis into immediate tax deductions. For investors undertaking substantial improvements, this could mean millions in tax savings during the first year.
While the OBBB also expands Section 179 expensing, most high-value real estate investors will continue to prioritize bonus depreciation. Section 179 is capped at $2.5 million and begins phasing out at $4 million in total asset purchases. It’s typically more relevant to small owner-operators than syndicated deals or large-scale property portfolios.
What makes this provision particularly powerful is its permanence. Unlike previous legislation with phase-out schedules, the OBBB’s approach lets you make long-term strategic decisions with greater certainty. Real estate investors can now plan major renovation or repositioning strategies with full clarity on tax treatment—particularly when timing bonus depreciation around cost segregation outcomes.
It’s important to note that the new 100% expensing rules under Section 168(n)—designed for factory construction—do not apply to typical real estate investors.
These benefits are limited to taxpayers who both own and operate a production activity such as manufacturing or refining. Passive real estate investment, including leased properties, does not qualify.
Business interest deduction modifications
The restoration of EBITDA-based limitations for interest deductions marks a significant victory for real estate investors. To create breathing room for leveraged real estate investments, the “One, Big, Beautiful Bill” (OBBB) allows businesses to add back depreciation and amortization when calculating the 30% cap on business interest deductions.
Under the previous EBIT-based limitation, many investors found themselves caught in a tight squeeze. High debt levels, common in property acquisitions, combined with substantial depreciation deductions often resulted in severely restricted interest deductibility. OBBB modification now effectively loosens these constraints.
Property owners now face an important strategic decision when considering the “electing real property trade or business” exception. While this election offers relief from interest deduction limitations, it requires using longer-life alternative depreciation systems. With the new EBITDA-based rules, some investors may find better results by foregoing the election.
In the midst of these benefits, the OBBB introduces one notable restriction: capitalized interest must now be included when applying business interest limitations. For development projects with significant construction periods, this could partially offset the advantages of the restored EBITDA calculation.
Qualified business income deduction extension
Making the Section 199A qualified business income deduction permanent creates lasting tax advantages for real estate investors operating through pass-through entities. This provision, which allows eligible taxpayers to deduct up to 20% of their qualified business income, had been scheduled to sunset after 2025. Its extension provides lasting tax relief for a significant portion of the real estate investment community.
Small and mid-sized investors stand to benefit most from this extension. Family-owned property businesses, individual investors, and those who typically operate through LLCs, partnerships, or S corporations can continue to enjoy substantial tax savings. Without this extension, many would have faced significantly higher effective tax rates starting in 2026.
For REIT investors, the permanent extension carries special significance. The 20% deduction on qualified REIT (Real Estate Investment Trust) dividends remains intact, preserving an important advantage for those who prefer indirect real estate investment through publicly traded vehicles. This continuation helps maintain the attractiveness of REITs as a tax-efficient investment option.
Opportunity zone program enhancements
The transformation of the Opportunity Zone program from temporary experiment to permanent policy marks a watershed moment in community development incentives. Starting July 1, 2026, the program enters a new era with rolling ten-year designation cycles, ensuring benefits remain targeted toward truly needy areas rather than becoming entrenched in gentrifying neighborhoods.
In a significant streamlining of benefits, the OBBB introduces a straightforward five-year deferral period for initial capital gains invested. This replaces the previous program’s complex timeline of varying basis step-ups, making it easier to understand and plan around tax benefits.
Rural investors emerge as particular beneficiaries under the new rules. The enhanced rural incentives include a generous 30% basis step-up and a reduced substantial-improvement threshold of just 50%. These provisions acknowledge the unique challenges of rural development while creating compelling opportunities for investors willing to venture beyond urban markets.
The OBBB also introduces robust transparency requirements effective 2027. These measures will provide unprecedented visibility into the program’s community impact, helping investors and community leaders better understand and communicate the social benefits of their investments. This data may prove invaluable in identifying new emerging opportunities and optimizing broader investment strategies.
This creates a complex decision matrix. Real estate investors must weigh the benefits of entering under existing OZ rules before December 31, 2026, versus waiting to see how zones are redefined. Additionally, increased reporting requirements in 2027 mean greater transparency, but also new compliance burdens.
Some fund managers may even run parallel QOFs to split pre-2027 and post-2027 strategies.
State and local tax deduction changes
The OBBB’s increase of the SALT deduction limit to $40,000 brings welcome relief to real estate investors in high-tax jurisdictions. For married individuals filing separately, the new $20,000 limit still represents a significant improvement over previous restrictions. This change particularly benefits investors with substantial property tax burdens in states like New York, Washington, and California.
Perhaps more importantly, the preservation of state pass-through entity tax regimes maintains a valuable planning opportunity. Real estate partnerships can continue using these structures to avoid SALT deduction limitations on business-related income, effectively preserving deductions that might otherwise be lost to the cap.
Interplay between federal and state tax planning takes on new importance. Investors will need to carefully coordinate strategies across jurisdictions to maximize available deductions. This often requires sophisticated modeling of different scenarios to determine optimal entity structures, and income allocation methods.
Partnership and entity structure considerations
The OBBB’s amendment to Section 707(a)(2)(A) of the Code introduces subtle but important changes to partnership taxation. These modifications could significantly impact how partnership allocations, distributions related to services, or property transfers are characterized and taxed. If you have previously relied on certain partnership arrangements, you may need to revisit your structures.
Management fee waivers, in particular, deserve fresh scrutiny under the new rules. What passed muster under prior interpretations may now trigger tax recharacterization. For real estate partnerships, the updated Section 707 rules could affect how promoted interests and carried interest are structured. Private equity-style waterfalls and promoted mechanics should be revisited in light of these changes.
The permanent extension of excess business loss limitations adds another layer of complexity for high-net-worth investors. Real estate losses that previously offset other income sources may now face restrictions, requiring more sophisticated tax planning strategies.
Real estate investment trust modifications
The restoration of the 25% limit for taxable REIT subsidiary assets marks a significant expansion of operational flexibility for REITs. This five percentage point increase from the previous 20% threshold may seem modest, but it opens meaningful opportunities for REITs to grow their service-oriented businesses.
Property management operations, hotel management companies, and other service-focused subsidiaries can now command a larger share of a REIT’s total asset base. This expanded headroom allows REITs to capture more value from their properties through vertically integrated operations, potentially enhancing overall returns for investors.
The timing of this change creates interesting strategic opportunities for REIT managers. Those who have been operating near the 20% threshold can now explore expansion of their service operations, acquisition of complementary businesses, or fear of jeopardizing their REIT status.
The revised 25% threshold for taxable REIT subsidiaries (TRSs) provides REIT managers with meaningful flexibility to expand into adjacent service businesses.
Leasing services, hotel operations, and brokerage arms that previously risked breaching the 20% cap can now grow without threatening REIT compliance, which opens new strategic pathways for vertically integrated REIT operations.
Rural and agricultural property provisions
Under the OBBB, a notable provision for rural and agricultural property financing has been introduced: qualified lenders can now exclude 25% of interest received on “qualified real estate loans” from their gross income. This creates a powerful incentive for lenders to increase their rural property lending activities, potentially improving access to capital in underserved markets.
Farmers and rural property investors gain additional flexibility through new installment sale provisions. The ability to spread capital gains tax payments over four years when selling qualified farmland to qualified farmers can significantly improve cash flow management, facilitate property transitions, and create new opportunities.
These rural-focused benefits, combined with the enhanced rural opportunity zone provisions, create a compelling tax advantage stack for rural real estate investment. You might find particularly attractive opportunities where multiple incentives can be combined, such as rural opportunity zones with qualified real estate loan financing.
Maximizing returns under the new tax landscape
The OBBB’s sweeping changes demand an in-depth review of existing real estate investment strategies. You should work with qualified tax professionals to identify which provisions offer the greatest benefits for your specific portfolio and investment objectives. For many, there is an unprecedented opportunity for lasting tax savings.
Those who understand the new rules can unlock powerful, long-term advantages. Whether you’re renovating, repositioning, or reinvesting, it’s peak time to true up your approach.
The “One Big Beautiful Bill” isn’t just another tax change—it’s a once-in-a-generation opportunity to rethink your wealth strategy. But taking full advantage requires more than good intentions. It demands expert guidance, precision timing, and a tailored plan.
Whether you’re repositioning a value-add multifamily asset or optimizing a REIT-heavy portfolio, partner with Harness to unlock the bill’s full potential—before the window closes.
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