On July 4, 2025, President Trump signed P.L. 119-21, Republicans’ “One Big Beautiful Bill Act,” into law, ushering in the most sweeping tax overhaul since the Tax Cuts and Jobs Act (TCJA) of 2017. While the legislation spans a broad range of policy areas, several provisions are particularly consequential for the real estate sector. Below is a breakdown some of the most impactful provisions and how they may affect developers, investors, Real Estate Investment Trusts (REITs) and affordable housing stakeholders.
Explore the full scope of changes introduced in the 2025 Final Budget Reconciliation Bill to learn more about the individual provisions.
1. 100% Bonus Depreciation Made Permanent
The 2025 tax reform permanently restores 100% bonus depreciation for qualifying property placed in service on or after January 20, 2025. This eliminates the phasedown schedule originally enacted under the TCJA, which had reduced bonus depreciation to 40% for 2025. Taxpayers may still elect to use the 40% rate for assets placed in service during 2025, but many taxpayers may choose to fully expense qualifying assets in the first year. This change enhances near-term cash flow, simplifies long-term tax planning and supports strategic use of cost segregation studies.
Learn how full expensing and cost segregation strategies can accelerate returns on real estate investments.
Who Benefits From 100% Bonus Depreciation in Real Estate
Commercial Property Owners & Real Estate Investors
Owners of income-producing real estate can fully expense qualifying property, which generally includes assets with a useful life of 20 years or less under MACRS. This accelerates depreciation expense, improves after-tax returns and enables more agile capital reinvestment strategies.
Multi-family & Mixed-use Asset Managers
Operators of multi-family and mixed-use properties can leverage bonus depreciation to offset taxable income from rental operations. This is particularly impactful when paired with cost segregation studies that reclassify building components into shorter-lived asset categories.
REITs & Institutional Investors
Real estate investment trusts and institutional investors benefit from enhanced cash flow and improved fund performance metrics. The ability to front-load depreciation deductions can also support more competitive acquisition strategies and bolster investor distributions.
2. New 100% Depreciation for Qualified Production Property
The 2025 tax reform introduces a powerful new incentive: an elective 100% first-year depreciation deduction for Qualified Production Property (QPP). This provision is designed to increase domestic manufacturing capacity and ultimately production by allowing businesses to fully expense eligible real property used in qualified manufacturing, production or refining activities. This provision offers a compelling opportunity for real estate stakeholders to align investment strategies with the evolving landscape of domestic production incentives.
To qualify, among other things, property must be nonresidential real property used as an integral part of a qualified production activity and meet specific eligibility requirements related to timing, usage and ownership. Any portion of such property used for offices, lodging, sales, research or administrative functions does not qualify.
QPP is treated as a separate asset class, and taxpayers must make a formal election to claim the deduction. Guidance is needed from the IRS regarding this election.
What the QPP Deduction Means for Real Estate Advisors and Tax Strategists
The elective nature of the QPP deduction introduces new planning levers. Tax advisors can work with clients to assess eligibility, model tax outcomes and coordinate with tenants to ensure the property’s use aligns with QPP requirements.
3. Section 179D Energy-Efficient Deduction Terminated
The 2025 tax reform repeals the Section 179D Energy Efficient Commercial Building Deduction for projects that begin construction after June 30, 2026. This deduction, which has historically incentivized energy-efficient design and retrofits in commercial buildings, will no longer be available for projects that miss the construction start deadline. This change creates a narrowing window for real estate stakeholders to capitalize on the deduction, potentially accelerating sustainability-focused investments in the near term.
Discover how the end of 179D and other energy-related tax provisions may impact real estate sustainability strategies.
What the End of Section 179D Means for Real Estate Owners and Investors
Asset Managers & Portfolio Strategists
The repeal introduces a new layer of urgency in capital planning. Managers should assess which assets are eligible for 179D and consider accelerating timelines to preserve tax benefits before the deduction sunsets.
Commercial Property Owners & Landlords
Owners planning energy-efficient retrofits, such as HVAC upgrades, lighting improvements or building envelope enhancements, should prioritize breaking ground before the June 2026 deadline. Projects that qualify can still benefit from substantial tax savings, especially when paired with cost segregation and bonus depreciation strategies.
REITs & Institutional Investors
Funds with environmental, social and governance (ESG) mandates or sustainability-linked investment strategies may face increased pressure to act quickly. The expiration of 179D could shift the focus toward alternative incentives, such as state-level energy programs or green financing tools, to maintain momentum on decarbonization goals.
4. Section 163(j): Interest Deductibility Enhanced for Real Estate Financing
The 2025 tax reform relaxes the limitation on business interest expense under IRC Section 163(j), offering welcome relief to capital-intensive industries like real estate.
Beginning in 2025, businesses will calculate their adjusted taxable income (ATI) using earnings before interest, taxes, depreciation and amortization (EBITDA) rather than the more restrictive earnings before interest and tax (EBIT) method that has been in place since 2022. This change increases the amount of deductible interest for most taxpayers, which is especially beneficial for real estate ventures that rely heavily on debt financing.
Beginning in 2026, certain foreign income will also be excluded from the ATI calculation, which may affect multinational real estate structures.
What Section 163(j) Means for Real Estate Stakeholders
Real Estate Developers & Sponsors
Projects with high leverage will benefit from increased interest deductibility, improving after-tax returns and allowing for more flexible financing structures.
REITs & Real Estate Funds
While REITs generally elect out of Section 163(j), their taxable REIT subsidiaries (TRSs) may not. Fund managers should reassess TRS-level debt strategies in light of the more favorable EBITDA-based calculation.
Electing Real Property Trade or Business (RPTOB)
Real estate businesses may still elect out of Section 163(j) by using the Alternative Depreciation System (ADS). However, with the return of 100% bonus depreciation, careful consideration and planning is necessary prior to making this election.
5. Changes to Percentage-of-Completion Method (PCM) Accounting
The 2025 tax reform broadens the exception to the percentage-of-completion method (PCM) by replacing the term “home construction contracts” for contracts entered into after July 4, 2025, with the more inclusive “residential construction contracts.” This change allows a wider range of residential projects, including multifamily housing such as apartments and condominiums, to qualify for the PCM exception.
Additionally, the time threshold for small business contracts has been extended from two years to three years, giving more flexibility to contractors with longer project timelines. These updates simplify tax accounting for real estate professionals and may allow for deferral of income recognition, improving cash flow and easing administrative burdens.
Learn how the updated PCM rules could reshape tax timing for residential real estate projects.
What Real Estate Investors and Managers Should Know About the New PCM Rules
Multifamily Developers & Asset Managers
Those involved in residential real estate development now have greater flexibility in structuring contracts and managing tax exposure. The ability to defer income recognition until project completion can improve financial modeling, enhance investor reporting, and support more strategic phasing of large-scale developments.
6. Opportunity Zones and Low-Income Housing Tax Credit: Expanded Incentives for Community Investment
The 2025 tax reform delivers a powerful one-two punch for community development by making the Opportunity Zone (OZ) program permanent and significantly expanding the Low-Income Housing Tax Credit (LIHTC).
Opportunity Zones
The OZ program now features rolling 10-year designations, providing long-term certainty for investors and developers. Key enhancements include:
- Basis Step-up: A 10% basis step-up after five years (increased to 30% for rural OZs) for investments made January 1, 2027 – December 31, 2033. Investments made at any point during this window can defer gains for five years from the date of investment. For example, an investment made on January 1, 2027, can defer until 2032, while one made in 2032 can defer until 2037.
- Continued Benefit: For investments held for at least 10 years and sold between years 10 and 30, a step-up in basis to fair market value at the time of sale.
- New Benefit: After 30 years of investment, the property's basis can be stepped up to its fair market value at that time — without requiring a sale.
- Reduced Thresholds: Reduced investment thresholds for rural redevelopment, making it easier to launch projects in underserved areas.
- New Zones: New zones effective January 1, 2027, and redetermined every 10 years.
Low-Income Housing Tax Credit
The LIHTC program has been expanded to:
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- Increase the volume of available credits.
- Streamline compliance requirements.
- Reduce financing barriers for affordable housing projects.
Explore the expanded LIHTC provisions and their impact on affordable housing investment.
Together, these changes aim to stimulate long-term, equity-driven investment in economically distressed communities, urban and rural alike, while addressing the nation’s affordable housing shortage.
How OZ and LIHTC Changes Support Real Estate Investment and Affordable Housing
Multifamily & Affordable Housing Developers
Expanded LIHTC allocations and OZ incentives improve project feasibility and access to capital. OZ benefits, such as deferral and potential exclusion of capital gains, complement LIHTC’s equity support, making long-term, community-focused developments more financially viable.
Real Estate Investors & Fund Managers
The combination of permanent capital gains exclusion under OZ rules and enhanced LIHTC credits creates powerful, tax-advantaged opportunities. These tools support both mission-aligned and return-driven strategies, especially in underserved or revitalization-focused areas.
REITs & Institutional Real Estate Funds
Funds with ESG mandates or community investment goals can leverage these reforms to expand their affordable housing portfolios while optimizing tax efficiency, long-term value creation and social impact.
7. REIT Ownership Threshold Increased
The 2025 tax reform increases the limit on a REIT’s ownership of taxable REIT subsidiaries (TRSs) from 20% to 25% of the REIT’s total asset value. This change provides REITs with greater structural flexibility, allowing them to expand the scope of their taxable operations, such as property management, development services or ancillary business lines, while decreasing the likelihood of failing one of the REIT tests. By easing this restriction, the reform opens the door to more dynamic investment strategies and operational models, particularly for vertically integrated real estate enterprises.
What the New REIT Subsidiary Limit Means for Real Estate Funds
Investors
Investors may benefit from REITs’ ability to generate additional income through expanded TRS activities, potentially improving dividend yields and long-term value. The added flexibility also makes REITs more competitive with private real estate funds that already enjoy broader operational leeway.
Property Owners & REIT Sponsors
The increased threshold allows REITs to hold a larger share of TRSs, enabling them to internalize more services or pursue higher-margin activities that were previously constrained by the 20% cap. This can lead to improved operational efficiency, better control over tenant experience and enhanced revenue diversification.
Other Provisions: Stability, Permanence and Strategic Considerations
While much of the 2025 tax reform focused on expanding high-impact incentives, several key provisions affecting real estate stakeholders were either made permanent or left unchanged. These updates provide welcome certainty for long-term planning while introducing new strategic considerations for investors, fund managers and property owners. A summary of these provisions and their implications across the industry, include:
Section 179 Expensing
The expanded Section 179 deduction, now capped at $2.5 million with a $4 million phaseout threshold, was made permanent. This allows real estate operating businesses to immediately expense qualifying improvements such as HVAC systems, fire protection and security upgrades. The permanence of this provision supports more agile capital planning and enhances the tax efficiency of recurring property upgrades.
Pass-through Entity Provisions
The 2025 tax reform brings both clarity and complexity to pass-through taxation by making two key provisions permanent:
- The 20% Qualified Business Income (QBI) deduction under Section 199A is now permanent, offering long-term tax relief for eligible pass-through entities such as S corporations, partnerships and sole proprietorships.
- The Excess Business Loss (EBL) limitation is also made permanent, with a reset threshold beginning in 2026. This provision limits the amount of business losses that non-corporate taxpayers can use to offset non-business income, with any excess carried forward as a net operating loss. While these changes provide certainty, they also require more nuanced tax planning, especially for real estate firms with cyclical income or large-scale asset repositioning strategies.
New Markets Tax Credit (NMTC)
The NMTC program is now permanent, providing long-term certainty for real estate investors focused on revitalizing low-income communities. It complements OZs and LIHTCs, particularly for mixed-use and community-focused developments.
Pass-through Entity (PTE) Taxes
The reform does not alter state-level PTE tax regimes adopted in response to the federal SALT deduction cap. These remain a critical planning tool for high-income real estate professionals operating in high-tax states.
Carried Interest
Despite speculation, the carried interest rules were not modified in the final legislation. Real estate fund managers and private equity sponsors can continue to benefit from long-term capital gains treatment on carried interest, subject to existing holding period requirements.
Estate Tax Exemption Increase
Beginning in 2026, the estate and gift tax exemption increases to $15 million per individual (or $30 million per couple). This expanded exemption presents a significant planning opportunity for high-net-worth individuals with substantial real estate holdings, particularly those considering generational wealth transfers or family office structures.
Your Guide Forward: Turning Insight Into Action
The 2025 tax reform reshapes the financial and strategic landscape for the real estate industry. From permanent bonus depreciation and expanded Section 179 expensing to enhanced incentives for affordable housing and community investment, the opportunities are substantial but so are the complexities.
Whether you're managing a REIT portfolio, investing in OZs, or planning long-term tax strategies for multifamily and commercial assets, these changes demand proactive, well-informed planning. The permanence and expansion of key provisions offers clarity, but also requires careful coordination across tax, legal and investment teams.
Connect with your Cherry Bekaert advisor to align your real estate strategy with the latest provisions for optimized compliance and cash flow. Our team is ready to help you navigate the new tax environment with clarity and confidence.
Related Insights
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- Article: 6 Ways the 2025 Tax Reform Impacts the Construction Industry
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