One Big Beautiful Bill: Key Tax Impacts for Real Estate Investors & Developers

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, makes significant and immediate changes to how real estate investors apply tax strategies, structure deals, and time acquisitions.

This is not a technical clean-up or minor update. These provisions materially affect underwriting, cost recovery timelines, and project feasibility.

And while the law reintroduces powerful incentives, some (like green-building deductions) are now on a countdown. Investors and developers should move quickly to analyze how timing, asset classification, and financing decisions will be impacted.

Many of these changes are effective in 2025, with new designations and phase-outs beginning as early as mid-2026. This legislation is actionable, not theoretical—and it demands a proactive tax strategy.

If you need help understanding how the new OBBBA will impact your real estate investments, reach out to the real estate CPAs at James Moore for comprehensive accounting and advisory services.

The Return of 100% Bonus Depreciation

The OBBBA reinstates 100% bonus depreciation for qualifying property placed in service after Jan. 19, 2025. That includes items with a 20-year or shorter recovery period, like qualified improvement property (QIP), land improvements, furniture, fixtures and many mechanical systems. Both new and used property are eligible.

This change reopens planning opportunities that had narrowed during the phase-down period. By pairing bonus depreciation with cost segregation, owners can immediately expense a significant portion of building improvements that would otherwise depreciate over decades. For large-scale rehabs or tenant buildouts, that deduction can reshape return profiles and free up working capital.

Project timing will matter. Assets must be placed in service after the Jan. 19 threshold to qualify.

For developments or acquisitions scheduled near year-end, the difference of a few weeks could affect millions in write-offs. Transaction structuring and closing schedules should be reviewed now to align with eligibility under the new rule.

Section 179 expensing expansion improves outcomes for mid-size projects

Starting in 2025, Section 179 allows real estate businesses to expense up to $2.5 million annually, with the deduction phasing out after $4 million in total qualified purchases. This marks a meaningful increase from the previous limits and creates a better pathway for immediate cost recovery on smaller, capital-heavy improvements.

Unlike bonus depreciation, which applies broadly but is limited to assets with a MACRS life of 20 years or less, Section 179 is especially valuable for certain building systems, like:

• Commercial roofs
• HVAC
• Fire protection
• Security systems

These categories often fall through the cracks in standard depreciation schedules, but they’re now fully deductible in the year placed in service provided they meet Section 179 eligibility requirements.

For investors managing property upgrades under $5 million, the expanded thresholds improve deal economics without requiring complex entity structuring or cost segregation. This is particularly useful for sponsors modernizing properties in suburban markets or repositioning aging retail or office assets with targeted improvements.

Strategically, it’s important to model how Section 179 interacts with bonus depreciation. While both offer immediate expensing, their eligibility overlaps only in some areas. Having both tools on the table allows owners to prioritize deductions based on projected income levels, asset holding periods, and financing terms.

Green-building incentives are being phased out — and fast

The OBBBA puts a hard deadline on two major sustainability-focused tax benefits. Projects beginning after June 30, 2026, will no longer be eligible for the Section 179D commercial energy-efficient building deduction or the Section 45L credit for energy-efficient residential units.

These changes apply regardless of when a project is completed; what matters is the construction start date.

This rollback compresses the timeline for developers focused on LEED certification or passive design. For active or upcoming projects, qualifying under current rules could mean capturing $2.50–$5.00 per square foot in deductions for commercial work under 179D or up to $5,000 per qualifying unit under 45L for high-efficiency residential builds.

In both cases, the documentation requirements remain extensive. Certification by a licensed third-party is still required, and prevailing wage standards apply for bonus-level 45L credits. Developers planning multifamily or mixed-use projects should work closely with design teams now to confirm eligibility and sequencing.

While energy policy groups have pushed for extensions, the current law is clear. Any projects with a green-building component must move quickly to lock in incentives before the mid-2026 cutoff. For more on 179D rules and thresholds, see the Department of Energy’s official guidance.

Like-kind exchanges preserved (and now more powerful)

Despite early legislative proposals to cap or limit Section 1031 exchanges, the final version of the OBBBA preserves full gain deferral for like-kind exchanges. This is a critical win for real estate investors who rely on 1031 to rebalance portfolios, defer capital gains and maintain equity velocity across asset classes.

The reinstated 100% bonus depreciation provision makes 1031 exchanges even more effective. Investors who trade into a replacement property can now use cost segregation and bonus depreciation to reduce taxable income from new assets, compounding the tax efficiency of the exchange. This pairing can dramatically improve first-year cash flow, especially when reinvesting into value-add assets with high improvement potential.

For syndicators, the preservation of 1031 also stabilizes waterfall planning and timing on capital calls. But success still depends on execution. Identification and acquisition timelines must remain tight to avoid disqualification. Owners should also model whether bonus depreciation alone could outperform 1031 deferral in low-basis assets or short hold periods.

Opportunity Zones 2.0: New designations, expanded scope

Starting in 2027, states will be able to designate a new round of Qualified Opportunity Zones (QOZs), refreshing the original 2017 maps with updated tracts every 10 years. The revised program allows for broader asset classes, including infrastructure and clean energy projects, in addition to traditional real estate.

While rural tracts retain enhanced benefits (such as a 30% basis step-up after five years and more flexible improvement standards), the new OZ framework places greater emphasis on urban redevelopment, climate resilience and mixed-use infill projects.

The updated rules also impose stronger compliance standards, with more rigorous reporting, certification and fund disclosure requirements.

Investors should begin tracking underutilized markets now. The most promising QOZ tracts in 2027 may be in transitional submarkets that weren’t eligible under the first round but now meet revised economic criteria. Fund managers should prepare for stricter oversight, including real-time project tracking and annual impact reporting.

Early alignment with community development goals, paired with robust compliance infrastructure, will be key to capturing the next decade of OZ benefits.

A friendlier formula for interest deductions under Section 163(j)

The OBBBA revises the base for limiting business interest deductions. Instead of comparing interest to EBITDA, taxpayers now use EBIT (earnings before interest and taxes), a cleaner and often more favorable calculation. Since 2025, the deductible interest limit equals 30 % of the taxpayer’s adjusted taxable income, based on EBIT.

For real estate projects with high leverage or thin operating margins, this technical change can preserve millions in deduction potential.

Property owners previously pushed by EBITDA limits now benefit from a more realistic base. Given the shift from EBITDA to EBIT, it may make sense to elect out and opt for this approach at the entity level, depending on financing structure and depreciation profile.

Analyzing how the interest deduction and depreciation allowance (e.g. bonus depreciation, Section 179) interrelate is critical. For example, a $10 million senior mortgage with $300,000 in annual interest might now be fully deductible, where previously it wasn’t. That frees up cash flow and affects the viability of more aggressive financing models.

Developers and investors should work with a real estate accountant or tax professional to simulate post‑2025 taxable income under revised EBIT tests, then assess whether to elect-out of the default regime based on their project plans and capital stack.

Low‑Income Housing Tax Credit updates reboot affordable housing deals

The OBBBA increases the low‑income housing tax credit (LIHTC) ceiling to 1.12 times each state’s population-based limit. That raises available credit volume, helping developers finance more units through low-income and mixed-income housing. The rule change aligns with an overall federal expansion of affordable housing supply goals.

The 4% credit now becomes more accessible under new guidance; credits are granted if at least 25% of project financing comes from tax-exempt bonds. That creates opportunities for refinancing older LIHTC properties or repositioning with new compliance structures.

These adjustments impact adaptive reuse projects and multifamily redevelopment. Sponsors revisiting older LIHTC deals may find it cost-effective to adjust financing to qualify under the bond-financing test, boosting equity proceeds.

Given ongoing construction inflation, even a small percentage increase in credit volume can materially improve returns and underwriting outcomes.

Developers should contact bond-issuing authorities early to confirm allocation eligibility and counsel bond counsel on how to layer equity mix under the OBBBA’s updated rules.

What real estate investors should prioritize next

The IRS is expected to issue further technical guidance on several of OBBBA’s provisions, particularly around Qualified Opportunity Zone reporting and energy incentive phase-outs. However, the effective dates in the law are already active. That means timing matters now.

For transactions closing in Q4 2025 or early 2026, we recommend the following steps:

1. 1. Assess how depreciation schedules, financing structures, and expensing strategies align with current guidance.
   2. Review project start dates against green incentive cutoffs.
   3. Evaluate the eligibility of new acquisitions for 100% bonus depreciation and Section 179 expensing.

For tax-advantaged developments like LIHTC and QOZs, begin building compliance frameworks that match the program’s expanded documentation and reporting demands.

Those planning 2027–2028 opportunity zone funds should also start mapping potential tracts and establishing relationships with state-level administrators. Early visibility into likely designations will provide a head start on fund formation and pipeline deals.

Finally, with bonus depreciation and expanded interest deductions in place, revisit cost segregation and refinance planning. These strategies now offer stronger returns in projects that previously faced timing or capital constraints.

Need help aligning your real estate tax strategy with the OBBBA?

The One Big Beautiful Bill Act reshapes the real estate tax environment in ways that go far beyond individual incentives. It redefines the timing of capital deployment, the structure of partnerships, and the long-term tax profile of active portfolios. Investors and operators who act quickly can align with these changes and strengthen both short- and long-term outcomes.

At James Moore, our local CPAs for real estate developers work with property owners, developers and syndicators to help make sense of these complex rules. Whether you’re repositioning assets, entering new markets, or building multi-year tax strategies, we’ll help you apply OBBBA’s provisions with confidence and precision.

Contact a James Moore professional to discuss how these changes affect your plans—and how to build a tax strategy that turns compliance into opportunity.

 

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