The One Big Beautiful Bill Act (“OBBBA”), enacted into law on July 4, 2025, provides extensive federal tax policy changes impacting a multitude of industries, including commercial real estate (“CRE”).
With respect to CRE, highlighted below are several key provisions of the OBBBA for real estate owners, investors, and developers to be aware of, including a few proposed provisions which were not enacted as part of the OBBBA. In the long run, the exclusion of these proposed provisions from the OBBBA may be more impactful on the CRE industry than the provisions that were included in the OBBBA.
Key OBBBA Provisions Impacting CRE
- Qualified Business Income Deduction: The 20% deduction on income derived from pass-through entities (such as LLCs and LPs), which had been created by the 2017 Tax Cuts and Jobs Act (“TCJA”), is now permanent.
- Qualified Opportunity Zones: This program, which was also created under the TCJA, is similarly now permanent. The OBBBA does tighten some of the eligibility requirements for Qualified Opportunity Zones, such as lowering the median family income threshold of the proposed qualifying zone from 80% to 70% of the area or state median family income. In addition, the OBBBA establishes a Qualified Rural Opportunity Funds program for investment in rural areas.
- Bonus Depreciation: The OBBBA makes permanent the option to take a full, 100% depreciation deduction in the first year of operation, after January 20, 2025, of qualifying non-residential real estate improvements that are not considered qualified production property, and which are typically depreciated over a 20-year or less lifespan. Previously, the TCJA provided for a phase-out of 100% bonus depreciation, such that for 2025 only a 40% depreciation deduction would have been available in the first year of operation.
- Expensing for Qualified Production Property: For non-residential real property that is an integral part of a qualified production activity, the OBBBA provides for a full, 100% depreciation deduction in the first year of operation.
- Taxable REIT Subsidiaries: REITS can now hold 25% of their assets in taxable REIT subsidiaries, whereas the prior limit was 20%.
- Low-Income Housing Tax Credit: The OBBBA increases the pool of 9% federal tax credits that states can allocate for new affordable housing construction. In addition, the OBBBA reduces from 50% to 25% the percentage of an affordable housing development’s costs that developers must finance with tax-exempt municipal bonds, which is expected to make additional affordable housing developments eligible for the 4% federal tax credits.
- Energy-Efficient Improvements: For projects beginning construction after June 30, 2026, the Section 179D tax deduction will no longer be available to CRE owners who make qualifying energy-efficient improvements to their buildings.
Proposed Provisions Not Included in the OBBBA Impacting CRE
- Taxation of Carried Interest: The contemplated treatment of carried interest as ordinary income, and accordingly, being taxed at ordinary income tax rates, was rejected in favor of allowing continued treatment as a capital gain (where applicable), and accordingly, being taxed at the lower capital gains tax rates.
- Section 1031 Like-Kind Exchanges: The contemplated limitation on the ability to defer taxable capital gains through a like-kind exchange was rejected.
- Section 899 Retaliatory Tax: The contemplated increase in tax rates on foreign investors in retaliation for the tax policies of designated foreign countries was rejected.
Impact of the OBBBA on CRE
It remains to be seen what the impact of the OBBBA on the commercial real estate market will ultimately be. Many of the OBBBA’s CRE-related provisions could certainly incentivize real estate development by providing significant tax advantages to real estate owners, investors, and developers. In particular, temporary tax benefits that were provided in the TCJA, such as the qualified business income deduction, qualified opportunity zones, and 100% bonus depreciation, are now permanent.
In addition, the OBBBA preserved the beneficial tax treatment under several CRE-related Internal Revenue Code provisions, such as the treatment of carried interest and 1031 like-kind exchanges, and also omitted the proposed Section 899 retaliatory tax. These provisions that the OBBBA left intact may ultimately prove to be even more impactful on the CRE industry than the TCJA provisions that the OBBBA made permanent.