Washington recently passed a sweeping tax reform package—the One Big Beautiful Bill (OBBB)—and while much of the spotlight has focused on tech and small business, real estate quietly emerged as one of the big winners.
Whether you’re investing in multifamily, commercial, or other real estate, this bill delivers meaningful tax advantages that can directly impact cash flow, equity returns, and investment strategy.
From bonus depreciation and cost segregation to Opportunity Zones and SALT deductions, this legislation reshapes the landscape for those who invest in, operate, or develop real estate. Here’s what you need to know:
1. 100% Bonus Depreciation Returns
What changed: The bill restores 100% bonus depreciation for qualifying assets placed in service after January 19, 2025, reversing the scheduled phase-down (which would have dropped to 60% in 2025 and 40% in 2026).
Why it matters: Real estate investors can now immediately deduct the full cost of short-life building components—such as appliances, flooring, and HVAC systems—in the year they’re placed in service, rather than depreciating them over time.
When paired with a cost segregation study, the impact is amplified. Cost seg allows investors to reclassify parts of a building into 5-, 7-, or 15-year property, making those components eligible for bonus depreciation. The result? Accelerated deductions, enhanced cash flow, and stronger after-tax returns—especially on large acquisitions or heavy renovation projects.
2. Section 179 Expensing Limit Increased
What changed: The Section 179 expensing limit was increased from $1.22 million to $2.5 million, with the phase-out threshold rising from $3.05 million to $4 million.
Why it matters: This is especially valuable for real estate investors with affiliated management or construction projects. Eligible purchases—like office equipment, work trucks, or certain property improvements—can now be fully expensed upfront.
Even better: Section 179 applies first, and bonus depreciation can cover the rest, giving investors maximum flexibility in accelerating deductions and minimizing taxable income.
3. QBI (199A) Deduction Made Permanent and Increased
What changed: The Qualified Business Income (QBI) deduction has been made permanent and increased from 20% to 23%.
Why it matters: Rental income that qualifies under QBI continues to benefit from preferential tax treatment. For real estate entities structured as LLCs or S-Corps, this provision helps reduce the effective tax rate on pass-through income helping the net returns for real estate investors.
4. Section 1031 Exchanges Remain Untouched
No Changes: There were no modifications to Section 1031, preserving existing like-kind exchange rules.
Why it matters: This cornerstone strategy allows real estate investors to defer capital gains taxes by reinvesting proceeds from a sale into new properties. It remains a powerful vehicle for compounding equity and scaling portfolios without triggering taxable events.
5. SALT Deduction Cap Raised
What changed: The cap on State and Local Tax (SALT) deductions has been raised to $40,000 per household from $10,000, with phaseouts beginning at $500,000 AGI.
Why it matters: Real estate investors in high-tax states like California, New York, and New Jersey gain access to increased federal deductibility. This can lower their effective tax burden and can boost after-tax returns, particularly for those earning substantial pass-through income.
Final Thoughts
For passive investors, the One Big Beautiful Bill reinforces the advantages of investing in real estate through well-structured deals.
With 100% bonus depreciation back in play, enhanced cost segregation benefits, and increased SALT deductibility, LPs can see stronger after-tax returns and improved cash flow. The preservation of 1031 exchanges also ensures that sponsors can continue to reinvest proceeds tax-deferred—supporting long-term compounding and portfolio growth.
Disclaimer: This is not tax or investment advice. Always consult your CPA or investment advisor to determine how these new changes apply to your specific situation.
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