The One Big Beautiful Bill Act (OBBBA) introduces significant tax changes with far-reaching implications for real estate investors and developers. These reforms affect depreciation, expensing, and investment strategies across both residential and commercial sectors. Key highlights include:

• Permanent Restoration of 100% Bonus Depreciation: For qualified property placed in service on or after January 20, 2025, 100% bonus depreciation is reinstated, allowing investors to immediately deduct the full cost of eligible assets via cost segregation strategies.
• Increased Section 179 Expensing Limits: The Section 179 deduction limit is raised from $1 million to $2.5 million, with the phase-out threshold increased from $2.5 million to $4 million, effective for properties purchased in tax years beginning after December 31, 2024. This change supports small- to mid-sized investors by allowing faster expensing of property acquisitions.
• Qualified Business Income (QBI) Deduction: The 20% pass-through deduction (Section 199A) is made permanent for pass-through qualified business income and REIT dividends. The phase-outs have been expanded.
• Energy Incentives Phasing Out: Key green energy incentives are sharply curtailed, including Section 179D deductions, 45L credits for energy-efficient housing, residential clean-energy, and solar power credits. These incentives will sunset on a staggered timeline, with expirations starting in 2025 and extending through 2029-2030.
• Changes to Interest Expense Limitations: For tax years beginning after December 31, 2024, taxpayers who did not make a Real Property Trade or Business Election will be able to add their depreciation and amortization expenses to the interest expense limitation under Section 163(j).  For tax years beginning after December 31, 2025, capitalized interest will be subject to the Section 163(j) limitation.
• Modernized Qualified Opportunity Zone (QOZ) Program: Revisions to the QOZ program aim to improve transparency, expand eligible areas, and incentivize longer-term investments in underserved communities.  The program is now permanent, and eligible contributions to QOZ Funds are available for deferral of eligible taxable gains in tax years beginning after December 31, 2026.
• Permanent Expansion of the Low Income Housing Tax Credit (LIHTC): By broadening access and increasing allocations, OBBBA strengthens financial incentives for developers to build or preserve low-income housing, addressing a critical national need.  Tax years beginning after December 31, 2025, will see an increase of 12% to the total amount of LIHTC availabl,e so more total units will be eligible for the tax credit.  The test for private activity tax-exempt bond financing will be reduced from 50% to 25% for tax years beginning after December 31, 2025.

Strategic Tax Planning Is Critical

These sweeping changes require thoughtful analysis of acquisition timing, asset selection, and financing structures. The professionals at Isdaner & Company are ready to guide you through these evolving rules and develop a tax-efficient strategy aligned with your real estate investment objectives. Reach out to them today.