The One Big Beautiful Bill and Its Impact on Real Estate Owners and Investors
The "One Big Beautiful Bill" (OBBB), officially known as H.R. 1, is a comprehensive piece of legislation passed by the U.S. House of Representatives on May 22, 2025, and by the Senate on July 1, 2025, with a 50-50 vote, where Vice President J.D. Vance cast the tie-breaking vote.
It now awaits President Trump's signature to become law. This bill introduces significant amendments to the Internal Revenue Code, with profound implications for real estate owners and investors. From tax incentives to estate planning benefits, the OBBB offers a mix of opportunities and challenges. This article examines the key provisions of the bill and their specific effects on the real estate sector, offering strategic insights for navigating this evolving landscape.
Tax Provisions Affecting Real Estate
The OBBB includes several tax-related changes that directly affect real estate investment and operations, many of which expand or improve provisions from the Tax Cuts and Jobs Act of 2017 (TCJA).
Extended 100% Bonus Depreciation
The OBBB extends 100% bonus depreciation for qualified property acquired and put into service from January 19, 2025, through December 31, 2029. This enables investors who use cost segregation to take 100% depreciation in the first year of ownership on building components with a five-year class life, as well as land improvements with a fifteen- year class life. This provision dramatically enhances cash flow and encourages new investments.
Increased Qualified Business Income (QBI) Deduction
The bill permanently raises the QBI deduction from 20% to 23% for pass-through entities—such as partnerships, S corporations, and sole proprietorships—common in the real estate industry. This lowers the effective tax rate on qualified business income to as low as 28.49%, increasing after-tax returns for real estate businesses.
Higher Estate and Gift Tax Exemption
Starting in 2026, the bill raises the lifetime estate and gift tax exemption to $15 million per person, adjusted for inflation, up from about $13.99 million under the TCJA. This change benefits high-net-worth individuals with extensive real estate holdings, lowering the tax burden on property transfers to heirs and offering long-term certainty for estate planning.
Investment Incentives: QOZs and Low-Income Housing
The OBBB introduces provisions to promote real estate investment in specific sectors, particularly Qualified Opportunity Zones (QOZs) and low-income housing.
Qualified Opportunity Zones (QOZs)
The bill proposes a new cycle of QOZ designations from 2027 to 2033, with added benefits for rural investments. Key changes include:
· A 30% capital gains exclusion for investments held at least five years in Qualified Opportunity Funds (QOFs) that are heavily invested in rural zones.
· A lowered substantial improvement threshold for existing properties in these areas.
· Eligibility of ordinary income (up to $10,000 annually) for tax deferral, expanding access for smaller investors.
However, stricter reporting requirements for Qualified Opportunity Funds may increase administrative costs, requiring investors to weigh compliance burdens against tax advantages.
Low-Income Housing Tax Credit (LIHTC)
The OBBB enhances the LIHTC by:
· Reducing the "50% financed-by test" for housing financed private activity bonds.
· Restoring a 12.5% increase in 9% LIHTC allocations that expired in 2021.
These changes improve the financial viability of affordable housing projects, potentially increasing supply and offering tax incentives to offset development costs for investors and developers.
Strategic Considerations for Real Estate Owners and Investors
To leverage the opportunities and reduce the risks for the OBBB, real estate owners and investors can implement these strategies:
- Optimize Bonus Depreciation: Time property acquisitions to fall within the 100% bonus depreciation window (post-January 19, 2025), maximizing cash flow benefits.
- Explore QOZ Opportunities: Evaluate investments in the new QOZ designations, particularly in rural areas, while ensuring compliance with enhanced reporting requirements.
- Update Estate Plans: Reassess estate strategies to capitalize on the $15 million exemption, potentially accelerating wealth transfers or restructuring ownership.
- Mitigate Interest Rate Risks: Lock in financing rates early or opt for fixed-rate debt to hedge against potential rate hikes.
- Prepare for Implementation: Consult tax professionals to align strategies with the bill's provisions as it nears enactment.
Economic and Market Implications
While the OBBB offers tax benefits, its broader economic impacts could indirectly influence real estate. The Congressional Budget Office projects that the bill will increase the federal deficit by $2.4 trillion over the next decade, which could lead to higher interest rates as the government borrows more. With the bill passing both the House and Senate, it now awaits the President's signature. This development alleviates some political uncertainty, but investors should remain vigilant, as the final approval could still be delayed or altered.