Photographer: Nikita Sobolkov/nikkytok – stock.adobe.com
Depending on the nature of the business, various provisions of the One Big Beautiful Bill Act may work together to spur favorable tax advantaged transactions across an entire industry — and most experts wouldn’t hesitate to nominate real estate as one of the leading beneficiaries of the new law.
“We were very pleased with the outcome for our clients,” said Chase Inda, a principal in the construction and real estate services practice of Top 10 Firm Baker Tilly.
“The [Tax Cuts and Jobs Act] provided a huge lift for pass-through entities. In real estate, most of the entities are pass-through entities. We spent time getting all of our real estate projects set up the way that they could be the most tax-efficient for our clients, including how they pay state taxes, how they might deduct interest — all of the things that we had to address from the 2018 legislation.”
“From our clients’ perspective, all of the work that we’ve done since 2018 can continue on and our clients don’t have to spend a lot on professional fees to get readjusted,” he explained. “We can continue on with what we’ve been doing.”
Bonus depreciation was dwindling and would be down to zero in 2027, Inca noted. “It was a response to the terrible tragedy of 9/11, but it has had the intended effect to spur investment in real estate,” he said. “When it has been available, it has been a huge boost. Our sponsors and our investors have a very tax-efficient product when they invest in real estate. We’re redoing a lot of the projections that we worked on with clients for the law change that is applicable after January 2025.”
Other things that have been helpful include the qualified business income deduction, an automatic 20% deduction that investors get pass-through income if they meet certain requirements.
“That was specifically rolled out to make sure that partnerships were as tax-efficient compared to corporations after TCJA,” he explained. “TCJA had some corporate relief, so real estate and individual industries were concerned that perhaps there needed to be a different structure than flow-throughs, and we might have to spend a lot of money reinvesting into corporate structures if those rates were so much more beneficial. But QBI really came through and allowed the industry to stay where it was at. In general that has allowed us to maintain the flow-through status, and now that that has come through the One Big Beautiful Bill, we don’t have to make any changes on what type of structure might be more efficient.”
Inda also pointed to the state and local tax cap — a limitation at the individual level on the ability for investors to take state tax deductions.
“What’s happened in the industry since 2018 is that the majority of states have modified their tax regimes to allow partnerships and S corp flow-through tax structures to pay the taxes at entity level so they can avoid that limitation at the personal level,” he said. “That is a very big deal when selling real estate.”
The Inflation Reduction Act, passed during the Biden administration, gave rise to the sole negative aspect of the OBBBA for real estate, according to Inda.
“The IRA was very energy focused, and encouraged the installation of energy-efficient products and making building structures a bit tighter,” he explained. “That’s kind of expensive, of course, and works on the return of investment with some of the credits that were available from the program. Arguably for solar and home-efficiency builds, it was always a little tough to get to the new standards. We were still working with clients to try and get to the new standards. With the One Big Beautiful Bill, that has now been eliminated for solar, wind and some home energy efficiencies. There is still another year to get some of these projects in service, but basically, by July 2026 those incentives will end.”
“That is a very big change from things we were starting to get into place in a lot of our real estate projects, and we’re working with clients to make sure they understand those changes and to get any projects in service by the deadlines so that they don’t miss out on the credits that they had been planning for under the previous bill,” he continued. “That’s the one negative aspect of the bill for real estate, but everything else was very positive.”
The Low-Income Housing Tax Credit has had some expansion out of the new bill, which is very positive and very much needed, according to Inda.
“We have a lot of clients that are trying to make projects work and it’s pretty tough these days,” he said. “Softening rents, and high interest rates have had a negative impact. So the expansion of low-income housing tax credits throughout the country is very positive.”
Likewise, the Opportunity Zone program, which has been made permanent, is very positive.
“It was meant to bring unrealized gains out of the stock market into distressed real estate, ” explained Inda. “When it first came out in 2018, some guidance was missing. So to get traction in that program took a few years. It was set to sunset for 2026, but now has been made a permanent part of the Tax Code.”
