Key Takeaways
- Bonus depreciation has been restored, allowing investors to immediately expense 100% of qualifying production property, creating upfront tax savings and more substantial cash flow.
- QBI deduction made permanent, so pass-through entities, including real estate LLCs and DSTs, retain up to a 20% deduction with income thresholds and wage or property limits still applying.
- Mortgage insurance deduction extended, so deductibility of MI premiums lowers financing costs for leveraged acquisitions and improves returns on rental and residential properties.
- SALT deduction cap raised to $40,000 through 2030, which provides significant tax relief for investors in high-tax states before reverting to $10,000.
- LIHTC expansion increases allocations and reduces bond requirements, which expands affordable housing opportunities and creates new options for DSTs, syndications, and exchange reinvestments.
On July 4th, 2025, Public Law 119-21, also known as the One Big Beautiful Bill Act (OBBB), was signed into law. The law covers legislation ranging from Medicaid cuts to boosting defense spending to extending President Trump’s 2017 tax cuts.
This article will not address any of the non-real estate provisions, but instead, will focus on how OBBB impacts real estate investors.
How Does the “Big Beautiful Bill” Affect Real Estate Investors?
From QBI deductions to the low-income housing tax credit expansion, this is how OBBB affects real estate investors.
Bonus Depreciation Restored and Extended
The Act permanently restores 100% bonus depreciation for qualified property acquired and placed in service after Jan. 19, 2025. Practically, that means many short-lived tangible assets (5- and 15-year MACRS classes), qualified improvement property (QIP), and certain other eligible items can be fully expensed in year one. Previously, depreciation on comparable assets was spread over 39 years; now, a qualifying business can deduct the entire cost immediately, reducing taxable income upfront.
If a taxpayer elects this treatment, they can immediately deduct 100% of the cost (adjusted basis) of specific production-related property in the year it’s placed in service. After taking that immediate write-off, the property’s basis is reduced to zero for future depreciation. Taxpayers don’t depreciate assets over time, but rather, expense them all up front.
Immediate Expensing for Qualified Production Property
The law also introduced a tax provision that permits the full expensing of certain nonresidential real property used in manufacturing, production, or refining operations. To qualify, construction must begin between January 20, 2025, and December 31, 2028, and the property must be placed in service by January 1, 2031. These enhanced depreciation rules are deliberately designed to incentivize investment in industrial facilities and processing infrastructure, which may have wide spillover effects for commercial construction and development markets.
QBI Deduction Maintained for Real Estate Entities
The Tax Cuts and Jobs Act (TCJA) created Section 199A, which allows taxpayers to deduct up to 20% of their qualified business income (QBI), subject to specific limitations. This includes qualified REIT dividends and Publicly Traded Partnership (PTP) income. The OBBB makes this 20% deduction permanent.
The QBI deduction works differently depending on your income level and business type:
For most real estate businesses (non-SSTBs):
- Below the income threshold: You can claim the full 20% deduction
- Above the income threshold: Your deduction is capped at the greater of:
- 50% of W-2 wages paid by the business, OR
- 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property (UBIA)
For specified service businesses (SSTBs): Certain professional services—including law, health, accounting, and consulting—face additional restrictions:
- Phaseout begins at $197,300 (single) or $394,600 (married filing jointly)
- Complete phaseout at $247,300 (single) or $494,600 (married filing jointly)
Above the upper threshold, SSTB owners lose QBI deduction eligibility entirely.
Mortgage Insurance Premium Deduction Extended
The reinstated Mortgage Insurance (MI) premium deduction allows qualified homeowners to deduct the cost of mortgage insurance premiums, whether paid to private mortgage insurers, FHA, VA, or USDA, from their federal income taxes.
The deduction lowers the effective cost of carrying mortgage insurance, improving cash flow and making lower-down-payment loans more affordable for investors holding financed rental or residential properties. This deduction effectively reduces borrowing costs and can improve the overall return profile.
Who Can Claim It and Income Limitations
This is the list of those who qualify for the reinstated MI deduction:
- Homeowners (including first-time buyers) with mortgages that required private or government-backed MI (FHA, VA, USDA).
- Borrowers who itemize or take the standard deduction—this deduction is separate and available at the individual level.
- Some investors may qualify if the property is financed with MI and the income is reported in a way that meets IRS standards.
The deduction includes income phase-out thresholds. Historically, eligibility began phasing out at adjusted gross income (AGI) levels of $75,000 for single filers and $110,000 for married couples filing jointly.
While the OBBBA makes this deduction permanent, the IRS has not yet issued guidance clarifying whether these historical income thresholds will remain unchanged, be adjusted for inflation, or be modified under the new law. These provisions are scheduled to take effect beginning in the tax year 2026.
Taxpayers should consult with their tax advisors as IRS guidance becomes available to understand how these phase-out rules may apply to their specific situations.
SALT Deduction Cap Raised
The bill raises the SALT cap to $40,000 under the statutory rules and implements a phasedown for higher incomes rather than a flat $10,000 cap for all filers. That relief is especially relevant to investors and owners who pay significant state income or property taxes in high-tax states. Check the exact year-by-year phase rules and income-phase thresholds when modeling a transaction.
LIHTC Expansion for Affordable Housing Investment
The low-income housing tax credit (LIHTC) program was created in 1986 as the federal government’s primary tool for developing and rehabilitating affordable rental housing.
Developers receive tax credits in exchange for setting aside rent-restricted units for low-income households. Credits are claimed over 10 years but sold upfront to investors (primarily financial institutions) for equity.
This equity reduces debt financing needs, making affordable rent levels financially viable. The OBBB made changes to the LIHTC program, including:
- Increase state allocation authority for LIHTCs by 12% starting in 2026, permanently expanding the number of affordable housing projects that can be financed.
- Lower the tax-exempt bond financing requirement from 50% to 25%, broadening eligibility for 4% credits.
- Extend the effective reach of the program for properties placed in service after December 31, 2025, if bond levels are at least 5% of the basis in land and building with an issue date after December 31, 2025.
- Increase projected federal revenue losses by an estimated $4.0 trillion annually by 2034, reflecting expanded program usage.
LIHTC is crucial in closing financing gaps for affordable housing projects.
What Does This Mean for 1031 Exchange Investors?
The tax provisions in the OBBB Act create new opportunities for real estate investors when combined with 1031 exchange strategies to defer capital gains taxes.
- Bonus depreciation applies to qualifying property acquired in a 1031 exchange, allowing investors to accelerate depreciation deductions on the replacement property while still deferring the original capital gain.
- QBI deduction permanence benefits investors who exchange into DSTs or partnership structures, as these pass-through entities may qualify for the 20% deduction on rental income generated by the replacement property.
- Mortgage insurance deductibility can reduce financing costs for investors who need to add debt to their replacement property to meet the equal-or-greater-value requirement of a 1031 exchange.
These provisions don’t change how 1031 exchanges work, but they may improve the tax efficiency and cash flow of properties acquired through the exchange process.
A Bill with Strategic Implications
The One Big Beautiful Bill Act reshapes the tax landscape for real estate investors, opening doors to faster depreciation deductions, expanded tax credits, and improved financing efficiencies. From the permanent restoration of 100% bonus depreciation to enhanced Low-Income Housing Tax Credits and new qualified small business stock provisions, these changes create multiple planning opportunities across different investment strategies.
However, navigating these provisions effectively requires careful coordination with your tax and financial advisors. Each investor’s situation is unique, and the optimal approach depends on factors including your income level, current portfolio composition, investment timeline, and overall wealth preservation objectives.
Want to understand how these tax changes might impact your real estate portfolio? Our team of investment professionals can provide personalized guidance tailored to your specific investment goals and tax situation.
Register for a free investor account at 1031 Crowdfunding to explore our marketplace of tax-advantaged real estate investment opportunities and connect with our team to discuss strategies that align with your wealth preservation objectives.
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