Authors
Gerret J. Baur
Director, Boston
gbaur@goulstonstorrs.com+1 617 574 3857
Martha J. Nahill Frahm
Director, Boston
mfrahm@goulstonstorrs.com+1 617 574 4063
Abraham Leitner
Director, New York
aleitner@goulstonstorrs.com+1 212 878 5158
Leah B. Segal
Director, Boston
lsegal@goulstonstorrs.com+1 617 574 2202Related Expertise
On July 4, 2025, the President signed into law a reconciliation bill that is referred to as the One Big Beautiful Bill Act (“OBBBA”). In significant part, the OBBBA extended or made permanent various provisions of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) that were set to expire at the end of this year. The OBBBA also introduced many changes to the tax law that will be relevant to various sectors of the economy, including real estate. Below is a high-level summary of certain key provisions of the OBBBA that may impact the real estate sector.
Goulston & Storrs continues to closely monitor the OBBBA and its implications for individuals and businesses across sectors. If you have any questions about how these changes may affect you or your business, please contact your G&S attorney or a member of our Tax Group.
Income Tax Rates
The OBBBA preserves and permanently extends the ordinary income tax rates applicable to individuals that were introduced by the TCJA (i.e., a 37% top marginal rate). No changes were made to the capital gains rate. Read additional details related to the impact of the OBBBA on individuals, including charitable giving, as well as estate and gift tax considerations, here.
Bonus Depreciation
The OBBBA now makes permanent 100% bonus depreciation for qualified property and new tangible property that has a recovery period of 20 years or less. The TCJA had introduced the 100% bonus regime but had been gradually sunsetting the program. The full expensing rule will apply to qualified property acquired after January 19, 2025. As was the case prior to the OBBBA, this provision does not apply with respect to non-residential real property, residential rental property, and qualified improvement property held by taxpayers with a real property business who elect out of the 30% limitation on interest deductions described below.
Qualified Production Property
Subject to several limitations and qualifications, the OBBBA introduces an election allowing taxpayers to currently expense costs associated with building so-called “qualified production property,” which generally is limited to nonresidential real property that is used by the taxpayer to manufacture tangible personal property. Among other things, the new election will only apply to newly constructed manufacturing facilities located in the United States or a possession of the United States, the construction of which begins after January 19, 2025, and before January 19, 2029, and which are placed in service before January 1, 2031.
Business Interest Limitation
Section 163(j) of the Internal Revenue Code, originally established under the TCJA, limits business interest expense deductions to 30% of adjusted taxable income (“ATI”). Since 2022, the calculation of ATI has been based on earnings before interest and taxes, but after deducting depreciation and amortization (“EBIT”). The OBBBA returns to the more generous pre-2022 standard by adding back depreciation and amortization to the calculation of ATI, effectively allowing taxpayers to deduct interest subject to a limitation of 30% of earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
As was the case under the TCJA, the 30% of ATI limitation does not apply to taxpayers with a real property business who elect out of Section 163(j).
Read additional details related to the impact of the OBBBA on financing transactions here.
SALT Deduction Cap
The limitation on the deduction of state and local taxes (“SALT”) was a major facet of the TCJA and has been one of its most controversial provisions. There is a temporary increase in the SALT deduction cap from $10,000 to $40,000 beginning in 2025. The cap increases by 1% per year beginning in 2026 until 2030 when it reverts to $10,000.
The increased SALT deduction begins to phase out when a taxpayer’s modified adjusted gross income reaches a threshold of $500,000 (or $250,000 for married filing separately), which will grow by 1% annually. The amount of the phasedown is equal to 30% of the taxpayer’s modified adjusted gross income over the threshold; however, the deduction will not decrease below $10,000.
Qualified Business Income Deduction
OBBBA makes permanent the qualified business income deduction under Section 199A, which allows non-corporate taxpayers the ability to deduct up to 20% of their qualified business income. As was the case under the TCJA, “qualified business income” includes qualified REIT dividends.
REITs
The OBBBA relaxes the REIT asset test with respect to taxable REIT subsidiaries (“TRSs”) to provide that a REIT cannot hold securities in one or more TRSs representing more than 25% (up from 20%) of the REIT’s value. This change is applicable to taxable years beginning after December 31, 2025. In addition, as described above, certain REIT investors will continue to benefit from the qualified business income deduction with respect to qualified REIT dividends.
Qualified Opportunity Zones
The OBBBA permanently extends and updates the qualified opportunity zone (QOZ) program, which had previously been set to expire for new investments made after December 31, 2026. The OBBBA made several changes to the QOZ program, including a new designation process, deferral mechanics, changes to the designation of qualified census tracts, incentives to promote investments in rural low-income communities, and new information return reporting requirements and associated penalties. See additional details related to the OBBBA and Qualified Opportunity Zones linked below.
Low-Income Housing Tax Credits
The OBBBA increases by 12% the State housing ceiling applicable to the allocation of 9% low-income housing tax credits for calendar years beginning after December 31, 2025. In addition, the so-called “50% test” applicable to 4% credit projects financed by tax-exempt bonds is relaxed for certain buildings placed in service after December 31, 2025, to provide that it is sufficient for 25% of the aggregate basis of the building and land to be financed by tax-exempt bonds, one or more of which must be issued after December 31, 2025. The new 25% test requires that at least 5% of building and land be financed by tax-exempt bonds issued after December 31, 2025.
Phase Out of Certain Green Building Incentives
The OBBBA makes numerous changes to the clean energy incentives introduced by the Inflation Reduction Act of 2022. In relevant part, the OBBBA phases out the Section 179D deduction for the cost of energy efficient commercial building property and new energy efficient homes credit under Section 45L. The Section 179D deduction will not apply to property the construction of which begins after June 30, 2026. The Section 45L credit will not apply to any qualified new energy efficient home acquired after June 30, 2026.
Please contact your Goulston & Storrs attorney or a member of our Tax Group if you have any questions.
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