As of mid-2025, major tax provisions affecting real estate investors have changed. The newly passed One Big Beautiful Bill Act (OBBBA) has reinstated 100% bonus depreciation, restoring a key tax tool that had been on a scheduled decline.
What’s Changed?
Under the previous phase-out schedule, bonus depreciation was set to drop to 40% in 2025 and 20% in 2026. With OBBBA now law, the full 100% deduction is back in place for eligible property placed into service between January 20, 2025, and December 31, 2029.
Key Points for Investors:
- Applies to property with a useful life of 20 years or less
- Qualified Improvement Property (QIP) – like interior upgrades to nonresidential buildings – remains eligible
- Assets must be new to the taxpayer, but do not have to be brand new
- Restores the upfront deduction, reversing the prior phase-down schedule
Why It Matters
For real estate investors, this change improves cash flow by allowing more immediate deductions, which can:
- Free up capital for renovations or acquisitions
- Improve ROI by increasing early-year profitability
- Make marginal deals more financially viable
Additional Tax Updates Affecting Real Estate
QBI Deduction (20%) Made Permanent
The Qualified Business Income deduction (previously mentioned under the Tax Cuts and Jobs Act) has been made permanent. This affects pass-through entities such as LLCs, S-corps, and sole proprietorships commonly used in real estate structures.
Note: Eligibility depends on whether rental activity qualifies as a “trade or business.” Documentation remains key.
SALT Deduction Cap Raised
The cap on state and local tax (SALT) deductions increased from $10,000 to $40,000 annually through 2029. This change may provide greater tax relief for investors operating in high-tax states like New York, California, or New Jersey.
Section 179 Remains Unchanged
Section 179 expensing continues to be available alongside bonus depreciation, giving investors options to accelerate deductions based on asset type and acquisition strategy.
No Changes to 1031 Exchanges or Opportunity Zones
OBBBA did not alter rules around 1031 like-kind exchanges or Opportunity Zones. Investors can still defer gains through 1031 swaps or potentially reduce them through OZ investments.
Strategic Planning for Investors in 2025
Given these updates, real estate investors may want to:
- Re-evaluate acquisition timelines: With full bonus depreciation in play, year-end placement of assets can drive meaningful tax impact.
- Run cost segregation studies: Accelerating depreciation on building components can unlock large deductions early.
- Coordinate with tax advisors: Individual circumstances (especially across states and entity types) can influence how these provisions apply.
Final Note
The return of 100% bonus depreciation and other tax adjustments may shift the economics of certain investments. Whether you’re planning to expand, renovate, or restructure, the latest legislation provides multiple levers that can influence tax efficiency and long-term planning.
Consult with a qualified tax advisor to assess how these changes affect your unique portfolio.
