In mid-2025, Congress introduced what’s being called the One Big Beautiful Bill—a sweeping tax reform package aimed at reigniting economic growth, incentivizing investment, and easing burdens on individuals and businesses alike. For real estate investors and developers, this legislation represents more than just another tax cut—it is a potential game-changer.
With targeted provisions benefiting property developers, syndicators, and even passive investors, the bill’s real estate-friendly measures offer new tools to boost profitability, unlock liquidity, and optimize long-term strategies. In this article, we’ll unpack the most relevant parts of the bill and explain how each can positively affect real estate investing in the coming years.
1. 100% Bonus Depreciation Extended (and Expanded)
One of the most powerful tools in the investor’s tax toolbox is bonus depreciation, and the Big Beautiful Tax Cut gives it a significant revival. Originally set to phase out after 2026, the bill extends 100% bonus depreciation through 2029. Even more significantly, it expands the list of eligible property and reintroduces enhanced Section 179 expensing limits, raising the cap to $2.5 million (phasing out at $4 million).
Why This Matters:
For developers and property owners, bonus depreciation allows for immediate deduction of the full cost of qualifying improvements, such as appliances, HVAC systems, roofing, and other building components. Typically, these items would be depreciated over 5, 15, or even 39 years.
By deducting them in the first year, investors can significantly reduce taxable income, improving short-term cash flow and increasing the internal rate of return (IRR). This is especially impactful for value-add projects or new developments where heavy capital expenditures occur early in the investment cycle.
Practical Example:
Suppose a developer spends $600,000 on qualified improvements across a portfolio of rental properties. In that case, they can deduct that full amount in the first year rather than over decades, saving as much as $200,000 in taxes depending on their tax bracket.
2. SALT Deduction Cap Raised
The bill loosens the controversial State and Local Tax (SALT) deduction cap introduced in the 2017 Tax Cuts and Jobs Act. That law limited SALT deductions to $10,000, disproportionately hurting taxpayers in high-cost states like New York, California, and Florida. The new legislation raises the cap significantly, to $30,000 or even $40,000, depending on the version of the bill and income levels.
Why This Matters:
Real estate professionals and high-net-worth individuals who invest through pass-through entities often report their income on personal returns. The new SALT deduction cap offers meaningful relief—especially for investors based in high-tax states—by allowing more of their state and local taxes to be deducted at the federal level, thereby reducing overall taxable income.
Investor Takeaway:
With larger SALT deductions, net after-tax returns improve. For sponsors marketing high-end or urban projects, this also improves the financial picture for potential investors deciding between asset classes.
3. Qualified Business Income (QBI) Deduction Improved
The QBI deduction under Section 199A has been a significant benefit for investors and developers operating through LLCs, S corporations, or partnerships. The Big Beautiful Tax Cut increases this deduction from 20% to 23% of qualified business income after 2025.
Why This Matters:
A higher QBI deduction increases the effective return for investors who receive income from rental activities classified as a qualified trade or business. This extra 3% might seem minor, but it adds up, especially for those with seven- or eight-figure income from real estate operations.
Strategic Implication:
Sponsors should consider revisiting their entity structures to maximize QBI eligibility, especially for joint ventures and development deals where income distributions can be optimized.
4. Opportunity Zones Extended with Enhancements
Initially established in 2017, Opportunity Zones (OZs) have driven billions in investment into underserved communities. The Big Beautiful Tax Cut extends the OZ program through 2033. It introduces enhancements aimed at rural areas, as well as long-term holding benefits.
Key updates include:
- 30% basis step-up after 5 years (up from 10% at 5 years previously) for rural OZs
- Expanded eligibility for zones in tribal and economically distressed areas
- Greater clarity on reporting and compliance requirements
Why This Matters:
The enhancements create a fresh incentive for developers to look outside major metros for projects in rural or emerging markets. Investors get greater tax deferral and permanent capital gains exclusion benefits for qualified OZ investments.
Long-Term View:
For firms with experience in secondary markets, this presents an excellent opportunity to pursue affordable housing, hospitality, or mixed-use projects in underutilized areas, now with enhanced tax incentives to support them.
5. Enhanced Low-Income Housing Tax Credit (LIHTC)
Affordable housing developers have long relied on the LIHTC to bring equity into deals that may otherwise be financially infeasible. The new tax law increases the 9% credit allocation by 12.5% from 2026 to 2029 and reduces the 4% credit bond-financing threshold from 50% to 25%.
Why This Matters:
These changes make it easier to qualify and raise capital for LIHTC-funded projects. Developers working on affordable or mixed-income housing can now access larger equity contributions from syndicators or institutional partners.
The 25% bond financing threshold makes it easier for smaller or more complex projects to get approved, reducing project delays and allowing for faster execution.
6. Passive Activity and Business Interest Deduction Clarifications
The bill also refines the business interest expense limitation rules under Section 163(j), reintroducing the ability to add back depreciation and amortization, at least through 2029.
Additionally, the excess business loss limitations for non-corporate taxpayers were retained but clarified in favor of certain real estate activities.
Why This Matters:
Investors using leverage as a growth tool will benefit from more favorable treatment of interest expense, especially in capital-intensive development or syndication structures. The ability to fully deduct interest improves project feasibility and post-tax returns.
7. New Withholding Rules for Foreign Investors
Foreign investors play a critical role in U.S. real estate, particularly in gateway cities and large-scale commercial developments. The new bill introduces withholding requirements ranging from 5% to 20% on capital repatriation from certain U.S. real estate investments.
Why This Matters:
While this introduces more administrative work and potential delays in repatriation, it also increases regulatory clarity. For developers working with foreign limited partners (LPs), the new withholding rules can be built into the project’s waterfall and modeled accordingly.
It’s essential to note that these provisions do not eliminate the appeal of U.S. real estate for international investors. The U.S. remains a stable, appreciating, and dollar-denominated market, now with more explicit rules for taxation and compliance.
Final Thoughts: A Golden Window for Real Estate Investment
While the political future of the bill remains uncertain, one thing is clear: the tax code is leaning in favor of real estate, and savvy investors should act accordingly. Whether it’s capturing faster depreciation, unlocking capital in Opportunity Zones, or restructuring pass-through entities to maximize deductions, the legislation offers a compelling case for reassessing strategy.
Of course, it’s not without complexity. Developers and investors will need to work closely with tax advisors, legal counsel, and underwriters to ensure full compliance and maximize the benefit of each provision.
However, overall, the Big Beautiful Tax Cut presents real estate professionals with a rare opportunity to increase after-tax returns, access new capital, and expand into previously underutilized markets. With the right structure and timing, the benefits could echo throughout the next investment cycle.
