- 100% Bonus Depreciation — Permanently Restored
OBBA reinstates and makes permanent 100% bonus depreciation for qualified property, including Qualified Improvement Property (QIP) on commercial real estate. Owners and investors can fully expense eligible improvements in the year those improvements are placed in service, rather than spreading deductions over decades. This applies for property acquired and placed in service after January 19, 2025. It drastically increases first-year tax deductions, notably improving after-tax cash flow. For example, instead of depreciating a $1M renovation over 39 years (about $25,641/year), you can now deduct the full $1M immediately—potentially saving $370,000 in taxes in the first year for a high-bracket taxpayer.
- Permanent 20% Pass-Through/Rental Income Deduction (Section 199A)
The 20% qualified business income (QBI) deduction for pass-through entities and rental properties is now permanent. Real estate investors can repeatedly deduct 20% of their net rental income, reducing overall tax exposure and boosting yield for investors using LLCs, S-Corps, and partnerships.
- Enhanced Interest Deduction: Return to EBITDA-Based Limits
For leveraged owners, the limit on deductible business interest now uses the more favorable EBITDA (earnings before interest, taxes, depreciation, and amortization) formula, rather than EBIT. This increases the eligible interest deduction for those utilizing significant depreciation and amortization, particularly benefitting heavily financed real estate deals.
- Section 179 Expensing Cap Raised to $2.5 Million
For smaller assets and capital improvements, the Section 179 deduction cap has been raised to $2.5M and expanded to some commercial property, allowing more immediate expensing for a wider range of investments.
- 1031 Like-Kind Exchanges Protected
OBBA preserves 1031 exchanges, so investors can continue deferring capital gains tax on the sale of investment property when replacing it with similar property.
- Capital Gains and Low-Income Housing/Opportunity Zone Incentives
Lower long-term capital gains rates remain intact, and OBBA expands Low-Income Housing Tax Credits and improves Opportunity Zone incentives, creating new opportunities and increased credits for those developing or investing in affordable housing.
- Improved SALT Deductibility
The State and Local Tax (SALT) deduction cap is raised to $40,000 for those earning below $500,000 (2025–2029), allowing high-net-worth property owners more federal deductions.
- Faster Federal Approvals for Developments
OBBA introduces measures to accelerate federal permitting for development projects, especially those needing environmental review, streamlining the process for investors and builders.
In summary: OBBA fundamentally rewrites the after-tax ROI calculus for real estate investors and owners, especially those using cost segregation, frequent renovations, or leveraged acquisition models. The permanent changes allow for accelerated deductions, continued pass-through and rental income advantages, favorable expensing and interest rules, and sustained benefits for tax-advantaged development.
These changes present a major opportunity to maximize after-tax cash flow and should be integrated into acquisition, renovation, and long-term investment strategies for commercial and investment property owners.
