Policy Meets Property: Real Estate Impacts of the “One Big Beautiful Bill”

On July 4, 2025, President Trump signed the sweeping H.R. 1 – known more commonly as the "One Big Beautiful Act"(the "Act") – into law after being passed in the Senate by a narrow 51-50 vote. The Act is part of an over $4 trillion reconciliation package that enshrines many tax cuts enacted in during President Trump’s first term.

While much attention has focused on the personal income tax, healthcare and energy aspects of the Act, this legislation also has significant implications for real estate. Here are some key examples of how it is expected to reshape the commercial real estate landscape:

1. Tax Gains for Investors & High-Tax States

• Bonus Depreciation. Commercial real estate owners can now fully expense the cost of qualified property—such as land improvements, furniture, fixtures, equipment, and certain interior improvements—upfront for property acquired and placed in service. This immediate deduction reduces taxable income for the year, resulting in substantial tax savings and freeing up cash that can be reinvested in additional projects, property improvements, or used to service debt. 
  
  The ability to write off more of the cost of property in the first year makes new construction, renovations, and property acquisitions more financially attractive. This can tip the scales on marginal deals, making projects that might not have been feasible under a slower depreciation schedule now viable.
  
  Not only property owners, but also tenants making qualifying interior improvements (known as "qualified improvement property") can benefit from bonus depreciation. This encourages more investment in tenant buildouts and property upgrades, supporting the overall health and modernization of commercial real estate assets.
  
  Finally, the Act introduces a new 100% bonus depreciation for "qualified production property"—certain nonresidential real property used in manufacturing, production, or refining. This provision is designed to spur domestic industrial development and can result in the entire cost of a new or substantially improved manufacturing facility being deductible in the year it is placed in service, provided it meets specific criteria. The 100% bonus depreciation for QPPs requires the property be placed in service before January 1, 2031.
  
  To unlock the Act’s bonus depreciation benefits, commercial real estate investors should undertake a cost segregation study to allocate a property’s acquisition and/or development costs into several different categories of deductible costs for the purposes of the Act. By breaking down a building into its component parts, these studies identify assets with shorter recovery periods (5, 7, or 15 years) that qualify for bonus depreciation.

• Section 179 Deduction: Section 179, which allows businesses to deduct the full purchase price of "qualifying equipment," is increased to a $2.5 million cap, enabling faster write-offs on certain building improvements. For the commercial real estate sector, this means the cost of (i) roofs; (ii) heating, ventilation and air condition systems; (iii) mechanical, electrical and plumbing systems; and (iv) most furniture, fixtures and equipment are now fully deductible when placed in service rather than spreading the deductions over many years. This encourages property modernization and other capital improvements. Importantly, many states do not conform to federal bonus depreciation rules but do allow Section 179 expensing—making this particularly valuable for real estate owners operating in those states, as they can still achieve immediate expensing for state tax purposes

• SALT Deduction: The much-debated SALT cap for the federal deduction of state and local taxes has temporarily been raised to $40,000 ($20,000 for married filing separately) starting in 2025 with a 1% annual increase through 2029. However, taxpayers with modified adjusted gross incomes over $500,000 ($250,000 for married filing separately) will be subject to a 30% phaseout. The higher SALT deduction makes investing in high-tax states more financially attractive, as the federal tax penalty for owning property in these locations is reduced. Importantly, real estate investors who own properties through pass-through entities (such as partnerships and limited liability companies) benefit from the preservation of the pass-through entity tax workaround, which allows them to deduct state and local taxes at the entity level, bypassing the individual SALT cap and further reducing taxable income.

Effectively, these measures reduce taxable income, improve cash flow, and enhance returns – particularly for real estate investors structured as pass-throughs – making property deals more appealing relative to other asset classes.

2. Affordable Housing & Opportunity Zone Investment

• Increase in LIHTC and NMTC Funding. The Act boosts low-income housing tax credits ("LIHTCs") funding by lowering the private activity bond financing threshold from 50% to 25% of land and building costs for properties in service after December 31, 2025, and increasing 9% allocations for the LIHTC by 12% beginning in 2026. Further, the bill also makes the New Markets Tax Credit – a program which attracts private capital into low-income communities by allowing investors to receive tax credits in exchange for equity investments in specialized financial intermediaries called Community Development Entities – a permanent program with an annual allocation authority at $5 billion. Both increases will potentially spur a significant increase in affordable rental units over the next few decades for low-income communities across the United States.

• Opportunity Zone Program. The Opportunity Zone program – offering deferred and potentially tax-free gains in designated distressed areas – is now permanent, with enhanced features like rolling tax deferrals and new rural fund classes. Investments in rural-designated opportunity zones ("OZs") are now eligible for a 30% step up in basis for investments that are held at least five years, so long as at least 90% of qualified property remains in these rural OZs. The “substantial improvement” requirement for OZ investments in rural areas is reduced from 100% to 50% of the original basis, lowering the capital threshold for qualifying projects and making it easier to reposition or rehabilitate existing rural properties.
  
  For all other types of OZs, investors can continue to defer capital gains by investing in Qualified Opportunity Funds (QOFs) that, in turn, invest in OZ property. Under the new law, gains invested after December 31, 2026, are deferred for five years from the date of investment (or until disposition, if earlier), rather than a fixed end date. After five years, investors receive a 10% basis step-up, reducing the taxable portion of the deferred gain. If the QOF investment is held for at least 10 years, any new gain from appreciation in the OZ investment is permanently excluded from federal taxation. The Act also allows individuals to defer up to $10,000 of ordinary income per year (with a lifetime cap) into QOFs, broadening the pool of potential investors beyond those with large capital gains. This remains a powerful incentive for long-term commercial real estate investment and value-add redevelopment in OZ areas.

The Act has direct and indirect implications for commercial real estate, from ramped-up tax savings to boosting potential investment flows – especially for commercial and high-tax market property owners. While its impacts are yet to be fully quantified, commercial real estate investors will receive some immediate relief amidst steadfast high interest rates and challenging capital markets. The Act creates several windows of opportunity for commercial real estate investors to capitalize on accelerated depreciation strategies and long-term investment incentives. In all, the Act will make commercial real estate a more attractive asset class relative to other investment opportunities.