Key Real Estate Provisions from The One Big Beautiful Bill Act
By Maddy Ford, Tax Senior
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, represents one of the most significant tax overhauls since the Tax Cuts and Jobs Act (TCJA) of 2017. This sweeping legislation introduces new incentives, updates existing provisions, and sunsets certain energy-related benefits—all with implications that reach deep into the real estate sector. Many of these changes apply retroactively, making timely action critical for developers, investors, and property owners.
In this article, we focus on the provisions most relevant to real estate stakeholders, including the reinstatement of 100% bonus depreciation, the introduction of Qualified Production Property, and adjustments to the state and local tax deduction limitation (SALT Cap) and pass-through entity tax (PTET) deduction. Understanding these updates now can help you optimize tax strategies and avoid costly oversights. For a full overview of the OBBBA’s impact across individual, business, and energy provisions, see our July article, The One Big Beautiful Bill Act.
Bonus Depreciation
The OBBBA permanently reinstates 100% bonus depreciation for qualified property acquired and placed into service after January 19, 2025. Qualified property is tangible property, such as equipment, furniture, land improvements, and qualified improvement property (certain improvements to the interior of an existing commercial building), with a depreciation life of 20 years or less.
Property acquisitions for which a written contract was entered into before January 20, 2025, are treated as acquired on the written binding contract date. Thus, the acquired property will not be eligible for the expanded 100% bonus depreciation.
Key Considerations
Cost segregation studies will become a very valuable tool to identify items in newly acquired real property that qualify for 5, 7, 15, and 20-year depreciation lives. These assets are eligible for 100% bonus depreciation, which immediately reduces taxable income. For taxpayers not wanting significant depreciation deductions, an election can be made to take the reduced 40% bonus depreciation instead of 100% bonus depreciation for the first tax year ending after January 19, 2025.
For those with real estate trades or business activities, not all hope is lost if you acquired and placed into service eligible property before January 20, 2025. Section 179 treatment for property not eligible for 100% bonus depreciation is a great option to optimize depreciation deductions. For a deeper dive into the Section 179 deduction, see Bonus Depreciation Being Phased Out…Consider Phasing In the 179 Expense Deduction.
Qualified Production Property
The OBBBA introduced a new provision, referred to as Qualified Production Property (QPP), which is defined as non-residential real property used in a “qualified production activity” within the United States or a U.S. territory. This elective provision allows for 100% bonus depreciation on property that is otherwise depreciable over 39 years, another direct and immediate reduction of taxable income.
For QPP to be eligible for 100% bonus depreciation, the property must meet several criteria:
- Property must be non-residential real property
- The property must be used by the taxpayer as an integral part of a “qualified production activity”, such as manufacturing, producing, or refining of tangible personal property
- If the property is newly constructed QPP:
- Construction commences between January 20, 2025, and December 31, 2028
- The QPP is placed into service before January 1, 2031
- If the property is acquired QPP:
- Acquisition occurs between January 20, 2025, and December 31, 2028
- The QPP is placed into service before January 1, 2031
- The property has not been used in qualified production activity by anyone between January 1, 2021, and May 12, 2025
- The current taxpayer has never used the property
Key Considerations
QPP only relates to the portion of the facility dedicated to the qualified production activity. Areas such as office space, parking, and retail are excluded. This exclusion requires taxpayers to carefully identify and segregate construction or acquisition costs for the qualifying portions.
Currently, it appears lessors of property do not qualify for the QPP deduction, even if the property is used by the lessee in a qualified production activity. Additionally, the lessee will also not qualify for the QPP deduction since the lessee does not own the building. We are waiting for the IRS to issue guidance on how the requirements will apply to specific ownership structures.
SALT Cap and PTET Deduction
The OBBBA temporarily increased the SALT deduction limitation to $40,000 (single taxpayers and married filing joint) and $20,000 (married filing separate) beginning in 2025 through tax year 2029 for taxpayers who claim itemized deductions. After tax year 2029, the SALT cap will revert back to the $10,000 limit unless extended by legislation. However, the increased deduction for 2025 through 2029 begins to phase out for taxpayers with a modified adjusted gross income (MAGI) over $500,000 ($250,000 married filing separate) for the tax year. A taxpayer can still claim the $10,000 SALT deduction, even if they are fully phased out.
After the enactment of the TCJA, many states adopted PTET provisions that allowed a pass-through entity (partnership, limited liability company or s-corporation) to pay state taxes at the entity level, with each participating owner receiving a credit against their state tax liability. The IRS allows these PTET payments to be deducted as a business expense of the pass-through entity. This effectively allows the owners of pass-through entities to circumvent the SALT cap on their personal deductions through reduced taxable income from the pass-through entity.
Under the OBBBA, no changes were made to the deductibility of PTET payments made by pass-through entities preserving the current treatment without imposing additional limitations. This means that the SALT cap does not apply to the taxes paid directly by a business.
With the OBBBA’s $40,000 SALT cap reduced or eliminated for taxpayers with a MAGI over $500,000, PTET remains the only way to capitalize on significant state income tax deductions and can be a very effective way to reduce taxable income.
Key Considerations
The increased SALT cap and income limitations may require some pass-through owners to reconsider state PTET elections. An optimal combination of the personal SALT deduction and PTET could create both federal tax savings and minimize administrative complexity.
The Next Step, Contact Us
The One Big Beautiful Bill Act marks a significant shift in the tax landscape for real estate stakeholders, offering both expanded opportunities and new complexities. With the reinstatement of 100% bonus depreciation, the introduction of Qualified Production Property, and adjustments to the SALT cap and PTET provisions, developers and investors must act swiftly to align their strategies with the new rules. These changes underscore the importance of proactive tax planning, cost segregation analysis, and careful consideration of ownership structures. As many provisions apply retroactively and have time-sensitive windows, engaging with a qualified tax advisor is essential to fully leverage the benefits and avoid costly oversights. For more information or assistance with your tax planning needs, please contact us – we are here to help you navigate these changes with confidence.
