Hidden Treasures for Real Estate Investors in the OBBBA

It’s been nearly two months since the ‘One Big Beautiful Bill’ Act (OBBBA) passed, and as a certified public accountant (CPA), I can tell you it’s laden with real estate investment-friendly reforms. Most notably, there’s the permanent restoration of 100 percent bonus depreciation, which will allow real estate investors (both businesses and individuals) to more fully and quickly deduct real estate outlays from their tax bills.

This is the most well-known benefit, which is expected to help free up liquidity for further investments while offering clarity for longer-term capital investment strategies. However, if you take a closer look under the OBBBA’s covers, you’ll see that there are several additional “hidden gems” that promise to help real estate investors save thousands of dollars on their tax bills. These include:

The extension of the 199A deduction provisions, which makes permanent the 20 percent qualified business income (QBI) deduction. The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a new 20 percent deduction for income generated through pass-through entities. In making the deduction permanent, eligible taxpayers can now deduct up to 20 percent of their QBI (which includes any rental activity or active trade or business operated as a “rental real estate enterprise”) and/or 20 percent of their qualified real estate investment trust (REIT) dividends. Individual taxpayers and enterprises must either treat each property held for rent production as a separate entity or treat all similar properties held for rent production as a single entity (although commercial and residential properties may not be part of the same entity).

This is a particularly great benefit for real estate enterprises or entrepreneurs that may just be starting, provided they meet the ‘250 hour’ rule (250 or more hours of rental services are performed for free for each property per year). The 20 percent deduction can yield significant tax savings that can be used for re-investment or debt reduction. Think of it as the federal government giving qualified small business owners a much-needed tax break.

The annual state and local tax deduction cap is temporarily increasing from $10K to $40K. The OBBBA has raised the cap on the deductibility of state and local taxes (SALT), which include income and property taxes, for taxpayers earning less than $500K per year between 2025 and 2029. After that, the limitation will revert back to $10K per year, or $5K per year for married separate filers.

This provision comes as quite a relief to the millions of homeowners in high-tax states – for example, New Jersey, New York, Connecticut, California, and Massachusetts – whose property taxes have been ballooning alongside their home values in recent years. From an investment perspective, it will encourage businesses and individuals to invest in real estate in these high-tax states, which they may have previously written off as too expensive. Over time, real estate tends to appreciate, and this is especially true for wealthy and up-and-coming areas. Putting more money in these areas is a win-win for investors – lower taxable income in the near-term, combined with an opportunity to build some serious equity in the long-term.

The newly raised lifetime gift and estate exemption – The OBBBA permanently increases the lifetime gift, estate and generation skipping transfer (GST) tax exemptions that were only temporarily increased under the TCJA. This change repeals the TCJA’s sunset provision, which would have reduced the exemption to approximately $7 million per person in 2026. With the OBBBA, beginning January 1, 2026, the federal lifetime gift and estate exemption amounts will rise to $15 million for individuals and $30 million for married couples and stay there.

This provision is particularly helpful to wealthy, sophisticated real estate investors. It offers a valuable opportunity to transfer more wealth in the form of bequeathed property and real estate, without triggering federal transfer taxes, whether during life or death. One great thing about this new reform is that the accompanying annual gift tax exclusion remains intact. In other words, in 2025, the IRS allows gift-givers to give up to $19,000 per year ($38,000 per year for a married couple) to a single individual, tax-free and without using up any of the taxpayer’s lifetime gift and estate tax exemption. This allows gift-givers to transfer further substantial assets tax-free.

This stability gives high net worth individuals greater freedom and flexibility regarding when and to whom to bequeath real estate, while continuing to fund dynasty trusts efficiently. With the amount of tax-free real estate-based wealth that can now be passed to beneficiaries increasing so substantially, investors are empowered to optimize wealth preservation for future generations.

The sweeping changes brought forth by OBBBA are set to catalyze real estate investment (both residential and commercial), while jump-starting the real estate market and, at a broader level, the economy. Real estate investors can benefit extensively from careful structuring and planning to help maximize the new provisions to their fullest extent and, consequently, the tax efficiency and value of their precious assets.

Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by wisewalletwizard.
Publisher: Source link