After many iterations, debates and negotiations in Congress about President Trump’s budget reconciliation package, the final votes were tallied last week and the bill was signed into a law commonly known as the One Big Beautiful Bill Act (OBBBA) on July 4th. The House of Representatives passed the Senate version of the bill without amendment.
So what exactly does this mean for commercial real estate investors? We’ve broken down the basics below – some are welcome provisions, others will significantly curtail the plans of some investors. Let’s take a look:
Bonus Depreciation
Certainly the most beneficial provision of the new law for investors is the return of 100% bonus depreciation, a key component often used to enhance the benefits of a cost segregation study, which can save investors thousands to millions in tax dollars. Bonus depreciation (which had been phasing out and set at only 40% for the 2025 tax year) will be retroactively reinstated to 100% for property acquired and placed in service after January 19, 2025. In addition, the new law makes 100% bonus depreciation permanent rather than temporary. The new law also sets a placed-in-service deadline of before January 1, 2031 for a special 100% bonus depreciation for qualified nonresidential real property in agriculture or chemical production.
This means that investors that may have been holding off on breaking ground or purchasing new commercial property anticipating a better return on their investment can now breathe a sigh of relief and move forward with projects that have been put on hold.
Section 179D Tax Deductions
Unfortunately for those who plan to make energy-efficient investments into their commercial buildings, perhaps the biggest blow to investors under the new law is the repeal of the Section 179D deduction for energy-efficient improvements. 179D had become permanent in late 2020 and enhanced in 2022 by the Inflation Reduction Act (IRA).
Under the OBBBA, the 179D deduction will now terminate for properties beginning construction after June 30, 2026. While this news is certainly unwelcome, property whose construction begins on or prior to that date will still be eligible for a deduction of up to $5.65/sq. ft.
Owners (and/or designers and builders of non-profit building projects) can still gain potentially thousands in tax savings if they begin their projects soon. However, the requirements for being able to take the most advantage of these benefits is complicated.
Section 179 Expensing
Often used in tandem with bonus depreciation, Section 179 expensing is a powerful tax incentive that allows businesses involved in commercial real estate to deduct the full purchase price of qualifying equipment and software in the year they are placed into service, instead of depreciating them over many years.
By allowing immediate expensing, Section 179 can significantly lower a business’s current year taxable income, which in turn reduces their tax liability and improves cash flow.
The new law increases the Section 179 deduction from the 2025 cap of $1.25 million (phasing out when the qualifying purchases exceed $3.13 million) to $2.5 million, phasing out when qualifying purchases exceed $4 million. The new limits apply to property placed in service in tax years beginning after December 31, 2024, and will be adjusted annually for inflation.
Section 45L Tax Credits
The 45L tax credit, whose primary goal was to incentivize builders and developers to construct and sell/lease energy-efficient homes, has been in effect since 2006 and was enhanced significantly as part of the IRA beginning in 2023. It was set to be in effect through December 31, 2032.
However, along with 179D deductions, the new OBBBA now terminates the 45L tax credit for energy-efficient homes acquired after June 30, 2026. Unfortunately, this significantly accelerates the previous expiration date set by the IRA.
While investors will certainly experience a mix of emotions in response to the OBBBA depending on their investment strategy and and purchase timing, the good news is that provisions now set to be repealed won’t begin to go into effect until next July. This means that you or your client still may have the opportunity to take advantage of them if you act quickly! To optimize investment opportunities and boost your ROI, it’s crucial to understand how these evolving tax laws can work for you.
As we learn more specifics of the sweeping new law, we’ll send more information pertaining to each of the provisions highlighted above.
As always, we welcome the opportunity to help reduce your tax liability and increase your cash flow through our services, so don’t hesitate to give us a call.
