As the Senate continues to debate the massive budget reconciliation package, dubbed the "One Big Beautiful Bill," the commercial real estate (CRE) industry is paying close attention. Mark Bonner, Editor-in-Chief for Bisnow, recently sat down with Ryan Seavers, Tax Partner at EisnerAmper, to unpack the bill's real estate-related provisions and what they could mean for developers, investors, and owners.
The bill, which builds on and in some cases reverses elements of the 2017 Tax Cuts and Jobs Act (TCJA), includes a mix of tax incentives, deduction modifications, and regulatory proposals. While not yet finalized, the legislation as it stands contains multiple changes that could have far-reaching implications across the CRE sector.
Bonus Depreciation: A Return to 100% Expensing?
One of the headline items is the proposed restoration of 100% bonus depreciation through 2029. This would allow investors to immediately expense qualifying property and equipment costs, improving early project cash flows. Seavers emphasized that while the cost of debt remains high, this measure could help make development math pencil out again, particularly for deals that became less viable after bonus depreciation began to phase out.
Interest Deductibility: Tweaks That Matter, To Some
The bill also seeks to roll back limitations on interest deductibility introduced under Section 163(j) of the TCJA. Seavers noted that many CRE entities had already elected out of these restrictions, so the proposed change may not significantly affect them. However, it could offer more flexibility for newer projects or investors who didn’t previously opt out.
Pass-Through Deductions and SALT Cap Adjustments
The House proposes increasing the Qualified Business Income (QBI) deduction from 20% to 23% and making it permanent. Though seemingly minor, this change would preserve tax parity for pass-through entities, including many real estate partnerships.
On the state and local tax (SALT) deduction front, the bill raises the cap to $40,000 for households earning less than $500,000. Yet, as Seavers pointed out, this threshold limits its utility for many CRE professionals in high-tax states. Importantly, a potentially devastating provision that would have eliminated SALT deductions for business property taxes was omitted.
Loss Limitations and Income Silos
The bill would make permanent the business loss limitations under Section 461(l), potentially constraining the use of project losses to offset income. Previously, excess losses converted into net operating losses (NOLs) usable in future years. If enacted, this change would keep such losses isolated, limiting their flexibility and possibly altering how projects are capitalized.
Regulatory Shifts: Rent Algorithms and Data Centers
Two lesser-discussed but impactful provisions would override local regulations on algorithmic rent pricing and AI-related infrastructure. A federal moratorium on restricting rent-setting software could benefit multifamily owners, while a ban on local AI-related data center regulations may lead to jurisdictional conflicts in energy-constrained areas.
Clean Energy and Housing Incentives
The bill includes a rollback of clean energy tax credits introduced under the Inflation Reduction Act. Seavers noted that removing these credits would negatively impact the economics of green building projects. On a more positive note, Low-Income Housing Tax Credit (LIHTC) allocations are set to rise, especially for rural and tribal areas—a move expected to garner bipartisan support despite ongoing financing challenges.
Opportunity Zones 2.0
The bill introduces a revised version of the Opportunity Zones program, offering enhanced incentives for rural areas, such as a 30% basis step-up. While Seavers views the benefits as modest, he acknowledged that such provisions still factor into investment decisions.
Key Proposed Changes Impacting Commercial Real Estate:
- 100% Bonus Depreciation reinstated through 2029.
- Relaxed Interest Deductibility under Section 163(j).
- QBI Deduction increased to 23% and made permanent.
- SALT Deduction Cap raised to $40,000 for those earning under $500K.
- Permanent Business Loss Limitations under Section 461(l).
- Federal Preemption of Local Rent Algorithm Bans (10-year moratorium).
- Moratorium on Local Regulation of AI Infrastructure, including data centers.
- Reductions in Clean Energy Tax Credits affecting green developments.
- Expanded LIHTC Allocations targeting rural and tribal housing.
- Revised Opportunity Zones Program with a rural investment emphasis.
Bottom Line for Investors
While much of the bill remains fluid, property investors and developers may want to begin modeling scenarios under these proposed changes. From tax planning to evaluating the use of bonus depreciation and gauging exposure to loss limitation rules, the impact of this legislation (if passed) will be substantial. As Seavers emphasized, the best defense is preparation, especially in a tax environment that continues to evolve.
Stay tuned: with final decisions expected in the coming weeks, the future of real estate taxation and regulation is being written in real time.
The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.