This article is Part One of a multi-part analysis by KJK that will continue to summarize the OBBBA’s implications on various taxpayers and industries.
Signed into law on July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) delivers sweeping federal policy changes with wide-reaching implications for developers, investors, and property owners. Economic and cost-benefit impact analyses aside, the legislation includes changes that affect real estate investment, business deductions, housing incentives, and energy-related tax credits. Some provisions are permanent, while others are time-limited, creating planning windows for businesses and individuals.
Below is a breakdown of the key provisions that matter most to real estate developers and investors.
100% Bonus Depreciation Restored
Full first-year expensing is reinstated for qualifying assets placed in service after January 19, 2025, including property improvements, furniture, fixtures and equipment, and land improvements.
KJK Take: Revives cost segregation strategies, allowing real estate investors to maximize tax efficiency on asset placement.
Section 179 Expensing Expanded
The expensing cap increases to $2.5 million, with phaseout starting at $4 million. Inflation indexing begins after 2025.
KJK Take: Helps small and mid-sized businesses manage upfront capital costs and reinvest more aggressively.
Section 179D Deduction Ends After 2026
This energy efficiency deduction (up to $5.00 per sq ft) for commercial and multi-family buildings ends for properties beginning construction after June 30, 2026.
KJK Take: Substantial tax benefits remain for green retrofits and certain new development projects – but deadlines are critical.
Section 45L Home Energy Credit Ends After 2026
The 45L tax credit ($2,500–$5,000 per unit) for qualifying energy-efficient single-family and multi-family units terminates for homes or units closed after June 30, 2026.
KJK Take: Strong but limited-time opportunity for green builders targeting ENERGY STAR and Zero Energy Ready standards.
ENERGY STAR Program Funding Preserved
Despite clean energy tax credit phaseouts, FY2025 funding for the ENERGY STAR program remains intact.
KJK Take: Maintains federal support for voluntary energy labeling initiatives, preserving long-standing market incentives.
Excess Business Losses (§ 461(l))
Current law treatment of business-loss deductions for active pass-throughs is extended, with no new silo limitations.
KJK Take: Preserves the ability to offset project losses against other income streams, enhancing flexibility and liquidity.
Up-Front Cash Requirements
Capital expenditures and R&E expenses may be fully funded before tax benefits are recognized. The bill does not impose a requirement to do so.
KJK Take: Consider bridge financing or liquidity reserves to manage the timing gap between spending and deductions.
Condominium Accounting Reform Introduced
The legislation allows homebuilders of condominiums to use completed-contract accounting rather than percentage-of-completion, reducing upfront tax liability on unsold units.
KJK Take: Aligns tax recognition with actual receipts; improves cash-flow timing for for-sale residential projects.
Section 1031 Exchanges Preserved
No changes to like-kind exchange treatment, preserving tax-deferral opportunities for reinvested real estate gains.
KJK Take: Maintaining 1031 exchanges allows continued flexibility for real estate investors to defer capital gains and reposition portfolios without immediate tax consequences.
Gain-on-Sale Rollover Maintained
Capital gains from the sale of business assets can still be deferred when reinvested in similar-use property.
KJK Take: The rollover provision reinforces planning opportunities for businesses looking to upgrade or reposition assets without triggering an immediate tax burden.
REIT Subsidiary Limit Raised
The share of assets a REIT may hold in taxable REIT subsidiaries (TRSs) increases from 20% to 25%.
KJK Take: The expanded TRS cap offers REITs greater operational flexibility and enhances opportunities for revenue diversification within compliant structures.
PTET Workaround Preserved
Pass-through entities can continue state-level SALT deduction via entity-level tax (PTET) without new federal limitation.
KJK Take: Shields high-tax-state investors from SALT cap impacts by electing PTET.
Phase-Out of SALT Cap Relief
SALT cap increases to $40,000 through 2029 but phases out for taxpayers with MAGI above $500,000. The cap reverts to $10,000 at $600,000 AGI.
KJK Take: High-earning investors should consider electing PTET or implementing state-level planning strategies.
Opportunity Zone (OZ) Incentives Made Permanent
The Opportunity Zone program is now permanent with redesignation every 10 years starting in 2027, preserving capital gains deferral and step-up basis benefits. The bill also introduces Qualified Rural Opportunity Funds and mandates stronger reporting and transparency requirements for OZ investments.
KJK Take: Provides long-term certainty for OZ projects while expanding access to underserved rural markets. Expect increased regulatory scrutiny and reporting burdens.
LIHTC Extension and Expansion
The bill restores and extends the temporary increase in 9% LIHTC allocations to 12.5% from 2025 to 2029. It also modifies the tax-exempt bond financing requirement, allowing more buildings financed with tax-exempt bonds to qualify for housing credits.
KJK Take: Increases access to credits that can help offset the cost of affordable housing projects. Developers should review planned projects for potential eligibility under the expanded criteria.
New Markets Tax Credits
The NMTC is permanently authorized with a $5 billion annual allocation, supporting long-term private investment in low-income communities.
KJK Take: Secures a critical financing tool for community development and commercial real estate in distressed areas.
Exclusion of 25% of Interest Income from Rural or Agricultural Loans
Excludes 25% of interest income from taxation on loans secured by rural or agricultural real estate, aiming to encourage lending in underserved areas.
KJK Take: Provides a targeted incentive for lenders to support agricultural and rural development, which may open new financing channels for landowners and agribusiness investors.
Other Notable Provisions
Advanced Manufacturing Credit Increased
The investment tax credit rate increases from 25% to 35%, effective for qualified property placed in service after December 31, 2025.
KJK Take: The increased credit offers stronger incentives for businesses to invest in advanced manufacturing facilities, which could drive demand for industrial space.
Spaceport Bonds Authorized
Section 142(a)(1) amended to treat spaceports like airports under exempt-facility bond rules. Applies to manufacturing, launch services, and spacecraft crew/cargo operations.
KJK Take: Opens bond market access for private aerospace infrastructure – watch for increased investment in launch hubs.
What This Means for You
The OBBBA presents new opportunities for real estate investors, developers, and business owners, along with added complexity around timing and compliance. With several provisions set to phase out in the coming years, now is the time to assess how these changes align with your current plans. To discuss further, contact KJK Managing Partner, Jon Pinney (JJP@kjk.com; 216.736.7260) or Economic Development & Incentives attorney Rich Morehouse (RAM@kjk.com; 216.736.7292).
