Real Estate Industry Has Tax Planning Opportunities in New Law

The $3.4 trillion federal fiscal package known as H.R. 1 brings about significant changes for the real estate industry, offering new tax planning considerations for real estate businesses and professionals.

Because a majority of the real estate-related amendments are permanent extensions or modifications of existing tax provisions, understanding them can help real estate professionals optimize tax planning and compliance.

Here are some major changes that likely will impact the industry.

Bonus depreciation. The tax package permanently reinstates the 100% bonus expensing for qualified property, effective for property placed in service after Jan. 19, 2025. Real estate businesses can expense the full cost of qualifying assets immediately, which can affect cash flow and tax obligations.

Under the new law, taxpayers also can use the previous bonus depreciation phase-down rates instead of 100% expensing, via an election on their tax returns. Property placed in service from Jan. 1, 2025, through Jan. 19, 2025, will have a bonus depreciation rate of 40%.

While this presents an advantage for real estate professionals, it’s important to consider potential state-level nonconformity, as various states may not follow these federal provisions. Likewise, net losses resulting from using bonus depreciation could give rise to Section 461(l) excess business losses limitations.

Section 179 deduction. The new law increases the maximum Section 179 deduction to $2.5 million from $1 million and raises the phaseout threshold to $4 million from $2.5 million. The enhanced deduction applies for property placed in service after Dec. 31, 2024, allowing businesses to immediately expense a larger portion of their qualifying property purchases.

Beyond its general applicability to personal property, Section 179 extends to qualified improvement property and certain nonresidential building improvements, including roofs, HVAC systems, fire protection and alarm systems, and security systems.

However, taxpayers should be aware that the deduction is limited to the amount of taxable income from active trade or business activities. Any part of the deduction that exceeds taxable income is carried forward and can be used in future years when there is sufficient income.

Estates and trusts aren’t eligible to claim the Section 179 deduction. As with bonus depreciation, taxpayers should carefully consider state tax conformity rules on the increased Section 179 deduction.

Section 163(j) interest expense limitation. Under Section 163(j), business interest expense generally was deductible by a taxpayer to the extent the deduction was less than 30% of the taxpayer’s adjusted taxable income, or ATI.

For tax years beginning after 2021, ATI was calculated without adding back depreciation, amortization and depletion. The new law reinstates the prior method of calculating ATI by allowing the addition of depreciation, amortization, and depletion back into the formula. This new calculation effectively expands the base amount for the 30% limitation, allowing for a larger interest expense deduction.

There also is a new ordering rule to coordinate the interest limitation with capitalization provisions. Certain interest expenses that previously were capitalized will now be subject to Section 163(j) interest expense limitation provisions prior to the capitalization provisions. This ordering rule is effective for tax years beginning after Dec. 31, 2025.

Section 199A qualified business income deduction. The new law makes the 20% QBI deduction permanent for qualified active trades or businesses. Income thresholds for QBI deduction limitations have also increased. The new phase-in ranges are $75,000 for single filers and $150,000 for joint filers, which will be indexed for inflation after 2026.

Elimination of energy credits. The tax package marks the expiration of certain energy credits, a significant change for real estate developers and owners planning energy-efficient improvements and construction.

Both the 30% energy-efficient home improvement and 30% residential clean energy credits will expire by Dec. 31, 2025. The Section 45L energy efficient home credit won’t apply to qualified homes acquired after June 30, 2026. Likewise, the Section 179D credit for energy-efficient commercial buildings no longer will be available for construction projects after June 30, 2026.

Section 461(l) excess business losses. This provision was set to expire after Dec. 31, 2028. The new law made it permanent. As a result, noncorporate taxpayers—including individuals, trusts, and estates—will remain subject to limitations on the amount of net business losses they may deduct against non-business income.

For the 2025 tax year, the excess business loss thresholds are $313,000 for single filers and $626,000 for joint filers. But in tax years beginning after Dec. 31, 2025, the cap is re-indexed and decreased to $250,000 for single filers and $500,000 for joint filers.

These lowered amounts will adjust for inflation annually in subsequent years. Disallowed excess business losses will continue to be treated as net operating loss carryforwards.

Completed contract method of accounting for residential buildings. The new law changes the rules requiring using the percentage completion method of accounting for long-term contracts.

Previously, the completed contract method was permitted only for home construction contracts which included residential buildings with four or fewer units.

The fiscal package has expanded the exemption to include residential construction contracts—projects involving the construction of buildings with more than four dwelling units. The change will take effect for contracts entered into after July 4, 2025.

Qualified Opportunity Zones Business: The bill has overhauled and expanded previous opportunity zone tax provisions. Notable changes include making the program permanent with narrower criteria and stricter rules and adjusting the gain deferral period to five years after the investment or when the investment is sold—whichever comes first.

Next Steps

The new law marks a pivotal moment for the real estate industry, making planning around powerful incentives a must. Developers and contractors also have a window to capitalize on provisions for new construction, but those eyeing energy-efficient projects must move quickly before related credits sunset.

With the Section 461(l) excess business loss rules now permanent, the stakes are higher than ever—making proactive, strategic tax planning essential to fully capture these opportunities and safeguard long-term returns.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Suerische (Sue) Villarosa is a tax senior manager at Anchin with more than 15 years of experience in public accounting.

Mark Schneider is the tax leader of Anchin’s real estate industry group.

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