INSIGHT

OBBBA real estate wins: Bonus depreciation, LIHTC expansion, manufacturing incentives, and bump for REITs 

Mark Leverette • July 16, 2025

Industries: Real Estate

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The One Big Beautiful Bill Act (OBBBA), as it’s been coined, has delivered what many in the real estate industry have been waiting for: significant tax advantages that can transform investment strategy.  

As the phasing out of bonus depreciation has impacted deal economics over the past few years, real estate developers, REITs, and property investors now have substantial new opportunities to explore. 

The OBBBA brings back full bonus depreciation and introduces several other provisions that create meaningful opportunities for strategic real estate investments. The legislation:  

• restores 100% bonus depreciation for qualified property
• reverts 163(j) interest limitation to an EBITDA-based limit, allowing for larger interest deductions
• introduces special manufacturing real estate incentives through qualified production property provisions
• expands the Low-Income Housing Tax Credit program with increased allocations and reduced financing thresholds
• raises Section 179 expensing limits to $2.5 million
• gives REITs operational flexibility with the restoration of the Taxable REIT Subsidiary threshold to 25%

These changes represent the most significant positive shift in real estate tax policy in recent years, creating a favorable environment for strategic positioning and investment timing. Here’s how these provisions can impact real estate portfolios and investment strategies. 

100% bonus depreciation returns for qualified property 

The restoration of 100% bonus depreciation for qualified property acquired after January 19, 2025, represents a game-changing opportunity for real estate investors. This provision allows immediate deduction of the full cost of qualifying improvements and equipment, rather than spreading depreciation over multiple years. 

What qualifies for bonus depreciation 

Under the OBBBA, investors can take advantage of full bonus depreciation for: 

• Qualified improvement property (interior improvements to nonresidential buildings) 
• Most personal property with a recovery period of 20 years or less 
• Certain improvements to leased property 
• Computer software 

Impact on investment strategy 

The return of 100% bonus depreciation fundamentally changes how potential acquisitions should be evaluated. Consider a scenario where an investor is purchasing a $10 million office building that requires $2 million in interior improvements. Under the restored bonus depreciation rules, the full $2 million in improvements can be immediately deducted, creating significant tax savings that improve the project’s net present value. 

This immediate expensing opportunity also affects timing decisions. Properties acquired and placed in service after January 19, 2025, will benefit from these enhanced depreciation rules, making strategic timing crucial for maximizing tax benefits. 

Manufacturing real estate gets special treatment 

The OBBBA introduces qualified production property (QPP) provisions that create unique advantages for manufacturing-related real estate investments. This new category allows 100% depreciation for manufacturing facilities and related infrastructure. 

Understanding qualified production property 

QPP encompasses real estate specifically designed and used for manufacturing, including: 

• Manufacturing facilities and production buildings 
• Warehouses and distribution centers directly connected to manufacturing operations 
• Research and development facilities supporting manufacturing activities 

Strategic implications for developers 

For those developing or acquiring manufacturing real estate, the QPP provisions offer compelling advantages. A $15 million manufacturing facility can now be fully depreciated in the first year, creating substantial tax savings that significantly improve project returns. 

This provision also opens new opportunities for partnerships with manufacturers looking to expand their operations. The ability to offer enhanced tax benefits through QPP designation can make projects more attractive to potential tenants and buyers. 

Low-Income Housing Tax Credit program expansion 

The OBBBA brings welcome enhancements to the Low-Income Housing Tax Credit (LIHTC) program, creating new opportunities for affordable housing developers and investors. 

Key LIHTC improvements 

The legislation includes several provisions that strengthen the LIHTC program: 

• Increased state allocation amounts to support more affordable housing development 
• Reduced tax-exempt bond financing thresholds to allow easier access to the credit 

 These enhancements make previously challenging rural developments more financially viable, opening new markets for affordable housing development. 

Opportunity Zone benefits expand with new provisions 

The OBBBA enhances the Opportunity Zone program with additional incentives designed to attract more investment to economically distressed communities. 

New Opportunity Zone advantages 

The legislation introduces several enhancements to the existing program: 

• The Qualified Opportunity Zone program is now permanently extended and enhanced.  
•  The program now allows for new designations to be made every 10 years beginning 1/1/2027.
• Additionally, it establishes “Qualified Rural Opportunity Funds” to provide additional tax incentives. 

Strategic considerations for Opportunity Zone investments 

These enhancements make Opportunity Zone investments more attractive by providing greater flexibility and additional tax benefits. The extended timelines reduce the pressure on investors to deploy capital quickly, allowing for more thoughtful project selection and development. 

The expanded business activities definition also opens new possibilities for mixed-use developments and projects that combine residential, commercial, and community-serving components. This flexibility can lead to more comprehensive neighborhood revitalization efforts while maximizing tax benefits. 

Enhanced Section 179 expensing limits 

The OBBBA increases Section 179 expensing limits to $2.5 million, providing additional flexibility for real estate-related equipment and improvements. 

Practical applications 

This increased limit allows immediate expensing of more property in a single tax year, including: 

• HVAC systems and equipment 
• Security systems and technology infrastructure 
• Furniture and fixtures for rental properties 
• Landscaping and site improvements 

The higher Section 179 limits work particularly well in conjunction with bonus depreciation, providing multiple strategies for accelerating deductions. 

Strategic timing considerations 

The OBBBA’s provisions create several timing opportunities that require careful planning: 

Immediate actions to consider 

• Evaluate pending acquisitions scheduled for early 2025 to determine if timing adjustments could maximize tax benefits 
• Review current development pipelines to identify projects that could benefit from QPP designation 
• Assess existing properties for improvement opportunities that could qualify for enhanced depreciation 

Interest deduction limitations ease under Section 163(j) 

The OBBBA provides relief from the restrictive interest deduction limitations imposed under Section 163(j), which have significantly impacted leveraged real estate investments since 2018. 

The legislation modifies Section 163(j) in several important ways: 

• Increases the adjusted taxable income threshold for interest deduction limitations 
• Reduces the impact of the limitation on acquisition and development financing 

Impact on leveraged real estate investments 

For highly leveraged real estate projects, these changes can substantially improve cash flow projections. Consider a development project with $50 million in acquisition and construction financing: under the previous rules, interest deductions were severely limited based on adjusted taxable income calculations. The OBBBA’s modifications allow for greater deductibility of interest expenses, improving the project’s overall economics. 

This relief is particularly valuable for value-add strategies and major repositioning projects that rely heavily on debt financing during renovation periods when properties generate limited income. 

REIT flexibility increases with TRS threshold restoration 

The OBBBA restores the Taxable REIT Subsidiary (TRS) asset threshold from 20% to 25% for taxable years beginning after December 31, 2025. This change provides REITs with greater operational flexibility and opportunities for diversification. 

Strategic opportunities for REITs 

The restored 25% threshold allows REITs to: 

• Expand property management and development activities through TRS entities 
• Pursue additional revenue-generating services 
• Increase flexibility in joint venture structures 
• Enhance portfolio diversification strategies 

This change removes a constraint that has limited REIT growth strategies in recent years, opening new possibilities for revenue enhancement and operational expansion. 

Energy efficiency credits phase out: Act before year-end 

While the OBBBA provides numerous benefits for real estate investments, it notably does not extend energy efficiency tax credits that are set to expire at the end of 2025. 

Credits not renewed in the OBBBA 

Several energy-related tax incentives will expire without renewal: 

• Commercial building energy efficiency deduction under Section 179D 
• Residential energy efficiency tax credits 
• Increased limitations on the ability to utilize Clean Electricity Investment Credits 

Immediate action required 

Properties currently in development or planning phases should prioritize energy efficiency improvements to capture these credits before they expire. The Section 179D deduction, which allows up to $5.00 per square foot for qualifying energy-efficient improvements, represents significant value that will be lost after December 31, 2025. 

Strategic timing for energy projects 

Consider accelerating the following activities to capture expiring credits: 

• HVAC system upgrades and high-efficiency installations 
• LED lighting conversions and smart building systems 
• Building envelope improvements including insulation and windows 
• Energy management system implementations 

The combination of these expiring credits with the restored bonus depreciation rules creates a unique opportunity for projects completed before year-end. Properties that can qualify for both energy efficiency credits and 100% bonus depreciation will achieve maximum tax benefits. 

Putting it all together 

The OBBBA represents the most significant positive change in real estate tax policy in recent years. The combination of restored bonus depreciation, manufacturing incentives, LIHTC enhancements, and increased REIT flexibility creates a favorable environment for strategic real estate investment. 

Success in capitalizing on these opportunities will depend on understanding how these provisions interact with specific investment strategies and acting quickly to position portfolios for maximum benefit. 

Ready to maximize your real estate tax strategy? 

The OBBBA’s provisions offer substantial opportunities, but navigating the complex interaction of these new rules requires careful planning and strategic implementation. BPM’s real estate tax professionals can help identify which opportunities align with investment goals and develop strategies to maximize tax benefits while maintaining compliance with all applicable regulations. 

Contact BPM today to discuss how these changes can benefit your real estate portfolio and investment strategy. Let’s work together to turn these new tax advantages into meaningful results for your business.