The One Big Beautiful Bill continues to reshape industries across the country, and today we’re looking at one of the biggest winners: real estate. With new permanent tax provisions and incentives, this law is set to transform the way businesses, investors, and developers operate.
A More Generous Business Interest Deduction
One of the headline changes is the return to a more favorable business interest deduction formula. Interest deductions are once again capped at 30% of adjusted taxable income based on an EBITDA calculation: which means depreciation and amortization are now added back into the base amount.
This adjustment effectively allows more interest to be deducted. However, the law also removes the ability to capitalize interest to bypass deduction limits and excludes certain foreign subsidiary income from the calculation, important considerations for companies with overseas operations. These rules take effect beginning in 2026, with the EBITDA-based change starting in 2025.
100% Expensing for Real Estate in Production Activities
A new 100% expensing option has been introduced for certain nonresidential real estate used in qualified production activities, such as manufacturing and agriculture. To qualify, construction must start after January 19, 2025, and be completed by 2031.
Bonus Depreciation Returns
The bill permanently restores 100% bonus depreciation for qualified property placed in service after January 19, 2025. This includes most tangible personal property with a useful life of 20 years or less, welcome news for investors and developers who rely on large capital purchases.
Section 199A Deduction Made Permanent
A major win for small businesses and investors: the 20% Qualified Business Income (QBI) deduction under Section 199A is now permanent. This applies to partnerships, S corporations, sole proprietorships, REIT dividends, and publicly traded partnerships. Originally set to expire after 2025, this deduction is now locked in for the long haul.
REITs Get More Flexibility
Real Estate Investment Trusts (REITs) will see an increased ownership cap in taxable REIT subsidiaries, rising from 20% to 25% starting in 2026. This provides more room for growth and flexibility in structuring investments.
Opportunity Zones Become Permanent
Opportunity Zones (OZs) received a significant boost. The program is now permanent, with new zones being designated every 10 years starting in July 2026. Key benefits include:
- Deferral of capital gains invested into Qualified Opportunity Funds (QOFs) for five years.
- A 10% step-up in basis for OZ investments held at least five years, or 30% if located in rural areas.
- Full exclusion of gains for investments held ten years or longer.
These provisions are paired with new reporting and compliance rules to ensure accountability.
New Tax Breaks for Lenders
Lenders also benefit under the new law. Regulated lenders can now exclude 25% of the interest income earned from loans secured by rural or agricultural real estate. Eligible loans must be originated after July 4, 2025 and cannot be refinances of older loans.
Expanded Real Estate Tax Credits
Developers will see expanded opportunities through permanent changes to tax credit programs:
- The New Markets Tax Credit is now permanent.
- The 9% Low-Income Housing Tax Credit (LIHTC) has been expanded.
- The 4% LIHTC is easier to claim due to relaxed bond financing requirements.
Together, these provisions are expected to encourage more affordable housing and community development projects beginning in 2026.
What Didn’t Make the Cut
Notably absent from the final law were two controversial measures:
- The proposed “Revenge Tax” (Section 899), which would have imposed higher withholding taxes on companies from countries with discriminatory tax practices.
- Reforms to the tax treatment of carried interests, which remain unchanged despite earlier proposals.
What’s Next
While the IRS and Treasury are expected to release more detailed guidance, one thing is clear: real estate investors, developers, and lenders now have a broader set of tools and incentives to plan for the future.
If you have questions contact Paragon today.
