The One Big Beautiful Bill Becomes Law: Key Real Estate Tax Changes

Signed into law by President Trump on July 4, 2025, the Act permanently extends and modifies several cornerstone provisions of the Tax Cuts and Jobs Act of 2017, restores key business incentives, and makes permanent several key reforms to real estate and passthrough taxation. The Act also omits certain controversial proposals contained in prior versions of the legislation, including the so-called "Revenge Tax" under proposed Section 899. A summary of certain relevant provisions for businesses, real estate sponsors, and investors is provided below.

Business Interest Limitation Based on EBITDA 

Under the Act, interest deductions will continue to be limited to 30% of a base amount known as "adjusted taxable income," but deductibility will be expanded because the base amount will be larger. Prior to 2022, the base amount was a cash-flow-oriented EBITDA calculation, which added back interest, taxes, and depreciation and amortization. After 2022, depreciation and amortization were excluded from the addback, making it a more restrictive EBITDA calculation. The Act reverts to the more generous EBITDA limitation, which has the effect of increasing deductible interest. Not all changes are favorable, however. The Act takes away the opportunity for taxpayers to avoid being caught by the deductibility limitation by capitalizing interest expense into the basis of other assets. And the Act unhelpfully excludes certain U.S.-taxed foreign subsidiary income in calculating the base amount, which could be problematic for leveraged U.S. companies with profitable foreign subsidiaries. The changes are permanent, and most changes apply to tax years beginning after December 31, 2025. The beneficial change with respect to the EBITDA-based limitation, however, is effective for tax years beginning after December 31, 2024. 

Immediate Expensing of Qualified Production Property

Importantly, the Act provides for a new elective and temporary 100% expensing for certain newly constructed nonresidential real property used in "qualified production activities." In general, qualified production activities include the manufacturing, production, and refining of tangible personal property within the United States. The term "production" is limited to agricultural and chemical production. To qualify, construction on the property must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031.

Bonus Depreciation 

The Act permanently reinstates the 100% bonus depreciation under Section 168(k) for qualified property acquired and placed in service after January 19, 2025. Qualified property includes most tangible personal property with a useful life of 20 years or less. 

Qualified Business Income Deduction Made Permanent

The Act permanently extends the 20% deduction under Section 199A for certain individuals, trusts, and estates with respect to: (i) "qualified business income" from partnerships, S corporations, and sole proprietorships; and (ii) qualified real estate investment trust ("REIT") dividends (i.e., dividends that are not designated as capital gain dividends and not qualified dividend income) and qualified publicly traded partnership income. Previously scheduled to expire after 2025, the deduction rate remains at 20%. 

TRS Asset Test Restored to 25% for REITs

The Act raises the gross value of securities in a taxable REIT subsidiary that a REIT may own. The limitation will be increased from 20% to 25% for taxable years beginning after December 31, 2025.

OZ Program

The Act makes the OZ program a permanent feature of the Code. The original OZ program was scheduled to expire for new investments on December 31, 2026.

New OZs will be designated every 10 years, with the effective date for those new OZ designations being on July 1, 2026 (and every 10 years thereafter).

Additional features under the Act include: 

• Deferral: Capital gains invested in a qualifying investment vehicle known as a Qualified Opportunity Fund ("QOF") after December 31, 2026, may be deferred for five years from the date of investment.
• Gain Reduction: Investments held for at least five years receive a 10% tax basis step-up (30% for investments in rural OZs).
• Gain Elimination: Investments held for at least 10 years may elect to step up tax basis to fair market value on sale, with a cap for investments held over 30 years.
• Reporting: Enhanced reporting and impact assessment requirements are imposed on QOFs and OZ businesses, with penalties for noncompliance.

Interest Income Deduction for Rural or Agricultural Real Estate Loans

The Act introduces a new tax benefit for certain regulated lenders by excluding 25% of the interest received on "qualified real estate loans" secured by rural or agricultural real property from such lender's gross income. Eligible "qualified lenders" include banks or savings associations with federally insured deposits, state or federally regulated insurance companies, entities wholly owned by U.S.-based bank or insurance holding companies (provided they are organized and principally located in the United States), and federally chartered instrumentalities established under the Farm Credit Act for loans secured by qualifying rural or agricultural real estate. To qualify, loans must be secured by rural or agricultural real estate (or a leasehold mortgage with lien status on such property), made to persons other than specified foreign entities, and originated after July 4, 2025. Loans used to refinance pre-enactment loans are excluded from this benefit. The determination of whether property qualifies as rural or agricultural real estate is made at the time the interest income is accrued.

Changes to Real Estate Tax Credits

In good news for developers, the Act makes the "New Markets Tax Credit" ("NMTC") a permanent part of the Code. Taxpayers can claim NMTC by making qualified equity investments in certain community development entities, which must use the proceeds to invest in qualifying low-income community businesses. Separately, the Act increases the amount of competitive 9% "Low-Income Housing Tax Credits" ("LIHTC") available each year and makes the noncompetitive 4% LIHTC easier to obtain by reducing the percentage of the project that must be financed with bonds subject to the state's private activity bond cap. These changes are likely to lead to more NMTC and LIHTC transactions beginning after December 31, 2025, when the new rules are effective.

Notable Exclusions From the Act

The enacted new law does not include the proposed Section 899 "Revenge Tax," which would have required much higher U.S. withholding tax rates on entities in jurisdictions imposing foreign taxes having a discriminatory effect on U.S. companies. The provision was removed following a G7 agreement to exempt U.S. multinationals from certain provisions of the Organization for Economic Co-operation and Development's global minimum tax regime. It is not clear whether a different type of revenge tax will be introduced if the G7 fails to address the administration's concerns over taxes that unfairly target U.S. multinationals. Also excluded from the Act were any changes to the preferential tax treatment of carried interests despite the administration's efforts to the contrary. 

The Firm's separate Alert on the Act's impact on energy related tax credits can be found here.

We will continue to monitor implementing guidance from the IRS and Treasury and provide updates as regulations and other pertinent guidance are issued. Please contact us with questions or to assess the implications of these changes for your business or investments.