Real Estate Industry Benefits from One Big Beautiful Bill Act with Tax Advantages

What's Happening?

The One Big Beautiful Bill Act (OBBBA) has introduced several provisions that are expected to significantly benefit the real estate industry. According to Chase Inda, a principal in the construction and real estate services practice of Baker Tilly, the Tax Cuts and Jobs Act (TCJA) provided substantial advantages for pass-through entities, which are prevalent in real estate. The OBBBA continues these benefits, allowing real estate projects to remain tax-efficient without incurring additional professional fees for readjustment. The act also maintains the qualified business income deduction, offering a 20% deduction for pass-through income under certain conditions. Additionally, the state and local tax cap has been modified, enabling partnerships and S corp flow-through tax structures to pay taxes at the entity level, thus avoiding personal level limitations. However, the Inflation Reduction Act's focus on energy efficiency has been a challenge, as incentives for solar and home energy efficiencies will end by July 2026.

Why It's Important?

The OBBBA's provisions are crucial for the real estate industry, as they ensure continued tax efficiency and stability for pass-through entities. This stability is vital for investors and sponsors who rely on tax-efficient structures to maximize returns. The expansion of the Low-Income Housing Tax Credit and the permanence of the Opportunity Zone program are significant, as they support affordable housing projects and encourage investment in distressed real estate areas. These measures are particularly important in the current economic climate, where high interest rates and softening rents pose challenges. The act's provisions help mitigate these challenges, fostering growth and investment in the real estate sector.

What's Next?

Real estate professionals and investors will need to adjust to the changes brought by the OBBBA, particularly the ending of certain energy efficiency incentives by 2026. This requires strategic planning to ensure projects are completed in time to benefit from existing credits. The industry will also continue to leverage the expanded Low-Income Housing Tax Credit and the permanent Opportunity Zone program to drive investment and development in underserved areas. Stakeholders will likely focus on maximizing these benefits while navigating the evolving tax landscape.

Beyond the Headlines

The OBBBA's impact extends beyond immediate tax benefits, potentially influencing long-term investment strategies in real estate. The permanence of the Opportunity Zone program could lead to sustained interest in revitalizing distressed areas, promoting economic development and community growth. Additionally, the act's provisions may encourage more strategic partnerships and collaborations within the industry, as stakeholders seek to optimize tax advantages and navigate regulatory changes.