Highlights on New Tax Provisions

President Trump signed into law the “One Big Beautiful Bill Act (OBBBA)”) in early July. Read a full article sharing Insights | A Deeper Dive into the Final Tax Provisions.

Below are some key highlights of the Act that are specific to the real estate industry.

• Individual Income Tax Rates (§1) – Makes permanent the current tax rates and brackets, with highest rate of 37%.

• • Notably did not include a new 39.6% bracket for income over one million dollars or adjust the corporate income tax rate which will remain at 21%.

• SALT Cap (§164(b)) – Makes permanent the $10,000 cap on itemized deduction for state and local taxes, with temporary increase to $40,000 for tax years 2025 – 2029.

• • Notably did not include any restrictions on the pass-through entity tax (‘PTET’) workaround of which some version was included in both House and Senate original bills

• Qualified Business Income (‘QBI’) Deduction (§199A) – Makes permanent the 20% QBI deduction for pass through income
• Bonus Depreciation (§168(k)) – Reinstates and makes permanent 100% bonus depreciation for property acquired and placed in service after January 19^th, 2025

• • Any property places in service during year prior to January 19^th only eligible for 40% bonus

• Special Depreciation on Qualified Production Property (§168(n)) – Creates new bonus depreciation for any nonresidential real property placed in service in the US that encompasses qualified production activity
• Increased Dollar Limits for §179 Expensing (§179) – Expands §179 to cover an annual maximum deduction of $2.5 million with phase out increased to $4 million
• Domestic R&D Expensing (§174A) – Makes permanent immediate expensing of domestic R&D expenditures, with ability to expense any unamortized R&D in 2025 year

• • Can also elect to amend 2021 through 2024 returns to expense in year incurred if under $31 million gross receipts (average)

• 163(j) Interest Limitations (§163(j)) –

• • Returns adjusted taxable income used in calculation of interest expense limitation to ‘EBITDA’ approach effective for tax year 2025

• • • Currently starting point is ‘EBIT’

• • Requires that interest expense limitation be applied prior to any interest capitalization provisions
  • Removes foreign income inclusions (GILTI, Subpart F, Section 78 Gross Up) from adjusted taxable income starting point

• Payments from Partnerships to Partners for Property or Services (§707(a)(2)) – Changes wording around disguised sales rule to make them have a broader reach

• • Replaces “under regulations prescribed” with “except as provided” so that application of rule isn’t reliant on Treasury reguations

• Limitation on Excess Business Losses for Noncorporate Taxpayers (§461(l)) – Makes permanent the limitation on excess business losses and lowers threshold back to $250,000 ($500k MFJ)

• • Notably did not require disallowed losses to re-enter calculation in following year and can will still convert to an NOL

• Renewal of Opportunity Zones (§1400Z-1 & 2) – Makes permanent Opportunity Zone program with changes:

• • New zones will be designated every ten years, going into effect January 1, 2027 and every ten years after (designated six months prior)
  • Limits gain exclusion to 10% of investment gains (30% for investments in “rural” opportunity zones) after investment is held 5 years

• • • Removes the additional 5% exclusion for 7 year holds

• • Inclusion date for gains is shortened to be earlier of date investment is sold or 5 years from date of investment

• • • Removes any additional deferred to end of designated period

• • Keeps basis step-up / gain exclusion on investment in the opportunity zone fund for a 10 year hold, but caps the step-up to FMV at end of 30 year hold

• Taxable REIT Subsidiary Testing (§856(c)(4)(B)) – increases limitation on percentage of assets of a REIT that can be represented by securities in a TRS from 20% to 25%

Information and article is provided by Elliott Davis