The “One Big Beautiful Bill Act” was recently signed into law as P.L. 119-21 (“the Act”). This wide-ranging tax legislation, which will affect almost every taxpayer, permanently extends many of the 2017 Tax Cuts and Jobs Act provisions, while also adding new measures. The following are some areas that will impact the Real Estate sector.

Carried Interest
The Act maintains existing tax provisions for carried interest, which is a key consideration in valuing general partnership interests and incentive-based equity structures within real estate development and investment.

Estate & Gift Taxes
Starting in 2026, the basic exclusion threshold for estate, gift, and generation-skipping transfer taxes will rise to $15 million, indexed for inflation.

Enhanced Pass-Through Deduction
The deduction for eligible income derived from pass-through entities, like partnerships and LLCs, will increase from 20% to 23%. This includes REIT dividends and real estate operating income, potentially affecting net income available for distribution and overall asset valuation.

Extension of Opportunity Zones
Current opportunity zone (OZ) tax incentives will continue through 2033, with revised eligibility standards and enhanced benefits aimed at rural communities. State governors have the authority to designate additional OZs.

Restoration of 100% Bonus Depreciation
The Act restores full expensing for eligible leasehold and nonresidential property improvements, incentivizing immediate reinvestment in commercial real estate.

Depreciation Strategies
Although commercial properties and residential rental properties as a whole are not eligible for 100% bonus depreciation as a whole, the Act offers significant opportunities for tax savings through cost segregation. Components of a property, such as lighting, HVAC systems, or landscaping, can be reclassified as shorter-lived assets, becoming eligible for 100% bonus depreciation, fully deductible in the year placed in service. This allows investors to immediately expense a substantial portion of their property’s cost, boosting tax savings.

Immediate Expensing of Qualified Production Property
Notably, the Act introduces an elective and temporary provision allowing 100% expensing for certain newly constructed nonresidential real estate used in ‘qualified production activities,’ which generally include manufacturing, production, and refining of tangible personal property in the U.S., with ‘production’ limited to agricultural and chemical production. In order to be eligible, construction must commence between January 19, 2025, and December 31, 2028, with the property placed in service no later than December 31, 2030.

Expansion of the Low-Income Housing Tax Credit (LIHTC)
Increased support for affordable housing projects may spur new construction and redevelopment activity, particularly in urban and underserved markets. Appraisers involved in these markets may see increased demand for valuation services tied to LIHTC transactions.