Impacts on Real Estate Investing from the Big Beautiful Bill

Hello fellow Real Estate Investors! In todays newsletter we are going to talk about the impact of the Big Beautiful Bill and how it may have an impact on your Real Estate investing journey. 

Impacts on Real Estate Investing from the Big Beautiful Bill 

100% BONUS DEPRECIATION

One of the most impactful provisions in the BBB is the full reinstatement of 100% bonus depreciation.  Bonus depreciation is the "paper losses" provided by the government to real estate investors, but was in the process of phasing out (going away).  With the new law, bonus depreciation is back at it's full amount, and investors can now immediately write off 100% of certain property costs through 2028.

This means that investors -- both active investors and investors in passive deals like syndications -- can once again generate huge tax benefits in the first couple years of owning a property.  Investors will be have the ability to use these benefits to reduce or eliminate taxes for some period of time.

100% bonus depreciation will apply to any properties purchased or put into service between January 2025 and January 2029.

QUALIFIED BUSINESS INTEREST (QBI)

One of the big benefits of the 2017 Tax Cuts and Jobs Act was the ability for certain taxpayers to deduct up to 20% of qualified business income from pass-through entities (LLCs, S-Corps and sole proprietorships).  A large number of real estate investors were taking advantage of this tax benefit, but it was set to expire in 2026.

For real estate investors who qualify for the deduction, this can significantly reduce their effective tax rate on rental income.  And because most real estate income flows through pass-through structures, this provision applies to a wide array of both active operators and passive investors.

The old language had some ambiguity around how the benefit could be used, which deterred some investors from advantage of the tax break.  But, the new bill clarifies (and simplifies) some QBI rules around rental properties, so investors can more confidently take advantage of the benefit.

LOW INCOME HOUSING TAX CREDIT (LIHTC)

For any affordable housing developers, the BBB offers significant expansion of the Low Income Housing Tax Credit.  This is the federal government’s primary tool for encouraging private investment in affordable multifamily development.

The bill increases the annual allocation of LIHTCs to states by 30% over the next 5 years, which equates to billions in new equity for developers. It also lowers the minimum required "basis boost," which makes it easier for deals to pencil and easier for developers to find profitable low income housing opportunities.

Long story short, low income developers will get more money from the federal government, have less need for debt and will see increased cash flow on their deals.  This includes both the 9% tax credit and the 4% credit.  

SALT DEDUCTION INCREASED

While this one isn't directly beneficial for real estate investment, it can be very beneficial for real estate investors.  The SALT deduction is the amount homeowners can deduct for state and local taxes.  In high cost of living areas, homeowners have been paying far more in property taxes and state/local taxes than they have been able to deduct on their taxes.

This provision increases the amount they can deduct to $40,000 from $10,000.

Since this is a benefit for homeowners, how does it help real estate investors?  Two ways:

1. Investors who own their own residence in a high cost of living state will now get greater deductions; and

2. The policy may bolster property values and market sentiment in areas where demand had cooled due to higher effective tax burdens.

1.) Own property already? Let's talk about protecting your investment with proactive management. (Book Call)

2.) Looking to buy? We should chat about which Atlanta areas have the best risk-to-reward ratio. (Book Call)

3.) Need help managing it all? We offer full service property management. From insurance documentation, leasing, maintenance records and beyond - that's exactly why we're here. (Property Management Info)

To your success,

Matt Nicklin

Broker and Owner of OneSource Real Estate LLC