How the One Big Beautiful Bill Act (OBBBA) Impacts Real Estate Investors
The One Big Beautiful Bill Act (“OBBBA”) was signed into law on July 4, 2025 and is one of the most substantial U.S. federal tax reforms in recent history. While the bill affects individuals and businesses broadly, it contains several provisions that meaningfully reshape the tax landscape for real estate investors, rental property owners, developers, and syndicators.
Below we break down what’s changed, what’s been preserved, and how investors can position themselves to benefit.
1. 100% Bonus Depreciation Is Back (Big Win for Real Estate)
One of the headline provisions of OBBBA is the restoration of 100% bonus depreciation through 2030 for qualifying property. This allows investors to deduct the entire cost of certain assets in the year they’re placed in service instead of depreciating them over decades.
For real estate investors, this is a meaningful tax planning tool because it:
Accelerates first-year deductions
Improves early-stage cash flow
Reduces taxable rental income immediately
Increases after-tax returns on new acquisitions
Where bonus depreciation becomes even more powerful is when it’s paired with a cost segregation study. Cost segregation breaks a property into its component parts and assigns each part a shorter “useful life.” For example:
Carpets and flooring → 5–7 years
Appliances and equipment → 5–7 years
Landscaping, parking lots, and certain site improvements → 15 years
Because assets with a useful life of 20 years or less qualify for bonus depreciation, investors can use cost seg to “unlock” large first-year deductions that would otherwise be spread over 27.5 or 39 years.
This can transform the economics of an acquisition:
A $750K multifamily building might yield $150K–$250K+ in year-one depreciation through cost segregation and bonus depreciation.
A value-add investor might combine bonus depreciation with CapEx improvements to maximize deductions during the stabilization period.
Syndicators might use bonus depreciation to deliver early K-1 losses to limited partners, increasing IRR and smoothing taxable distributions.
Timing matters too: bonus depreciation applies to assets placed in service after acquisition, which incentivizes investors to schedule renovations, upgrades, and improvements strategically within the first year.
Bottom line: faster depreciation = stronger after-tax yield, improved cash-on-cash, and more flexibility in portfolio planning — especially for investors scaling into larger assets or using leveraged tax strategies.
2. Expensing Rules Strengthened (Stability for Value-Add & Development)
OBBBA also strengthens and makes permanent several expensing provisions that previously existed only as temporary measures. For real estate investors, this matters because it removes the “sunset risk” that made capital planning harder to model in underwriting and feasibility studies.
Under the new rules, investors can expense a wider range of capital improvements, equipment, and project-related assets immediately instead of depreciating them over long schedules. This includes items commonly deployed in redevelopment or repositioning strategies, such as:
Interior and exterior building improvements
Electrical and mechanical systems
Security and monitoring equipment
Tenant improvements
Operational equipment and build-out fixtures
Certain construction-related tools and machinery
The result is that operators can recover more upfront costs in the same year they deploy them, instead of tying up deductions over 5–15–27.5–39 years.
This has material benefits for multiple investor types:
Renovators: faster payback on upgrade cycles
Developers: improved modeling for ground-up and mixed-use projects
Commercial & mixed-use operators: better treatment of tenant improvements and re-tenanting costs
Value-add investors: improved feasibility during repositioning and stabilization
CapEx-heavy assets: (hospitality, STRs, retail) gain flexibility for ongoing refresh cycles
Strategically, expensing changes reduce the tax friction associated with capital improvements, which can:
Improve net project IRR
Lower breakeven rent thresholds
Increase the viability of heavier redevelopment
Encourage reinvestment into aging assets
Shorten the payback period for CapEx programs
For investors running value-add or renovation-driven theses, permanent expensing also helps align tax treatment with the operational reality of modern real estate: assets are repositioned frequently and require continuous capital to remain competitive.
When combined with bonus depreciation and/or cost segregation, strengthened expensing rules give investors more tools to optimize cash flow, reduce taxable income, and match upfront tax benefits to upfront capital deployments — a structural advantage for both operators and LP syndicators.
3. 1031 Exchanges Remain Protected (A Core Wealth Strategy Lives On)
Despite months of discussion around whether the One Big Beautiful Bill Act would alter or cap Section 1031, the final text fully preserves like-kind exchange rules without new dollar limits, holding-period requirements, or investor restrictions.
For real estate investors, this is more than just a tax break — it keeps intact one of the most important compounding tools in the real estate ecosystem.
Why 1031 Matters Strategically
Section 1031 enables investors to defer capital gains tax when selling a property and reinvesting the proceeds into another like-kind property. By deferring gains, investors keep more equity working inside the portfolio instead of handing a significant chunk of it to the IRS.
This supports a range of investor strategies, including:
Portfolio rebalancing (e.g., shedding underperformers)
Moving up the value ladder (e.g., duplex → 8-unit → 24-unit)
Market diversification (e.g., leaving high-tax states or weak markets)
Shifting risk profiles (e.g., heavy-ops STR → stabilized LTR)
Operational repositioning (e.g., C-class → B-class upgrades)
Succession and estate planning (step-up basis advantages)
Without 1031, these transitions become far more expensive and often less efficient to execute.
1031 + Bonus Depreciation + Cost Seg = Powerful Stack
Preserving 1031 is especially meaningful when paired with OBBBA’s restored bonus depreciation. Investors can:
Acquire a new asset via 1031
Perform a cost segregation study
Accelerate depreciation through bonus depreciation
Generate losses that help offset rental income
This “stacking” effect amplifies tax efficiency and improves early-year cash flow — particularly valuable for syndicators, value-add operators, and institutional LPs.
Why Policymakers Debated It
1031 has long been a target for reform because it allows multi-decade tax deferral and facilitates generational wealth transfer when paired with a step-up in basis at death. Keeping it intact signals continued federal support for real estate as an asset class and for the role real estate plays in capital formation, development, and housing markets.
Bottom Line
1031 exchanges remain a cornerstone of real estate wealth-building, allowing investors to compound equity, shift strategies over time, and scale portfolios with fewer tax-induced frictions. OBBBA’s choice to preserve this mechanism is a major win for both small landlords and institutional operators.
4. QBI Deduction (20%) Made Permanent (Pass-Through Investors Benefit)
OBBBA also makes the Qualified Business Income (QBI) deduction permanent for pass-through entities, including:
LLCs
Partnerships (including syndication structures)
S-Corps
Sole proprietorships
Originally introduced under the Tax Cuts and Jobs Act (TCJA), QBI was set to expire after 2025. By making it permanent, OBBBA provides clarity and long-term predictability for investors who operate real estate as a business through pass-through structures.
How QBI Works for Real Estate
When an investor qualifies, QBI allows them to deduct up to 20% of eligible rental or business income before calculating taxable income. For many investors, the deduction essentially lowers the effective tax rate on their rental activity without changing cash flow.
For example:
$100,000 of rental income
$20,000 QBI deduction
Taxes owed on $80,000 instead of $100,000
That benefit compounds significantly when layered with depreciation, bonus depreciation, and entity-level planning.
Eligibility — The Nuance for Real Estate
Not all rental activity automatically qualifies for QBI. Eligibility generally depends on whether the rental activity rises to the level of a trade or business, which for real estate often hinges on factors such as:
Material participation by the investor
Level of operational involvement (e.g., STR vs LTR)
Use of property managers or leasing agents
Number of properties operated
Degree of regularity and continuity
Short-term rentals (STRs) with active operations often qualify more easily than long-term rentals (LTRs), though LTRs can qualify with proper documentation and structure.
The permanence of QBI strengthens the case for treating rental real estate as an ongoing business rather than a passive investment activity — a key distinction for tax optimization.
Structuring Implications
With QBI locked in long-term, investors may increasingly favor:
Multi-asset LLC operating companies
Roll-up structures for multiple properties
Partnership structures for capital pooling
Syndication vehicles for LP/GP allocation
S-Corp elections for certain STR operators (case-dependent)
It also adds incentive to keep real estate in pass-through vehicles rather than C-corporations, where QBI does not apply.
Integration with Other OBBBA Benefits
QBI combines effectively with:
Bonus depreciation (reducing taxable income)
Entity-level planning
Cost segregation (creating paper losses)
1031 exchanges (deferring gains)
Together, these tools allow investors to compress taxable income while scaling operations — improving after-tax cash flow and long-term wealth-building efficiency.
Bottom Line
Making QBI permanent provides pass-through investors with stability and a durable tax advantage. For real estate operators who already rely on pass-through structures, it reinforces an already-favorable framework for rental portfolios, syndications, short-term rentals, and development projects.
5. Incentives for Affordable & Community Investment Strengthened (Capital Formation Support Continues)
OBBBA also strengthens a set of federal incentives aimed at affordable housing, community redevelopment, and impact-oriented projects — a part of the real estate ecosystem that relies heavily on tax credits and public-private investment structures.
The most notable changes include:
Increased allocations to the Low-Income Housing Tax Credit (LIHTC) program
Expanded flexibility for tax-exempt bond financing
Preservation and enhancement of Opportunity Zone incentives
Continued support for New Markets Tax Credits (NMTC)
For investors, developers, and funds operating in these spaces, these changes improve project feasibility, lower net capital requirements, and attract institutional capital seeking stable, tax-advantaged returns.
LIHTC Enhancements
LIHTC remains the cornerstone of U.S. affordable housing development finance. OBBBA increases LIHTC allocation authority and lowers certain bond financing thresholds, making more projects pencil that would otherwise struggle under current cost structures.
These adjustments help bridge feasibility gaps driven by:
Higher construction costs
Higher interest rates
Longer permitting timelines
Labor shortages in multifamily and construction trades
More importantly, stronger LIHTC support helps attract tax-credit equity investors, who rely on predictable credit allocation for fund modeling and capital commitments.
Opportunity Zones Preserved
Opportunity Zones (OZs) remain intact and are modestly enhanced. Their survival confirms that policymakers continue to view OZs as tools for channeling private capital into redevelopment areas and community revitalization projects.
For investors, OZs still offer:
Tax deferral on rolled gains
Tax reduction on reinvested gains
Potential tax-free appreciation on eligible investments
This trifecta remains particularly compelling for LPs sitting on large unrealized gains from stock, crypto, or business sales.
New Markets Tax Credits Extended
OBBBA maintains and extends New Markets Tax Credits (NMTC), which support investment in community facilities, commercial real estate, and job-creating projects in underserved areas.
These structures often pair well with:
Local incentives
TIF/abatement packages
Foundation or impact capital
Family office mission-aligned allocations
Who Benefits
These incentives typically benefit:
Affordable housing developers
Community development funds
Institutional LPs seeking tax credit yield
Family offices with impact mandates
Municipal and regional revitalization efforts
Mixed-use community projects (retail + housing + services)
Strategic Implications
The strengthened incentive framework signals that the federal government intends to:
Support affordable housing supply
Encourage private capital formation
Lower barriers to redevelopment
Improve feasibility for socially beneficial projects
Offset high-rate construction financing environments
For investors, these programs do not replace traditional market-rate strategies — but they create alternative channels for risk-adjusted returns insulated from traditional interest rate and cap rate cycles.
Bottom Line
OBBBA reinforces the U.S. approach to affordable housing and community redevelopment: use tax credits and incentive structures to mobilize private capital. For developers and investors operating in these segments, permanence and predictability make it easier to raise and deploy capital while supporting mission-driven projects.
6. Higher Estate & Gift Tax Exemptions (Multi-Generational Planning Advantage)
Beginning in 2026, OBBBA raises the federal estate and gift tax exemption to $15 million per individual (indexed to inflation thereafter). For married couples, that effectively doubles to $30 million+, creating significant room for high-net-worth families and portfolio builders to transfer real estate without triggering federal estate tax.
Why This Matters for Real Estate
Real estate is uniquely sensitive to estate and gift tax rules because:
Properties are illiquid
Taxable value compounds over decades
Assets are often leveraged
Portfolio entities contain embedded gains
Capital improvements and depreciation shift basis
Forced sales can destroy accumulated wealth
Higher exemptions alleviate the risk of forced liquidations upon death — a common scenario when portfolios exceed prior federal limits and heirs must sell to pay estate tax.
Planning Tools That Become Easier
With higher exemption room, families can more easily implement:
Family Limited Partnerships (FLPs) to centralize ownership
LLC/LP roll-ups for multi-property portfolios
Gifting strategies for fractional interests
Trust structures (revocable → irrevocable transitions)
Grantor Retained Annuity Trusts (GRATs)
Spousal Lifetime Access Trusts (SLATs)
These structures help transfer control, income, and appreciation while maintaining family stewardship and operational continuity.
Interaction With Step-Up in Basis
A key dynamic for real estate is the step-up in basis at death, which resets cost basis to fair market value, potentially eliminating decades of unrealized gains. With higher exemptions:
More assets can receive step-up treatment
Heirs can dispose of assets tax-efficiently
Portfolio rebalancing becomes easier post-inheritance
Properties can be refinanced or repositioned without embedded gain friction
This is one of the most powerful wealth compounding mechanisms in real estate.
Alignment With Modern Portfolio Behavior
Higher exemptions align tax policy with how real estate families actually build wealth today:
Multi-asset portfolios held for decades
Leverage and refinancing cycles
Professionalized property management
Use of partnerships, LLCs, and trusts
Multi-state operations and multigenerational involvement
It also harmonizes with family office strategies that combine:
Real assets (RE portfolios)
Pass-through entities
Tax credit investments
Legacy planning vehicles
Who Benefits Most
The changes are particularly advantageous for:
Generational portfolio owners
Family offices & UHNW households
Regional landlords with appreciating markets
Developer families
STR/LTR operating companies with embedded gains
LP/GP syndicators with rollover equity
Bottom Line
By increasing exemption thresholds, OBBBA reduces estate-tax friction for real estate families and long-term portfolio builders. It supports a more orderly transfer of wealth, minimizes forced disposals, and encourages multi-generational planning — a structural win for an asset class that compounds value over decades.
7. SALT Deduction Cap Increased (Relief for High-Tax Markets)
OBBBA also temporarily raises the State and Local Tax (SALT) deduction cap to $40,000 through 2029. While SALT isn’t a real-estate-specific provision, its impact is felt disproportionately by investors operating in high-tax jurisdictions with elevated property tax assessments and high-income state tax regimes.
Why SALT Matters for Real Estate
Real estate portfolios often generate significant state and local tax exposure through:
Property taxes
Income taxes (on rental income, STR operations, or sale gains)
Transfer and recording taxes
Local surcharges and assessments
Municipal fees and levies
When the SALT deduction is capped too low, these costs stack directly into federal taxable income, increasing the burden for investors in expensive metros.
Markets Most Affected
The temporary increase matters most for investors in states such as:
California
New York
New Jersey
Massachusetts
Illinois
Connecticut
Maryland
Washington
These jurisdictions combine high property valuations with high income tax rates and municipal fees — particularly in top-tier urban markets.
Investor Implications
The higher SALT cap doesn’t make a market like NYC, SF, or LA “cheap,” but it reduces the federal tax friction associated with holding assets there. That can improve:
After-tax cash flow
Comparative underwriting assumptions
Multi-state portfolio strategy
Risk-adjusted return modeling
For high-income investors, it can also improve alignment between where they invest and where they reside from a tax planning standpoint.
Limited Time Window (Through 2029)
It’s important to note the SALT expansion is temporary. The sunset date matters for portfolio strategy because:
Investors may accelerate acquisitions or repositioning into the window
LPs and syndicators may underwrite differently for 5- to 7-year holds
Family offices may time dispositions or refinancings around state exposure
Underwriting models may need explicit SALT sensitivity analysis
Given the current macro environment — with higher interest rates, high construction costs, and slow permitting — even modest tax relief can impact deal feasibility at the margin.
Indirect Wealth Planning Benefit
SALT expansion also interacts with wealth-planning strategies, particularly:
Residency optimization
Domicile planning during exits
Partnership and K-1 allocations
Multi-entity structuring for multi-state operations
The clearer the deduction picture, the easier it becomes to model tax-adjusted returns across state lines.
Bottom Line
The temporary increase in the SALT cap won’t suddenly shift capital back into high-tax markets, but it narrows the penalty for operating there, improves after-tax cash flow for high-income investors, and reduces distortions in underwriting for multi-state real estate portfolios.
Net Investor Takeaways
For real estate investors, OBBBA delivers more positives than negatives — especially relative to expectations leading into the legislative process.
Key Wins
✔ Bonus depreciation restored
✔ 1031 exchanges preserved
✔ QBI deduction made permanent
✔ Incentives for LIHTC + OZ strengthened
✔ Better estate planning environment
Strategic Opportunities
Sophisticated investors will likely:
Increase cost segregation usage
Lean into value-add and development strategies
Revisit pass-through tax structures
Explore multi-generational planning
Expand into affordable or OZ projects (where aligned)
How This Affects Vestora Clients
Many Vestora clients operate rental portfolios using pass-through structures with depreciation-driven tax strategies. Under OBBBA, these strategies become more valuable, not less.
The biggest opportunities going forward include:
Improved first-year tax efficiency
Faster depreciation modeling
Optimization of entity structures
Transaction planning around 1031 and step-ups
Integrating estate planning into long-term strategy
