Jessica I. Marschall, CPA, ISA AM
August 30th, 2025
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025 as Public Law 119-21, represents the most comprehensive tax overhaul for the real estate industry since the Tax Cuts and Jobs Act of 2017. This legislation permanently extends key TCJA provisions while introducing significant new incentives for developers, investors, property owners, and rural lenders across residential, commercial, and agricultural sectors.
1. Section 139L: Rural and Agricultural Lending Incentives
A significant addition in the OBBBA is IRC Section 139L, which provides qualified lenders with a 25% exclusion from taxable income on interest received from rural or agricultural real estate loans. This provision aims to stimulate investment in rural development by making such loans more profitable for lenders.
Key Details:
- Eligible lenders: FDIC-insured banks, regulated insurance companies, and Farm Credit Act entities
- Qualified loans: Loans secured by rural or agricultural real property made after July 4, 2025
- Exclusion amount: 25% of interest income excluded from taxable income
- Important limitation: Refinanced loans do not qualify for the exclusion
- Expense disallowance: Lenders cannot deduct expenses associated with the tax-exempt portion of interest income
Rural or agricultural real estate includes property substantially used for agricultural production, fishing, seafood processing, or aquaculture activities.
This change is designed to encourage lenders to offer more competitive financing in underserved rural markets, potentially lowering borrowing costs for agricultural and rural development projects.
2. Enhanced Depreciation and Cost Recovery
The OBBBA delivers substantial improvements to business depreciation rules:
a. Permanent 100% Bonus Depreciation
OBBBA permanently restores 100% bonus depreciation under Section 168(k) for qualified property acquired and placed in service after January 19, 2025. This applies to most tangible property with recovery periods of 20 years or less, including used property meeting acquisition requirements.
b. Qualified Production Property Expensing
OBBBA introduces new Section 168(n), allowing 100% expensing of certain newly constructed nonresidential real property used in qualified production activities. To qualify:
- Property must be nonresidential real property
- Construction must begin after January 19, 2025, and before January 1, 2029
- Property must be placed in service before January 1, 2031
- Property must be used in manufacturing, production, or refining activities
- Office, administrative, sales, or R&D components are excluded
c. Section 179 Enhancement
The expensing limit under Section 179 increases to $2.5 million with a phase-out threshold of $4 million for taxable years beginning after December 31, 2024.
3. Business Interest Deduction Improvements
OBBBA permanently restores the more taxpayer-friendly EBITDA calculation (rather than EBIT) for Section 163(j) business interest limitations for tax years beginning after December 31, 2024. This change generally allows taxpayers to deduct larger amounts of interest expense.
4. Opportunity Zones and Like-Kind Exchanges
Opportunity Zones receive permanent extension with enhanced benefits:
- Rolling 10-year designation periods beginning in 2027
- Updated eligibility criteria for qualified census tracts
- Annual basis step-ups with triple benefits for rural Opportunity Zones
- Continued five-year deferral and 10% step-up in basis benefits
Section 1031 like-kind exchanges are preserved without modification, maintaining real estate’s unique position for tax-deferred transactions.
5. REIT and Pass-Through Enhancements
REIT Rules: The allowed ownership threshold for assets in a Taxable REIT Subsidiary (TRS) increases from 20% to 25%, providing greater operational flexibility.
Section 199A: The 20% qualified business income deduction for pass-through entities and REIT dividends is made permanent, providing long-term certainty for real estate investors.
6. Housing and Community Development Credits
Low-Income Housing Tax Credit (LIHTC): The program receives permanent status with expanded credit allocations and reduced bond financing requirements for 4% credits (lowered from 50% to 25%).
New Markets Tax Credit: Made permanent to encourage continued investment in distressed communities.
7. Agricultural Real Estate Provision
New IRC Section 1062 allows farmers selling qualified farmland to qualified farmers to elect four-year installment payment of the net income tax attributable to the gain, effective for sales occurring in tax years beginning after July 4, 2025.
Impact by Stakeholder Group
| Stakeholder Group | Key Benefits |
| Rural Lenders | 25% exclusion on qualifying loan interest income improves lending margins |
| Developers | Permanent bonus depreciation and qualified production property expensing enhance project economics |
| Real Estate Investors | Permanent Section 199A deduction and enhanced Opportunity Zone benefits |
| Property Owners | Immediate expensing opportunities for improvements and equipment |
| Agricultural Sector | Enhanced lending incentives and installment sale options for farmland |
Strategic Planning Considerations
For Lenders: Review loan portfolios to identify opportunities for Section 139L benefits and plan for associated expense disallowances.
For Developers: Leverage permanent bonus depreciation in project underwriting and consider qualified production property benefits for manufacturing facilities.
For Investors: Reassess entity structures to optimize Section 199A benefits and utilize permanent Opportunity Zone program for long-term planning.
For Property Owners: Evaluate capital expenditure timing to maximize immediate expensing benefits under enhanced depreciation rules.
The OBBBA solidifies provisions from the TCJA and expands the framework for real estate investment and development through permanent tax incentives and enhanced depreciation rules. The legislation’s combination of lender incentives, immediate expensing opportunities, and permanent extension of key programs positions real estate as a central component of economic growth strategy.
For stakeholders across the real estate spectrum, the challenge lies in understanding the complex interplay between these provisions and implementing strategic tax planning to maximize their benefits while ensuring compliance with new requirements.
OBBBA Real Estate Provisions – Summary Table
One Big Beautiful Bill Act (Public Law 119-21) • Signed July 4, 2025
| Code Section / Provision | What It Does | Effective Dates | Beneficiaries | Planning Notes |
| §139L Interest on Rural or Agricultural Real Property Loans | Excludes 25% of interest income for qualified lenders on new loans secured by rural/agricultural real property | Loans originated after July 4, 2025 | Banks, insurance companies, Farm Credit institutions | Improves loan pricing in rural/ag markets; must track as tax-exempt income for Section 265 disallowance coordination |
| §168(k) Bonus Depreciation | Restores and makes permanent 100% bonus depreciation for qualifying property (≤20-yr life, QIP) | Property acquired/placed in service after Jan 19, 2025 | Developers, landlords, tenants | Major driver for cost segregation studies and renovation expensing; coordinate with Section 163(j) planning |
| §168(n) Qualified Production Property Expensing | Allows elective 100% expensing for new owner-operated nonresidential manufacturing/refining property | Construction beginning after Jan 19, 2025 and before Jan 1, 2029; placed in service before 2031 | Owner-operators (not lessors) | Limited window; plan accelerated project starts; excludes office/admin components |
| §179 Enhanced Expensing Limits | Increases expensing limit to $2.5M with $4M phase-out threshold | Tax years beginning after Dec 31, 2024 | Small-to-medium businesses, equipment purchasers | Does not apply to passive rental properties unless used in active trade or business |
| §163(j) Business Interest Limitation | Returns limitation calculation to 30% of EBITDA basis (from EBIT basis used 2022-2024) | Tax years beginning after Dec 31, 2024 | Highly leveraged real estate partnerships and REITs | Significantly improves deductibility for debt-financed projects; aligns with bonus depreciation timing |
| Opportunity Zones Permanent Extension with Rural Enhancement | Permanently extends program with rolling 10-year designations; adds enhanced rural OZ benefits (30% vs 10% step-up) | New designations begin July 1, 2026; benefits effective Jan 1, 2027 | Investors, developers, fund managers | Provides certainty for long-term planning; enhanced rural benefits require 90% rural investment; new compliance obligations |
| Low-Income Housing Tax Credit (LIHTC) Permanent Enhancement | Makes LIHTC permanent; increases 9% credit allocations by 12%; reduces bond financing threshold to 25% | 12% increase begins 2026; 25% threshold for properties placed in service after Dec 31, 2025 | Affordable housing developers, syndicators | Lower bond threshold expands deal pipeline; permanent status enables long-term planning |
| New Markets Tax Credit (NMTC) Permanent Extension | Makes NMTC permanent, eliminating need for reauthorization | 2025 forward | Community development entities, investors | Certainty allows long-term planning for distressed areas; coordinate with OZ strategies |
| §199A QBI Deduction | Permanently extends 20% pass-through deduction for REIT dividends and real estate businesses | 2025 forward | Real estate pass-through owners, REIT investors | Significant for family-owned real estate portfolios; increased phase-in ranges provide broader eligibility |
| REIT TRS Asset Test Increased Flexibility | Raises TRS asset limit from 20% to 25% | 2025 forward | Public and private REITs | More flexibility in structuring taxable subsidiaries and business operations |
| §1031 Like-Kind Exchanges | Preserves existing like-kind exchange rules without modification | No changes – existing rules continue | Real estate investors, developers | Remains powerful tool for portfolio optimization; no caps imposed despite earlier proposals |
| §1062 Farmland Sale Installments | Allows farmers to pay capital gains tax in four equal installments when selling to qualified farmers | Sales in tax years beginning after July 4, 2025 | Farmers, agricultural landowners | Must meet 10-year use test and covenant restrictions; election made at partner/shareholder level |
| SALT Cap Temporary Increase | Raises SALT deduction cap from $10,000 to $40,000 (phases down for income >$500K) | Tax years 2025-2029 | High-income taxpayers in high-tax states | Federal benefit depends on state conformity; reverts to $10K cap in 2030 |
| Mortgage Interest Deduction TCJA Limits Made Permanent | Makes TCJA-era $750K mortgage limit permanent | 2025 forward | Homeowners, especially in higher-price markets | Provides certainty in planning; maintains current limitations |
| §179D Energy Efficient Buildings | Phases out energy-efficient commercial building deduction | Construction beginning after June 30, 2026 | Developers, architects, energy consultants | Accelerate energy-efficient projects to secure benefits before sunset; up to $5.00/sq ft available |
Sources: Public Law 119-21 (One Big Beautiful Bill Act), Internal Revenue Code, IRS Publications, and professional tax advisory publications.
Disclaimer: This summary is for informational purposes only and does not constitute tax advice. Consult qualified tax professionals for specific situations.
Prepared: August 30, 2025 | Last Updated: Based on law as enacted July 4, 2025
This analysis is based on the One Big Beautiful Bill Act as enacted on July 4, 2025. Taxpayers should consult with qualified tax professionals to understand how these provisions apply to their specific situations. This article is for informational purposes only and does not constitute tax advice.
Sources
- Accounting Today – Real estate a big beneficiary of Trump’s OBBBA (August 2025)
- KBKG – Real Estate Incentives Revitalized: What the 2025 OBBBA Means for Developers, Investors and Owners
- CLA (CliftonLarsonAllen) – OBBBA is now law: What the real estate industry needs to know
- RSM US LLP – OBBBA Tax: Real Estate and Construction Implications
- Goodwin Law – Tax Highlights Related to the One Big Beautiful Bill Act (July 2025)
- Jones Day – The One Big Beautiful Bill Becomes Law: Real Estate Tax Changes (2025)
- Congress.gov – One Big Beautiful Bill Act, Public Law 119-21, statutory text (H.R. 1, 119th Congress, July 2025)
- CBH (Cherry Bekaert) – Section 70435: Tax Provision for Rural Agricultural Lenders
- Investopedia – Big Beautiful Bill Features Expanded Mortgage Deductions, Low Income Housing Credits (2025)
This analysis is based on the One Big Beautiful Bill Act as enacted on July 4, 2025. Taxpayers should consult with qualified tax professionals to understand how these provisions apply to their specific situations. This article is for informational purposes only and does not constitute tax advice.
