The One Big Beautiful Bill Act and Its Implications for Commercial Real Estate

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces sweeping tax and economic policy changes that will significantly influence commercial real estate (CRE) investment and development across the United States.

From a financial planning standpoint, OBBBA alters the investment landscape through expanded depreciation rules, permanent Qualified Opportunity Zones (QOZs), and enhancements to Low-Income Housing Tax Credits (LIHTC). While these changes create opportunities for wealth building and portfolio diversification, investors must remain alert to risks such as higher interest rates, deficits, and clean energy credit rollbacks.

Key Tax and Policy Provisions

Reinstatement of 100% Bonus Depreciation

• Provision: The OBBBA permanently reinstates 100% bonus depreciation under IRC §168(k) for qualified property placed in service after January 19, 2025. This includes tangible personal property with a recovery period of 20 years or less, certain qualified improvement property, and nonresidential real estate used for manufacturing, production, or refining (qualified production property, or QPP) through 2030. This reverses the TCJA’s phasedown (40% in 2025, 20% in 2026, 0% in 2027).
• Impact on CRE: Immediate expensing of building systems, equipment, and interior improvements accelerates cash outflows for developers and investors, particularly for value-add projects like office retrofits and industrial developments. However, whole buildings don’t qualify, and California doesn’t always conform with federal bonus depreciation or certain deduction rules. The state’s tax code may limit or disallow some of the benefits.

Permanent Extension of Qualified Opportunity Zones (QOZs)

• Provision: The OBBBA makes the QOZ program permanent, with new designations starting July 1, 2026, effective from January 1, 2027, in 10-year cycles. It emphasizes rural areas (33% of zones must be rural) and reduces the substantial improvement threshold to 50% for rural properties. Investors gain a 10% basis step-up after five years (30% for rural zones) and full exclusion of gains after 10 years. The program also allows deferral of up to $10,000 in ordinary income, with tightened eligibility for low-income communities (median income <70% of area median or poverty rate ≥20%).
• Impact on CRE: The permanence of QOZs provides long-term tax planning stability, encouraging investment in distressed areas. California has several Opportunity Zones; the permanence of QOZ, the enhanced step-ups especially in rural zones, and new cycles for designation mean CRE developers might reexamine OZ-based investments. This could shift where developers choose to build or invest.

Expansion of Low-Income Housing Tax Credit (LIHTC)

• Provision: The OBBBA increases 9% LIHTC allocations by 12.5 points through 2029 and lowers the bond-financing threshold for 4% LIHTC projects to 25% for projects financed after 2025. Tribal and rural areas are designated as Difficult Development Areas (DDAs), enhancing credit availability.
• Impact on CRE: This expansion significantly boosts affordable housing development, critical in markets with higher demand for mixed use or multi-family that qualify for incentives. LIHTC expansions have the potential to direct capital into underserved areas of CA.

Permanent Qualified Business Income (QBI) Deduction

• Provision: The OBBBA makes the 20% QBI deduction under Section 199A permanent for pass-through entities (LLCs, S-corps, partnerships), with a gradual phase-out for high earners (modified to reduce abrupt cutoffs). It also includes dividends from electing business development companies.
• Impact on CRE: This provision benefits real estate investors and professionals, as it puts pass-throughs in parity with corporations. It generally rewards real estate and construction businesses that get other benefits from operating as pass-throughs.

Increased Section 179 Expensing

• Provision: The OBBBA raises the Section 179 expensing limit to $2.5 million (from $1 million) with a $4 million phase-out threshold, indexed for inflation starting 2026. This applies to depreciable business assets, including CRE improvements.
• Impact on CRE: Higher expensing limits benefit smaller CRE projects, such as retail renovations or industrial retrofits. This complements bonus depreciation, enabling investors to bundle capital expenditures without losing tax benefits, ideal for value-add strategies like BRRRR (Buy, Rehab, Rent, Refinance, Repeat).

Business Interest Deduction Expansion

• Provision: The OBBBA reinstates a more generous definition of adjusted taxable income (ATI) based on EBITDA (adding back depreciation and amortization) for Section 163(j) interest deductions, effective after December 31, 2024. This expands deductibility for real estate businesses, though electing real property trades may opt for longer-life ADS depreciation.
• Impact on CRE: This provision reduces financing costs for debt-heavy CRE projects, such as office developments or multifamily projects. It supports investors and developers facing high interest rates (e.g., 8.6% average for maturing CRE loans in 2025), mitigating refinance challenges noted in prior discussions.

State and Local Tax (SALT) Deduction Increase

• Provision: The OBBBA raises the SALT deduction cap to $40,000 (from $10,000) for taxpayers with AGI below $500,000, effective 2025-2029, with a 1% annual increase. It phases out for higher earners and reverts to $10,000 in 2030.
• Impact on CRE: With the SALT cap raised temporarily, some CRE owners and investors in CA may see lower tax burdens, particularly for high property tax regions. This could make CA property more attractive to investors who were being heavily penalized by previous SALT cap constraints. Again, state conformity & state tax laws matter. The SALT cap is on federal returns; depending on how CA treats deductions, and given CA’s high income taxes, the benefit might be less than in lower‐tax states. Also, it’s temporary (through 2029) so planning must account for reverting rules.

Termination of Clean Energy Tax Credits

• Provision: The OBBBA phases out clean energy credits (e.g., Sections 48, 45, 48E, 45Y) for projects starting after July 4, 2026, or placed in service after December 31, 2027. Residential solar credits end December 31, 2025.
• Impact on CRE: For CRE owners investing in green retrofits or energy-efficient upgrades, there was (and still is, for projects meeting deadlines) access to federal incentives. OBBBA provides clear timelines to trigger them. Given that key incentives are being phased out, timing is crucial. Projects must start before certain cutoff dates to qualify. Also, CA often has its own state incentives which may or may not align fully or be as generous.

Summary of OBBBA’s Impact on California

Federal vs. California: Conformity and CRE Impacts

Risks and Considerations

• Federal Deficit: Estimated $3.4–3.8 trillion increase may pressure long-term interest rates, raising CRE loan costs.
• Clean Energy Rollback: Weakens ESG-driven investments.
• Social Safety Net Cuts: May affect rent stability in lower-income multifamily housing.

Strategic Guidance for Investors

1. Act Quickly on Bonus Depreciation – Initiate projects post-January 2025 to capture full expensing benefits.
2. Target Opportunity Zones – Leverage tax deferral and step-up provisions, particularly in rural and growth markets.
3. Capitalize on LIHTC Expansion – Address housing shortages while locking in federal tax credits.
4. Prepare for Higher Interest Rates – Anticipate refinancing challenges on maturing CRE loans.

Conclusion

The OBBBA presents a mixed picture: substantial near-term tax benefits and structural incentives for CRE investment, alongside fiscal and policy risks that investors must monitor. A thoughtful financial plan that balances short-term tax advantages with long-term portfolio stability will be critical for individuals and institutions alike.

References

• The One Big Beautiful Bill: Impact on Commercial Real Estate Investment and Development (2025–2027). Market Edge, 2025 https://partnersrealestate.com/research/obbba-and-cre/
• Tax Foundation, Congressional Budget Office, U.S. Treasury legislative summaries
• EY TaxNews — SB 711 signed; CA updates IRC date but continues to decouple from significant federal provisions.
• California FTB — SB 711 bill analysis (official PDF).
• Allen Matkins / UCLA Anderson Forecast — California CRE Survey (biannual).
• CalCPA — Time-Sensitive Tax Planning Under OBBBA
• RSM — Real estate & construction and the OBBBA.

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About the Author

Jack Brkich III, is the president and founder of JMB Financial Managers. A CERTIFIED FINANCIAL PLANNER^TM, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.

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