With the enactment of the One Big Beautiful Bill Act (OBBBA), the real estate and development community had reason to celebrate. The legislation, formally known as H.R. 1, did more than simply extend existing tax provisions. It permanently restructured the federal tax landscape in ways that directly reward developers, investors, and affordable housing builders. For those in the business of acquiring land, erecting structures, and creating communities, the OBBBA represents the most consequential tax reform for the industry since the Tax Cuts and Jobs Act of 2017.
Here is what every developer needs to understand about what changed, what it means in practice, and where the most significant opportunities lie.
Bonus Depreciation Is Now Permanent
Perhaps no single provision matters more to active developers than the restoration of 100% bonus depreciation. Under prior law, bonus depreciation had been phasing out gradually since 2023, dropping to 40% in 2025, and set to disappear entirely after 2026. The OBBBA allows a full 100% bonus depreciation permanently for qualifying property acquired and placed in service after January 19, 2025.
This means a developer who purchases qualifying tangible personal property, such as fixtures, equipment, certain interior improvements, and assets with a useful life of 20 years or less, can deduct the entire cost in the year that property is placed in service, rather than depreciating it over many years. When paired with a cost segregation study, which breaks a property into its component parts and accelerates the depreciation timeline on qualifying assets, the tax savings in a development’s early years can be dramatic.
It’s important to be aware of an exception to the Binding Contract Rule. Property being placed into service can’t be subject to a binding contract prior to January 20, 2025. If a written, enforceable contract was signed before this date, the property will be treated as placed in service before January 20 and subject to limited bonus depreciation.
In addition to bonus depreciation, Section 179 depreciation thresholds increased and will be indexed for inflation for tax years after December 31, 2024.
Qualified Production Property: A New 100% Deduction for New Construction
The OBBBA introduces a brand-new concept: the Qualified Production Property (QPP) deduction. This provision allows certain building owners to immediately expense 100% of the cost of eligible nonresidential real property that is integral for qualified production activities, such as manufacturing, production, or refining. There must be a substantial transformation.
To qualify, construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service by January 1, 2031. This deduction is available only to the taxpayer who first puts the property into use. Two exceptions to this rule are that the property was not used in qualified production activities by any person during January 1, 2021, and ending May 12, 2025, and the property was not used by the taxpayer before acquisition.
This deduction is not available for property leased to others; however, two exceptions are expected per interim guidance. For intercompany leases within a consolidated group, the group is treated as a single taxpayer for this purpose. For certain lessor pass-through entities or a lessor individual leasing to a commonly controlled person, the lessor is not treated as a lessor with respect to the property. Because the building must be used directly by the owner or a related party for qualifying production activities, this may limit the benefit to many developers.
If the property is converted away from qualified production use within 10 years starting with the date the property was placed in service, the deduction is subject to recapture as ordinary income.
Business Interest Deductions Restored Under EBITDA Standard
One of the more technical provisions of the OBBBA involves Section 163(j), which limited the deductibility of business interest expense. Prior to 2022, the deductible limit was calculated based on EBITDA (earnings before interest, taxes, depreciation, and amortization), a more generous standard that added back non-cash charges like depreciation. From 2022 through 2024, the calculation shifted to EBIT, a stricter measure that excluded depreciation and amortization from the base, reducing the deductible amount for many highly leveraged real estate deals.
The OBBBA restores the EBITDA-based calculation beginning in 2025. For developers subject to the limitation operating with significant debt, this means more of their interest expense may be deductible.
The Pass-Through Deduction Made Permanent and Expanded
The Section 199A deduction, which allows owners of pass-through entities to deduct up to 20% of their qualified business income, was set to expire at the end of 2025. Real estate developers who operate through these structures were facing a significant tax increase absent congressional action.
The OBBBA permanently extends the 199A deduction effective for tax years beginning after December 31, 2025. In addition, there is a minimum deduction for active QBI of $400. The $400 is adjusted for inflation starting in 2026.
Opportunity Zones Become a Permanent Program
The Qualified Opportunity Zone (QOZ) program, originally created as a temporary incentive in 2017, was set to expire for new investments after December 31, 2026. The OBBBA makes the program a permanent fixture of the Internal Revenue Code, providing long-term certainty for developers and investors seeking to deploy capital in distressed areas.
Beginning January 1, 2027, governors will designate new Opportunity Zones every 10 years, which can be perpetually renewed. The new designation round begins July 1, 2026, with updated zone maps taking effect in early 2027. To qualify, the income threshold for qualifying census tracts drops from 80% to 70% of the area median income, meaning the new OZ map will be somewhat smaller. For those in a metropolitan tract, the percentage is 70% of the metropolitan median.
The OBBBA creates a new category of Qualified Rural Opportunity Funds (QROFs) for investors targeting rural designated zones. Investors who hold QROF investments for five years receive a 30% step-up in basis on deferred gains, compared to 10% step-up available in non-rural zones. Additionally, the “substantial improvement” test for rural zones is reduced: investors need only add improvements equal to 50% of the property’s original adjusted basis, rather than 100% as previously required. This reduced threshold took effect immediately upon the law’s signing.
For amounts invested after December 31, 2026, if the investment is sold before the 30-year anniversary of the investment date, basis is stepped up to fair market value on the sale date. If sold later, basis is stepped up to fair market value as of the 30-year anniversary date. The new legislation preserves the 10-year exclusion concept and limits appreciation to 30 years.
For developers who hesitated to engage with the OZ program due to its uncertain future, permanence removes that barrier entirely. The program is now a long-term tool to be incorporated into strategic planning.
Low-Income Housing Tax Credits (LIHTC) and Bonds
Developers who work in the affordable housing space, a sector that relies heavily on tax credit financing, received several expansions under the OBBBA.
Beginning after December 31, 2025, the Act permanently increases the volume of 9% Low-Income Housing Tax Credits that states can allocate to affordable housing projects by 12%. This increases the operative dollar amounts.
Additionally, there was a permanent reduction of the bond financing test from 50% to 25% for 4% LIHTC projects. Under prior law, a building generally qualified for the bond-financed credit route only if 50% or more of the aggregate basis of the building and land was financed by tax-exempt bonds. The OBBBA reduced that threshold to 25%, as long as at least 5% of costs are financed with tax-exempt bonds issued after December 31, 2025. For bonds straddling 2025 and 2026, issue date and placed-in-service timing become critical.
The New Markets Tax Credit, which drives investment into low-income communities, has been made permanent under the OBBBA. In addition, the Act adds a 5-year carryforward for unused allocations, effective for calendar years beginning after December 31, 2025.
Looking Ahead
The OBBBA creates significant new planning opportunities for real estate developers, but the impact of these provisions will vary based on project type, timing, financing structure, and intended use. For more information about how the OBBBA may affect your real estate development activities, contact a WG advisor.
This article is intended for informational purposes only and does not constitute legal, tax, or financial advice. Consult qualified tax counsel before making decisions based on the provisions discussed herein.
