President Donald J. Trump signed the legislation commonly known as the “One Big Beautiful Bill” (Tax Act) into law on July 4, 2025. Below are five key takeaways for sponsors and investors in real estate and real estate investment trusts (REITs).
1. No retaliatory tax provisions
Earlier versions of the Tax Act proposed a new section 899 to the Internal Revenue Code, which would have imposed a retaliatory tax on countries enacting digital services taxes (DSTs), undertaxed profits rules (UTPR), diverted profits taxes, or other foreign taxes deemed by the Secretary to affect persons in the United States disproportionately.
This provision raised significant concerns in the real estate sector, particularly regarding "change in law" tax gross-up clauses commonly found in real estate credit agreements, which could have shifted the section 899 tax burden to borrowers. The final version of the Tax Act does not include this provision.
2. No changes to carried interest taxation
Despite earlier proposals to tax carried interest at ordinary income tax rates, the Tax Act maintains the current tax treatment of carried interest.
3. Increase in the taxable REIT subsidiary limit
The Tax Act increases the limit on the amount of assets a REIT can hold through taxable REIT subsidiaries from 20 percent to 25 percent. This change applies to taxable years beginning after December 31, 2025.
4. Section 199A deduction made permanent
The Tax Act makes permanent the section 199A deduction for ordinary REIT dividends and other pass-through business income. While earlier versions of the bill proposed increasing the deduction rate, the final Tax Act retains the existing 20-percent rate.
5. Other real estate tax incentives
The Tax Act includes several other provisions impacting real estate:
- Reinstates and permanently extends 100-percent immediate expensing (bonus depreciation) for equipment, machinery, leasehold improvements, and nonresidential improvements
- Reduces the limitation on business interest deductions by eliminating depreciation and amortization from the 30-percent threshold for deductibility – effectively changing the threshold from earnings before interest, taxes, depreciation, and amortization (EBITDA) to earnings before interest and taxes (EBIT)
- Makes the opportunity zone incentives permanent and establishes a new rural opportunity zone program with additional tax benefits
- Permanently increases the allocation of low-income housing tax credits (LIHTC) to states by 12 percent beginning in 2026, and permanently reduces the private activity bond financing requirement for LIHTC projects without a state credit allocation from 50 percent to 25 percent for projects placed in service after December 31, 2025
- Allows developers to use the completed contract method of accounting for pre-sale of units to avoid phantom income under the percentage-of-completion method of accounting
- Preserves the tax-deferred treatment of like-kind 1031 exchanges for real estate
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