**“The One Big Beautiful Bill” and Its Impact on Commercial Real Estate**
A piece of legislation dubbed “The One Great Beautiful Bill” is stirring conversation across industries, particularly within commercial real estate (CRE). Recently passed by the House of Representatives, the bill forms part of a broader reconciliation initiative addressing provisions of the 2017 Tax Cuts and Jobs Act (TCJA). It incorporates proposed tax cuts, spending reductions, and possible tax relief. The bill is now under Senate review, where revisions are expected. In the meantime, legal and tax experts weigh in on its potential implications for the CRE sector.
### Bonus Depreciation Reinstatement: A Welcome Return
Among the bill’s more prominent components is the reinstatement of bonus depreciation. Under current law, bonus depreciation stands at 40%, with a full phase-out scheduled for 2027. However, the new legislation proposes a 100% deduction for eligible property purchased and placed into service between January 19, 2025, and January 1, 2030.
McRae Thompson, leader of Real Estate Tax Advisory and senior managing director at FTI Consulting, expressed optimism. “We expect that the reinstatement of bonus depreciation will generate an increase in CRE investment,” he noted.
Ross Albers, CEO and Founder of Albers & Associates, emphasized the proposal’s appeal to value-add and rehab-focused property owners. “The bonus depreciation could spur investors to fast-track renovations and upgrades to take advantage of the accelerated depreciation schedule,” Albers said. He added that developers could see reduced after-tax capital improvement costs, resulting in more favorable investment returns and increased appetite for deal-making.
### Additional Potential Positives for CRE
Beyond bonus depreciation, other legislative features could also benefit commercial real estate stakeholders. Laura Cable, a partner at Cox, Castle & Nicholson, highlighted the extension and enhancement of the Section 199A deduction. Initially slated to expire in 2025, the deduction allows qualifying taxpayers to exclude 20% of their qualified business income from pass-through entities and certain REIT dividends. The proposed bill not only seeks to make this deduction permanent but also proposes increasing it to 23%.
The bill also includes revisions to the Qualified Opportunity Zone (QOZ) Program, which was introduced in 2017 but has seen mixed results due to delayed regulatory guidance. “By the time people understood how the program worked, some of the tax benefits had already expired,” Cable explained. An extension and refinement of the QOZ incentives could rekindle interest and create new investment opportunities in designated zones.
### Potential Drawbacks
While the bill contains pro-growth components, it also raises some concerns for the CRE industry. Thompson referred to the Section 899 “revenge” tax, which could deter foreign investment. Designed to counteract “unfair foreign taxes” imposed by other nations on U.S. businesses, the provision introduces a 5%-20% withholding tax on foreign entities operating in the U.S. “This provision could drastically impact the economies and activity of certain foreign investments in U.S. real estate,” he warned.
Additionally, Albers noted that the legislative focus on bonus depreciation could eclipse negotiations around interest deductibility, 1031 exchanges, and passive loss rules. Any late-stage compromises affecting these areas could offset some of the proposed benefits. He also expressed concern about inflationary pressures and how incentivized reinvestments could influence property tax assessments and valuations.
Cable pointed out some surprising omissions from the bill, such as the lack of revisions to the TCJA’s carried interest rules. The 2017 legislation introduced a three-year holding period for carried interests used to claim capital gains treatment on profits. While there had been talk of eliminating this preferential tax treatment, the current bill leaves it unchanged. “That’s definitely a surprise,” Cable said.
### Looking Ahead
Despite the potential drawbacks and uncertainties, experts generally see the bill as beneficial to commercial real estate. Thompson pointed out that both permanent and temporary modifications — including domestic activities deductions and relaxed interest expense limitations — could positively impact the sector.
However, as Cable cautioned, the legislative language remains fluid. “In 2017, we saw major modifications and amendments up until the final vote,” she said. “Nothing that is currently in the bill is guaranteed to be in the final version.”
In the face of such uncertainty, preparation becomes crucial. Albers advised investors and developers to collaborate closely with their real estate attorneys and tax advisors to determine how the evolving bill could affect their investment strategies. “The best-prepared players will be the ones who can act quickly once the rules are finalized,” he concluded.
