**“The One Big Beautiful Bill” and Its Implications for Commercial Real Estate**
The recently passed bill, dubbed “The One Great Beautiful Bill,” has been stirring up substantial debate. The legislation, which moved through the House of Representatives and is now under Senate review, is part of a broader reconciliation effort to amend the 2017 Tax Cuts and Jobs Act. It includes provisions for tax cuts, spending reductions, and an array of potential tax relief measures.
While the bill is likely to evolve as it progresses through the legislative process, it already contains several key components that could significantly impact commercial real estate (CRE). Connect CRE consulted several real estate legal experts to explore these effects.
**Bonus Depreciation Reinstatement**
One of the more striking provisions is the proposed reinstatement of full bonus depreciation. Currently, businesses can deduct 40% of eligible property under this rule, with a gradual phase-out scheduled by 2027. If the bill passes, the new provision would allow a 100% deduction for qualified property purchased and placed into service between January 19, 2025, and January 1, 2030.
McRae Thompson, Senior Managing Director and leader of Real Estate Tax Advisory at FTI Consulting, Inc., anticipates that this change will spark increased investment in CRE.
Ross Albers, CEO and Founder of Albers & Associates, emphasized that this provision could be especially beneficial for value-add and rehab property owners as well as developers. “The bonus depreciation could spur investors to fast-track renovations and upgrades to take advantage of the accelerated depreciation schedule,” Albers said. For developers, it could also reduce the post-tax cost of capital improvements, enhancing reinvestment opportunities and boosting returns on investment.
**Additional Potential Benefits**
Beyond bonus depreciation, Laura Cable, Partner at Cox, Castle & Nicholson, pointed out that the bill seeks to extend the 199A deduction. Initially set to expire in 2025, the deduction enables certain taxpayers to deduct 20% of their qualified business income from pass-through entities and some REIT dividends. The proposed legislation not only aims to make the deduction permanent but also increases it to 23%.
The bill also proposes extending and modifying the Qualified Opportunity Zone Program. Cable noted that while the program generated excitement when it rolled out in 2017, it was also laden with regulatory uncertainties. Many tax benefits had expired before stakeholders fully understood how the program worked. With updates and an extended timeline, the revitalized program could renew interest in real estate investments within Qualified Opportunity Zones.
**Potential Drawbacks**
Despite the promising components, experts caution that certain aspects could pose challenges for the CRE sector. One such concern is the proposed Section 899 “revenge” tax, which targets foreign businesses operating in the U.S. In instances where the business’s home country is deemed to impose unfair taxes on American businesses abroad, the bill introduces a 5%-20% withholding tax. According to Thompson, this could significantly affect the financial dynamics of foreign investments in U.S. real estate.
Albers also warned that the bill’s focus on bonus depreciation could distract from other issues such as interest deductibility and potential limits on 1031 exchanges. “If there are trade-offs later in the legislative process—such as tightening limits on 1031 exchanges or introducing caps on passive loss rules—that could dampen some of the benefits,” he noted. He also cited inflation and its impact on tax assessments and property values as concerns worth monitoring.
A notable omission from the bill was any change to carried interest provisions. Despite campaign promises and public discourse around ending the preferential tax treatment for carried interest—commonly used in real estate deals—the current version of the bill maintains the status quo.
**A Cause for Cautious Optimism**
While experts voiced concerns and acknowledged uncertainties, they largely agreed that the bill, in its current iteration, is favorable to the CRE industry. Thompson highlighted the proposed permanent changes involving the domestic activities deduction under Section 199, along with the temporary adjustments to interest expense deduction limits and bonus depreciation.
Still, Cable urged caution, reminding stakeholders that the bill is not final. “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.”
Nevertheless, the legislation underscores the pivotal intersection between tax strategy and commercial real estate activity. “Such changes can generate a rush of activity,” Albers observed. “I’d advise investors and developers to consult with both their real estate counsel and tax advisors early to assess how any final bill could affect their holdings, depreciation strategies, and future acquisitions. The best-prepared players will be the ones who can act quickly once the rules are finalized.”
