The business interest expense limitation
The OBBBA returns to the original Tax Cuts and Jobs Act calculation for business interest expense limitations. It allows the addback for depreciation, depletion, and amortization to the adjusted taxable income calculation, effectively allowing deductions up to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA).
It also expands floor plan financing rules and modifies elective interest capitalization rules, with phased effective dates starting after 2024 and 2025.
Learn more about the technical changes to the business interest expense limit under section 163(j) and the implications for businesses.
What it means for the real estate and construction industries: The business interest expense limitation under section 163(j) is one of the biggest balancing factors when considering investment in new projects. Real estate businesses often elect out of section 163(j), but some—especially commercial lessors—find that a more favorable limitation favors accelerated depreciation methods.
The reinstatement of the depreciation addback may increase adjusted taxable income enough to open up projects and acquisitions premised on higher leverage and reduce the tax burden for contractors in capital-intensive segments, such as heavy highway, civil and excavation subcontractors.
Key considerations for real estate and construction businesses
- This change is effective for tax years beginning after Dec. 31, 2024, so taxpayers may have a limited opportunity to change accounting methods or make elections on their 2024 returns to best position themselves for a DDA addback in 2025.
- Taxpayers should consider their corporate structure and how they plan projects to determine whether electing out of 163(j) is beneficial on a project-by-project basis.
Qualified opportunity zones (QOZs)
The OBBBA makes QOZs a much more viable long-term planning option, as it creates 10-year rolling designations for new opportunity zones. The previous law was a limited window anchored to specific dates. Now, QOZs offer deferral of capital gains for up to five years if the proceeds are reinvested into a qualified opportunity fund (QOF), followed by a basis increase to lower gain recognition for gain held in a QOZ for the five years.
Also, the OBBBA adds an enhanced basis increase for investments in certain designated rural opportunity zones. If taxpayers hold the QOZ property for 10 years, appreciation on the invested amount may be excludable from income. The law also changes the rules for qualification and now requires significant reporting with penalties for not complying with the reporting requirements.
Learn more about the technical changes to the OZ program and implications for real estate investors and developers.
What it means for the real estate and construction industries: The OBBBA transforms QOZs from a time-limited incentive into a more flexible, long-term planning tool. With rolling 10-year designations and enhanced basis increases for rural zones, real estate and construction companies now have a durable framework for deferring and excluding capital gains. This opens the door to strategic reinvestment in high-impact projects, especially in underserved areas, while optimizing after-tax returns.
Key considerations for real estate and construction businesses
- The new designations begin Jan. 1, 2027. There is time to plan here. However, being prepared to move quickly to identify suitable zones/projects when available may make a difference if there is a rush to acquire QOZ property.
- QOZs can be an option to maximize return on investment for existing holdings, as well as to raise capital for new projects with less tax liability in certain circumstances. Taxpayers looking to dispose of low basis properties may find value in deals that would not have made sense if paying tax on the gain currently.
- Taxpayers selling capital assets have up to 180 days to reinvest the proceeds into QOFs and delay and reduce gain recognition. It is not necessary to know whether you will reinvest into a QOZ at the time of the initial transaction, so this update does not need to get in the way of fast-moving deals.
Qualified business income (QBI) deduction
The OBBBA makes permanent the QBI deduction at the current 20% rate. Certain pass-through entities are eligible. This was a temporary provision in the TCJA that was set to expire after 2025.
Learn more about the technical changes to the QBI deduction and the implications for businesses.
What it means for the real estate and construction industries: The deduction puts pass-throughs in parity with corporations, so it generally rewards real estate and construction businesses that get other benefits from operating as pass-throughs.
Although this is not a departure from prior law, taxpayers who may have planned around the scheduled expiration of the QBI deduction can retool with more certainty around significantly reduced taxable income.
Key considerations for real estate and construction businesses
- Corporate real estate and construction businesses may wish to model after-tax outcomes with different entity types. The permanent QBI deduction now may shift the balance of benefits in favor of pass-through status.
Simplified accounting methods for residential construction
The OBBBA allows taxpayers to use simplified accounting methods for residential construction contracts rather than the percentage of completion method (PCM). This can create a very significant timing difference and enable contractors to delay revenue recognition.
The new law largely mirrors the existing rules for home construction contracts, but it now includes multifamily construction that encompasses condominium and apartment projects. This method is available for the first tax year beginning after July 4, 2025, allowing taxpayers some time to consider the best methods for them and the procedure to change if desired.
What it means for the real estate and construction industries: Enabling developers of multifamily projects to delay revenue recognition may improve cash flow and reduce taxable income during long build cycles.
Key considerations for real estate and construction businesses
- Many construction contractors and real estate developers may find changing to the completed-contract method provides favorable outcomes.
- Taxpayers should be cautioned that exemption out of long-term contracting methods may require some taxpayers to use UNICAP.
Real estate targeted deductions and credits
The OBBBA terminates or phases out several incentives for energy efficiency and clean energy production commonly used by real estate and construction businesses. A few are extended or expanded. Some of the key changes include:
- The section 179D deduction for energy-efficient commercial buildings becomes unavailable for construction begun after June 30, 2026.
- The homebuilder credit is terminated for homes acquired after June 30, 2026.
- The low-income housing tax credit is made permanent with an increased state housing credit ceiling. It adds a new 25% bond financing requirement.
- Wind and solar investment and production credits are terminated for wind and solar facilities placed in service after Dec. 31, 2027, except for facilities that begin construction before July 4, 2026. The OBBBA terminates credits for property leased to homeowners.
Learn more about the technical changes to clean energy tax credits and incentives and the implications for businesses.
What it means for the real estate and construction industries: The closing window to claim some energy-efficiency deductions creates urgency to act now. Meanwhile, the permanence of the low-income housing credit creates a durable incentive for mission-aligned development.
Key considerations for real estate and construction businesses
- Accelerating project timelines to ensure construction begins before key phaseout dates—especially for energy-efficient buildings and renewable energy facilities—may enable businesses to take advantage of current deductions and credits.
- Modelling the impact of the new low-income housing tax credit rules, including the 25% bond financing requirement, may help businesses determine feasibility and optimize financing strategies for affordable housing developments.
Research and development expenses
The OBBBA makes domestic R&D costs fully deductible on a permanent basis, starting with 2025. Foreign R&D spending is still amortized over 15 years. Qualified small businesses may be able to apply full expensing retroactively to accelerate deductions for expenses currently being amortized but may come with the cost of reducing the benefit of their R&D credits.
What it means for the real estate and construction industries: Real estate companies may not think of themselves as performing R&D, but many that provide construction, manufacturing and engineering services incur R&D expenses, and any company developing software is likely to have qualifying costs.
Key considerations for real estate and construction businesses
- Businesses may be currently using an amortization method can accelerate deductions and free up a considerable amount of cash. However, taxpayer will need to also consider the impact of deductions on other tax rules and attributes.
- Qualifying activities beyond traditional R&D—such as process improvements, engineering design, or construction technology development—may be eligible for substantial deductions.
Excess business losses (EBLs)
The final version of the OBBBA creates no new restrictions on EBLs. Instead, it makes permanent the existing limitations. EBLs are treated as net operating losses (NOLs) in the following tax year.
What it means for the real estate and construction industries: Permanence of existing EBL limitations provides clarity and planning certainty for real estate and construction businesses that often operate through pass-through entities. Although losses above the threshold are still deferred, the ability to treat them as NOLs in the following year preserves long-term tax value and supports strategic risk-taking across development cycles.
Key considerations for real estate and construction businesses
- Treating disallowed losses as NOLs in the following year preserves long-term tax value and supports strategic risk-taking across development cycles.
- Structuring ownership and income allocation efficiently can help ensure that losses are absorbed where they provide the greatest tax benefit, especially in years with uneven project income.
Qualified production property (QPP)
The OBBBA creates a new class of property, QPP, that allows 100% expensing for property used in production, manufacturing, and refining activities (generally producing some physical good or material for sale).
There are a number of requirements and restrictions, but qualifying taxpayers can immediately expense nonresidential real property. Treatment is elective, and it’s applicable only to projects for which construction begins after Jan. 19, 2025, and before Jan. 1, 2029. The important caveat is that the owner of the property has to perform the production activity, and the law excludes lessors.
What it means for the real estate and construction industries: Full expensing for nonresidential real property used in production, manufacturing, or refining represents a major tax advantage for companies that build and operate such facilities. Although lessors are excluded, the provision could reshape the economics of industrial projects and encourage creative structuring as IRS guidance evolves.
Key considerations for real estate and construction businesses
- There may be creative ways to achieve a result similar to investment or leasing, which will become clearer as the IRS releases guidance clarifying the rules.
- The elective nature of QPP treatment allows businesses to strategically time construction starts to align with eligibility windows, potentially unlocking full expensing for major capital projects.
- For industrial developers, QPP may create a competitive advantage in attracting owner-operators, as the tax benefits are available only to those who perform the production activity directly.
Exclusions for qualified small business stock (QSBS)
The OBBBA expands the gain exclusion rules for the sale of qualified small business stock (QSBS), mainly through the following three changes applicable to QSBS issued after July 4, 2025:
- Provides a tiered exclusion: Allows taxpayers a 50% exclusion for shares held more than three years, a 75% exclusion for shares held more than four years, and a 100% exclusion for shares held more than five years.
- Increases per-issuer limitation: Raises the per-issuer gain exclusion cap from $10 million to $15 million (indexed for inflation) while still leaving available the 10-times-basis limit if greater.
- Increases corporate-level gross asset threshold for qualification: Increases the gross asset threshold from $50 million to $75 million (also indexed for inflation).
Learn more about the technical changes to the exclusions for small business stock and the implications for businesses.
What it means for the real estate and construction industries: For real estate and construction businesses with corporate structures, this creates flexibility in exit planning and equity compensation, while offering greater upside when disposing of stock—especially for firms nearing the original QSBS limits or considering growth-stage transactions.
Key considerations for real estate and construction businesses
- The expanded QSBS thresholds and tiered exclusions may shift how real estate and construction firms approach early-stage capitalization—encouraging more equity-based financing and longer-term holding strategies to maximize tax-advantaged exits.
- As more firms qualify under the higher asset and exclusion limits, QSBS treatment could become a differentiator in attracting talent and investors, particularly for growth-stage companies competing with larger, less tax-efficient structures.
Taxable real estate investment trust subsidiaries (TRS)
The OBBBA increases the percentage of a REIT’s total assets that may be represented by securities of one or more TRSs from 20% to 25%, effective for taxable years beginning after Dec. 31, 2025. This enables considerable expansion of the investments a REIT can effectively hold.
What it means for the real estate and construction industries: This change enables REITs to diversify income streams and pursue broader investment strategies without jeopardizing their tax status. This may be especially valuable for construction firms with affiliated service entities or vertically integrated operations.
Key considerations for real estate and construction businesses
- The increased TRS cap gives REITs greater latitude to internalize value-added services—such as construction management, leasing, or design—which could enhance operational control and margins without breaching asset tests.
- This added flexibility may also accelerate vertical integration strategies, allowing REITs to respond more nimbly to market shifts by expanding into adjacent business lines that were previously constrained by the 20% limit.
State and local tax deduction limitation (SALT cap) and pass-through entity tax (PTET) deduction
The OBBBA raises the SALT cap to $40,000 beginning in 2025 through tax year 2029, after which it will revert to $10,000. The limitation is phased down for taxpayers with modified adjusted gross income (AGI) over $500,000 for the same period. Both the limitation and the modified AGI threshold are increased by 1% each year through 2029.
Meanwhile, the OBBBA makes no changes to the deductibility of PTETs by a pass-through entity, what types of taxpayers can make state PTET elections, or the ability of taxpayers to make state PTET elections.
Also, the OBBBA makes the mortgage interest deduction limitation permanent, with a principal limit of $750,000 and exclusion of home equity interest.
What it means for the real estate and construction industries: The temporary increase in the SALT cap may be especially meaningful for residential developers and property owners in high-tax states, where the cap can influence homebuyer affordability and after-tax returns.
Meanwhile, the bill preserves full deductibility of pass-through entity taxes (PTET), avoiding feared limitations and maintaining a valuable tool for managing state-level tax exposure.
Key considerations for real estate and construction businesses
- The temporary increase in the SALT cap may improve after-tax purchasing power for homebuyers in high-tax states, potentially boosting residential demand and pricing flexibility.
- Real estate businesses are likely a bit more sensitive than many other taxpayers to property tax and other state and local taxes, so the raised cap is quite meaningful.
Learn more about the technical changes to the SALT cap and the implications for taxpayers.
What should real estate and construction businesses be doing now?
While the OBBBA makes many TCJA-era provisions permanent, it also demands timely action ahead of effective dates for some new provisions, and deadlines for curbed clean energy incentives.
For all businesses, modeling tax scenarios under the updated rules, reviewing acquisition and construction timelines, and engaging with advisors can help lock in benefits before key phaseouts take effect. Dedicated, timely planning may offer a strategic edge in capturing value under the new law.
Real estate and construction businesses should move quickly to assess how the law affects their current and planned projects, entity structures, and tax positions. Taxpayers who move quickly may be able to make method changes to shift income or expense from the 2024 tax return to 2025 to make the most of the new provisions.
Discussing transactions with contractors, lenders, and investors may help avoid holdups in a competitive market and avoid potential issues with interest rate changes if the new law affects them negatively.
Because many of the provisions are temporary items being made permanent, many businesses have not considered alternatives to their current structuring and accounting methods. Real estate and construction companies should consider working with their tax advisors to model how the new legislation affects their cash flows and tax obligations.
Potential investors should consider investigating new projects, especially where QOZs might be involved, as taking steps now may help beat the market’s adjustment to new realities that will make certain properties more valuable.
