This April 15 marks the first Tax Day under the One Big Beautiful Bill Act (OBBBA). Signed into law on July 4, 2025, this landmark legislation introduces significant benefits for the commercial real estate sector. NAIOP was a strong advocate for the commercial real estate industry during the negotiation of OBBBA and has continued to engage with the Treasury Department and the Internal Revenue Service (IRS) as regulations to implement provisions important to NAIOP members have been promulgated.
Below are summaries of these key provisions and the strategic efforts undertaken by NAIOP’s government affairs team to ensure our members can fully leverage them.
Permanent 100% Bonus Depreciation: Perhaps the most impactful provision of the new law is the permanent extension of 100% bonus depreciation for assets placed into service after Jan. 19, 2025. By allowing businesses to deduct the full cost of qualifying assets in the year they are put into service, this policy provides the long-term certainty necessary for strategic investment. This permanent extension creates a powerful incentive for owners to modernize facilities, automate production and reinvest in critical equipment, aligning tax strategy with immediate operational needs.
Navigating Section 163(j)(7) and New IRS Guidance: The transition from the Tax Cuts and Jobs Act of 2017 (TCJA) to the OBBBA created a technical hurdle for many in the industry. Under the TCJA, real property trades or businesses (RPTOB) were often forced to make irrevocable elections to either take bonus depreciation or avoid stricter limits on business interest deductions.
To address this, the IRS recently issued Revenue Procedure 2026-17. This guidance is essential for taxpayers who made an RPTOB election under Section 163(j)(7) prior to Jan. 20, 2025. It allows businesses to retroactively withdraw elections made for the 2022, 2023 or 2024 tax years, effectively unlocking the ability to benefit from the updated bonus depreciation provisions.
NAIOP’s Advocacy in Action: The availability of this retroactive relief is a direct result of NAIOP’s advocacy:
- In February, NAIOP President and CEO Marc Selvitelli sent a letter to Treasury Secretary Scott Bessent, urging expedited action to provide the clarifications real estate businesses needed before this year’s filing deadline.
- NAIOP members and staff also engaged directly with the House Ways and Means Committee to communicate the urgency of this issue to the Treasury Department.
Without this specific IRS guidance – which NAIOP and our industry allies worked to secure – many real estate businesses would have remained locked into prior elections, unable to access the full suite of benefits offered by the OBBBA.
Additional Real Estate Tax Benefits
Section 199A (Pass-Through Deduction): The new law permanently extends the 20% deduction for pass-through business income and REIT dividends. This creates better parity between pass-through owners (effective rate of 29.6%) and corporations (21%).
Taxable REIT Subsidiary (TRS) Test: To increase operational flexibility, the allowable percentage of REIT assets held in a TRS will increase from 20% to 25% for tax years beginning after Dec. 31, 2025.
Business Interest Expense Limitation: For tax years beginning after Dec. 31, 2024, the calculation for the interest expense limitation is permanently shifted to EBITDA (Earnings before interest, taxes, depreciation and amortization). By allowing the add-back of depreciation and amortization, businesses gain significant borrowing flexibility.
Excess Business Losses: The law permanently extends the disallowance of deductions for excess business losses. The $250,000 threshold is now indexed for inflation, and excess losses will continue to be treated as net operating loss (NOL) carryovers.
Factory Expensing: Owners of qualified production property can now expense 100% of costs if construction begins between Jan. 19, 2025, and Jan. 1, 2029, and the property is placed in service before Jan. 1, 2031.
- Note: This applies only to owner-occupied nonresidential buildings used for manufacturing, production, or refining.
Condominium Construction: Developers are now granted an exception to the “percentage of completion” accounting method for certain residential contracts. The construction contract period has been extended from two to three years, effectively eliminating “phantom income” issues previously faced by condo developers.
Community and Housing Incentives
Opportunity Zones (OZ): A permanent OZ policy has been established with rolling 10-year designations starting Jan. 1, 2027. While it maintains the original TCJA process, it tightens eligibility by updating “Low-Income Community” (LIC) definitions and removing the “contiguous tract” loophole.
New Markets Tax Credit (NMTC): Originally set to expire at the end of 2025, the NMTC is now permanently extended, providing long-term certainty for urban and rural subsidy planning.
Low-Income Housing Tax Credit (LIHTC): Starting in 2026, the legislation permanently increases state credit allocations by 12% and lowers the bond-financing threshold to 25%, aimed at revitalizing developer interest in affordable housing.
Clean Energy Incentives
While many Inflation Reduction Act incentives have been scaled back, the following remain active under specific timelines:
| Incentive | Requirement / Deadline |
| Wind and Solar (48E) | Must start construction within 12 months of July 4, 2025; placed in service by Dec. 31, 2027. |
| Commercial Buildings (179D) | Expanded deduction available for projects starting construction by June 30, 2026. |
| Energy Efficient Homes (45L) | Credits expire for homes acquired after June 30, 2026. |
Adaptive Reuse
The bipartisan Revitalizing Downtowns and Main Streets Act (H.R. 2410), introduced by Representatives Mike Carey (R-OH) and Jimmy Gomez (D-CA), remains a top priority for NAIOP’s government affairs team. This legislation would create a tax incentive to offset the costs of converting commercial properties into residential units, providing communities with a vital tool to increase the rental housing supply.
Congress returned to Washington this week, with hopes of getting an agreement to resolve the funding standoff for the Department of Homeland Security. Republican congressional leaders and the White House are proposing another reconciliation package to circumvent the Democratic filibuster in the Senate.
While there is uncertainty about the path ahead, reconciliation could potentially create a legislative vehicle for the inclusion of tax provisions, and NAIOP’s government affairs team will work with members of both the House and Senate to advocate to have adaptive reuse included in that legislation.
