On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”), a bill providing for a number of benefits to real estate developers and investors. This article serves as a primer for two benefits included in the 2017 Tax Cuts and Jobs Act that have been reinvigorated by the OBBBA. We will expand on these programs in subsequent newsletters.
Part 1: Bonus Depreciation in Real Estate
Bonus depreciation is a powerful tax incentive that allows real estate investors to deduct a large portion of qualifying asset costs in the year the assets are placed in service. While land and buildings are not eligible, many components within a property—such as appliances, carpeting, and landscaping—can be written off through a process called cost segregation.
Here’s how it works:
1. **Purchase a Property** – Investors buy a property.
2. **Cost Segregation Study** – Engineers separate personal property from real property.
3. **Apply Bonus Depreciation** – Personal property (e.g., 5-, 7-, or 15-year assets) can be expensed immediately.
4. **Tax Savings** – Reduces current tax liability, improving cash flow.
Bonus depreciation percentages had begun phasing out. In 2024, only 60% of eligible property can be deducted up front. By 2027, unless extended by Congress, the benefit was to expire entirely.
The OBBBA makes 100% Bonus Depreciation on “Qualified Property”, including real estate used in Manufacturing and Research and Development permanent.
⚠ Note: Accelerated depreciation can lead to depreciation recapture when the asset is sold, so plan accordingly with your CPA.
Part 2: Opportunity Zones (OZs)
Opportunity Zones are designated low-income areas where investors can receive tax advantages by reinvesting capital gains into Qualified Opportunity Funds (QOFs). This federal program was created to encourage long-term investment in underserved communities.
Previous OZ Main benefits included:
1. **Tax Deferral** – Capital gains reinvested in a QOF are deferred until the earlier of December 31, 2026 or the sale of the QOF interest.
2. **Tax Reduction** – Investments made before 2022 could receive a 10-15% reduction in the deferred gain (now expired).
3. **Tax-Free Growth** – Gains from QOF investments held for at least 10 years are completely tax-free.
The OBBBA revises the program to focus on newly designated rural areas (from more of an urban focus in the previous program). Designations will begin in July of 2026, with investments beginning in implementation in 2027.
The new program includes a tax reduction of up to 30% for reinvestments placed for five years, and the same tax-free growth for QOF investments held for at least ten years.
For real estate developers, OZs offer access to patient capital, enhanced after-tax returns, and strategic opportunities in gentrifying neighborhoods. Projects often qualify for additional incentives like tax credits or TIF financing, making them financially attractive with proper planning.
⚠ Caution: QOFs are subject to strict compliance rules including substantial improvement requirements and 90% asset tests. Legal and tax counsel is essential.
Conclusion
Both bonus depreciation and Opportunity Zones are potent tools in a real estate investor’s toolkit. Bonus depreciation offers immediate tax relief, while Opportunity Zones reward patient capital with long-term tax savings. Used together—or independently—these incentives can significantly boost project viability and investor returns.
*This primer is for informational purposes only and does not constitute tax or legal advice. Please consult with your CPA or legal advisor before proceeding with any investment strategy.*
