By Kelly Berardi & Richard Hirschen
Gray, Gray & Gray, LLP

The commercial real estate industry enters 2026 with a dramatically transformed tax landscape following the enactment of the One Big Beautiful Bill Act (OBBBA). While the changes present substantial opportunities for CRE firms, taking advantage of these updates demands immediate strategic attention.

A Net Positive, But with Strategic Planning Required

Despite implementation challenges, the OBBBA makes many beneficial provisions from the 2017 Tax Cuts and Jobs Act permanent while introducing new incentives specifically advantageous to commercial real estate operations. However, success requires proactive planning to capture maximum benefits while navigating new complexity.

Section 199A: Your Permanent 20% Deduction is Secured

The most significant win for CRE firms is the permanent extension of the Section 199A qualified business income (QBI) deduction, which was scheduled to expire after December 31, 2025. This 20% deduction applies to pass-through income from partnerships, S corporations, LLCs, and qualified REIT dividends.

Key enhancements include:

• The phase-in window increases from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly).
• A new $400 minimum deduction for taxpayers with at least $1,000 of QBI from activities in which they materially participate.
• Permanent certainty replaces the uncertainty that was hampering long-term planning.

Recommended action: Review your entity structures now. Many CRE firms should consider converting to pass-through entities if they haven’t already, particularly given the permanent nature of these benefits.

Bonus Depreciation Returns with 100% Immediate Expensing

The OBBBA permanently reinstates 100% bonus depreciation for qualified property acquired on or after January 20, 2025. For commercial real estate, this covers equipment, fixtures, and certain improvements with useful lives of 20 years or less, including:

• HVAC systems, elevators, security equipment
• Technology infrastructure and tenant improvements
• Office furniture and specialized equipment

Recommended action: This provides immediate cash flow benefits by allowing full deduction in the year of purchase rather than depreciation over multiple years. Consider accelerating planned equipment purchases to maximize 2025 and 2026 tax benefits.

Revolutionary Change: 100% Depreciation for Production Property

Perhaps the most overlooked opportunity is the new 100% depreciation allowance for “qualified production property” (QPP). This applies to nonresidential real property used as an integral part of manufacturing, production, or refining tangible personal property, with construction beginning between January 20, 2025, and December 31, 2028. This includes:

• Industrial developments for manufacturing tenants
• Food processing facilities
• Distribution centers with production components
• Mixed-use developments with manufacturing elements

Recommended action: Construction must begin between January 20, 2025, and December 31, 2028, with property placed in service by December 31, 2032 (extended from the original 2031 deadline). This creates a narrow window for planning and execution. Note that office, administrative, sales, and R&D components are excluded from QPP treatment.

Business Interest Deduction: Enhanced Leverage Capacity

The OBBBA permanently restores the EBITDA-based interest deduction limitation for taxable years beginning after December 31, 2024. This means taxpayers can add back depreciation, amortization, and depletion when computing adjusted taxable income (ATI), increasing the amount of business interest expense that may be deducted.

This means higher leverage capacity for acquisitions and developments. The 30% limitation now applies to a larger base amount, allowing more interest deduction. This is particularly valuable for highly leveraged CRE transactions.

Recommended action: Review existing debt structures and consider refinancing opportunities to optimize interest deductibility under the new rules.

Opportunity Zones: Now a Permanent Investment Strategy

The OBBBA makes Qualified Opportunity Zones (QOZ) a permanent pillar of U.S. economic development policy, eliminating the previous December 31, 2026 sunset date. This represents a paradigm shift from a temporary incentive to a long-term investment strategy that commercial real estate firms must now integrate into their portfolio planning. Key changes include:

• Decennial redesignation cycles starting July 1, 2026, with new zones effective January 1, 2027. Zones will be refreshed every 10 years.
• Rolling 5-year gain recognition periods replacing the fixed December 31, 2026 recognition date. Post-2026 investments now receive a 10% basis step-up after five years.
• 30-year rolling horizon on gain elimination, replacing the previous December 31, 2047 sunset. Long-term investments (10+ years) now receive tax-free appreciation treatment on a rolling basis.
• Qualified Rural Opportunity Funds (QROFs) offering triple the standard basis step-up (30% versus 10%) for investments in rural areas. The substantial improvement requirement is also reduced from 100% to 50% for rural properties.
• The threshold for “low-income community” designation drops from 80% to 70% of the area median income, and the contiguous tract provision is eliminated. This will result in a much smaller map of eligible zones in the 2027 redesignation.
• New reporting requirements under Code Sections 6039K and 6039L, with penalties up to $50,000 for non-compliance. QOZ businesses now have direct reporting obligations beyond those of the funds.

Potential strategic implications for CRE include:

• Portfolio diversification: Permanent status allows long-term OZ strategies rather than rushed deployment before expiration.
• Rural focus: Enhanced rural benefits create new market opportunities in smaller metros and non-urban areas.
• Transition planning: Current zones remain effective through 2028, creating a two-year overlap period for strategic repositioning.

SALT Deduction Changes: Mixed Results for High-Tax States

The SALT deduction cap increases to $40,000 (adjusted by 1% annually) for taxpayers with incomes under $500,000 through 2028, before reverting to $10,000 permanently. For pass-through entities, the PTET (pass-through entity tax) workarounds are restricted to only partnerships and S corporations eligible for Section 199A QBI deduction starting in 2026. What should you do?

• Review state tax planning strategies, particularly PTET elections.
• Consider the timing of real estate transactions in high-tax states.
• Evaluate entity structures to maintain PTET eligibility.

Estate Planning: Significant Exemption Increases

The OBBBA permanently increases the estate and gift tax exemption to $15 million for individuals ($30 million for married couples), indexed for inflation beginning in 2026. This represents a substantial increase from current levels and creates significant opportunities for transferring commercial real estate holdings to the next generation with minimal transfer tax consequences. Consider accelerated gifting strategies for family-owned CRE portfolios.

Energy Incentives: Accelerated Phase-Outs Require Immediate Action

The OBBBA significantly accelerates the phase-out of several clean energy tax credits, creating urgent deadlines for CRE firms:

• Section 179D (Commercial Building Energy Efficiency): Construction must begin before June 30, 2026, for projects to qualify.
• Section 45L (New Energy Efficient Home Credit): Expires for construction beginning after June 30, 2026.
• Clean Vehicle Credits: Expired September 30, 2025. EV charging station credits expire June 30, 2026.
• Solar and Wind Credits: Projects must be placed in service by December 31, 2027, or commence construction by July 5, 2026.

Section 179 Expensing: Doubled Limits for Small and Mid-Size Firms

The OBBBA doubles the Section 179 expensing cap, increasing the maximum immediate write-off from approximately $1.25 million to $2.5 million for 2025, with the phase-out threshold raised from $3.13 million to $4 million. This allows businesses to immediately expense a higher amount of qualifying property, including roofs, HVAC systems, fire protection, and security systems, particularly relevant for repositioning commercial properties.

Compliance and Reporting Considerations

Several new reporting requirements accompany these benefits:

• Overtime and tip deductions: Employers must file information returns showing qualified overtime compensation, though most CRE firms will have limited exposure.
• Enhanced record-keeping: The various new deductions and elections require careful documentation to support claims during audits.
• Entity election management: With enhanced benefits for qualifying pass-through entities, proper elections and ongoing compliance become crucial.

What to Do: Financial Management Recommendations for 2026

Immediate actions:

• Entity structure review: Evaluate whether current structures maximize Section 199A benefits.
• Capital expenditure acceleration: Consider moving planned equipment purchases into 2025-2026 to capture 100% bonus depreciation.
• Production property assessment: Identify development opportunities that qualify for QPP benefits before the December 31, 2028 construction deadline.
• Debt restructuring analysis: Model the impact of enhanced interest deductibility on financing strategies.
• Energy credit timing: If relying on Section 179D or 45L incentives, ensure construction begins before June 30, 2026.

Ongoing planning:

• Cash flow projections: Update models to reflect the timing benefits of immediate expensing.
• Tax provision adjustments: Revise accounting estimates to capture the permanent nature of key benefits.
• Investment analysis: Incorporate permanent tax benefits into acquisition and development underwriting.

Looking Beyond 2026: Long-Term Strategic Implications

The permanent nature of many OBBBA provisions fundamentally changes the commercial real estate investment landscape. Unlike previous temporary incentives, these benefits provide long-term planning certainty that should be factored into:

• Long-term hold versus disposition strategies
• Entity structure optimization for portfolio companies
• Development pipeline planning, particularly for production properties
• Estate and succession planning for family-owned enterprises

Opportunity Requires Action

The One Big Beautiful Bill Act represents the most significant permanent tax reform for commercial real estate in decades. The combination of permanent Section 199A benefits, restored bonus depreciation, new production property incentives, and enhanced interest deductibility creates a uniquely favorable environment for CRE operations.

However, these benefits aren’t automatic. Success requires immediate strategic planning, careful entity structuring, and ongoing compliance management. The narrow windows for certain benefits, particularly the qualified production property provisions and energy credits, demand prompt action. The current government shutdown adds an additional layer of complexity and uncertainty that firms must navigate carefully.

We recommend scheduling a comprehensive tax planning review before year-end 2025 to ensure your organization captures maximum benefits under the new regime while accounting for implementation delays and uncertainties. The tax landscape has shifted permanently in favor of commercial real estate, but only for those prepared to navigate its complexity strategically.