One of the challenges of investing in commercial real estate is navigating the complexities of legislative changes. Our colleague Dan Wagner, SVP of Government Relations Inland Real Estate Corporation, latest blog on the “One Big Beautiful Bill” examines the implications of the recently signed One Big Beautiful Bill Act (OBBBA) on commercial real estate (CRE). He highlights how this comprehensive piece of legislation, signed on July 4, 2025, builds upon the foundations laid by the 2017 Tax Cuts and Jobs Act (TCJA).
Wagner described how the “OBBBA could significantly impact investment strategy, asset performance, and transaction planning,” noting its intentions to extend and enhance major industry incentives like Qualified Opportunity Zones (QOZs) and 1031 like-kind exchanges.
In his detailed analysis, Wagner discussed key aspects of the OBBBA:
- Revitalization of Qualified Opportunity Funds: Initially established under the 2017 TCJA, qualified opportunity zones (QOZs) are designated areas in economically challenged regions. Originally set to conclude on December 31, 2026, the OBBBA now ensures the continuation of the QOZ initiative with a new emphasis on rural zones, diverging from the original urban-centric approach.Starting in July 2026, governors will select new OZ tracts for implementation in 2027 and will continue this process every decade. The previous rule allowing adjacent tracts to qualify has been eliminated. Investors now enjoy ongoing investment opportunities, including a 5-year deferral and potential tax-free appreciation, which is an improvement over the original program’s end date. Furthermore, OZ investments made after 2026 and held for at least five years may benefit from a 10% basis step-up, increasing to 30% for rural OZs, enhancing the original terms. This policy change enjoys rare bipartisan support.
- Protection for 1031 Exchanges and 721 Exchange/UPREITs: Wagner assures readers that these “most important tools for tax deferral and portfolio optimization” remain safeguarded under the new act.
- Depreciation Benefits Front-Loaded: The OBBBA continues to safeguard vital tools for tax deferral and portfolio optimization in commercial real estate, ensuring reliable long-term planning.
- Increased SALT Cap Offers State-Specific Advantages: Raising the deduction cap from $10,000 to $40,000 is a significant benefit for high-income investors in states like New York, California, Illinois, and New Jersey. This adjustment may lead to increased investments in local commercial real estate markets previously disadvantaged by the original 2017 SALT cap.
- Boost for Sustainability and Affordable Housing: The act provides incentives for projects focused on ESG and LIHTC, potentially redirecting investor interest towards ventures that offer both financial and social returns.
- Stability through Permanent QBI Deduction: The permanent establishment of the 20% QBI deduction offers additional stability and consistent planning opportunities.
- Accredited Investor Reform (Independent of OBBBA): The House has approved the “Fair Investment Opportunities for Professional Experts Act” with strong bipartisan support. This bill aims to broaden the definition of accredited investors to include individuals with demonstrated financial expertise or professional licensing, beyond just income or net worth criteria. If enacted, this could widen access to private placements, such as real estate syndications and qualified opportunity funds, thus expanding the capital pool available for CRE sponsors. The bill is currently awaiting a Senate vote.
Overall, Wagner concludes, the One Big Beautiful Bill Act offers a “rare blend of tax stability and targeted modernization” for the commercial real estate sector. It preserves vital tools like qualified opportunity zones and introduces new incentives supporting affordable housing and rural investments. His article suggests that such legislative shifts provide critical clarity, aiding investors in making informed, long-term strategic decisions.
For more insights, the original article by Dan Wagner, which includes a table and a video, can be accessed here.
This communication is not intended as tax advice.
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