In this discussion, David Moore, CEO of Equity Advantage breaks down the recently passed One Big Beautiful Bill (OBBBA) and its significant implications for investors, brokers, and property owners. Joining them is Dan Wagner, Senior Vice President of Government Relations at Inland Private Capital, who provides insider insight from the frontlines of advocacy, policy, and real estate investment.
Protecting the 1031 Exchange: A Vital Fight for Market Liquidity
At the heart of the conversation is the ongoing effort to preserve the 1031 Exchange, a cornerstone of real estate investment and tax deferral that has been part of the tax code for over a century. Dan Wagner, affectionately described as the “Tom Sawyer” of Inland, explains his role in rallying industry groups and educating lawmakers about the critical importance of the 1031 Exchange. Through hundreds of meetings on Capitol Hill, Inland and allied organizations have highlighted why the 1031 Exchange is often called the “401(k) of real estate” — a tool that keeps the market vibrant by allowing investors to defer capital gains taxes and reinvest proceeds efficiently.
Dan recounts how many members of Congress and their staff are unfamiliar with the 1031 Exchange, sometimes confusing the term with a time of day. This underscores the necessity of constant education, especially as new legislators cycle through every two years. The effort to protect the 1031 Exchange isn’t just about tax policy; it’s about maintaining the velocity of real estate transactions that benefit communities across the country.
Real World Impact: Opportunity Zones Revitalizing Underserved Communities
The discussion shifts to Opportunity Zones (OZs), another key component of the OBBBA bill designed to spur investment in economically distressed areas. Dan shares compelling examples of how OZ investments have transformed neighborhoods and towns. For instance, in Naperville, Illinois, a once-vacant Kmart property was revitalized through a 1031 Exchange into a thriving Costco, creating jobs and generating substantial sales tax revenue for the community.
Similarly, underserved areas like Bronzeville in Chicago, which was once a food desert, have seen grocery stores and shopping centers emerge thanks to OZ funding. Congressman Danny Davis, who represents Bronzeville, personally shops in these revitalized areas, a testament to the tangible benefits these investments bring.
Farmers and conservation groups also benefit from the 1031 Exchange. Many farms that might otherwise be sold off are preserved because owners can defer capital gains taxes by reinvesting in other properties. This dynamic supports land trusts, parks, and forest preserves, maintaining green spaces that are vital to communities.
Breaking Down the OBBBA Bill: What Investors Need to Know
The One Big Beautiful Bill, recently passed, brings permanent changes and clarifications to several tax provisions affecting real estate investors. Dan Wagner outlines the key highlights:
- Opportunity Zones: Made permanent with new rules effective January 1, 2027. Governors will designate new zones every ten years, focusing more on rural areas with enhanced tax benefits such as a 30% basis step-up after five years for rural investments, compared to 10% generally.
- 1031 Exchanges: Remain intact with no changes, but vigilance is required as new congressional members may need education on its importance.
- Section 721 Exchanges: No changes. These allow investors in Delaware Statutory Trusts (DSTs) to convert their fractional ownership into shares of private Real Estate Investment Trusts (REITs), offering liquidity options.
- Bonus Depreciation: The 100% bonus depreciation rule has been made permanent, encouraging front-loaded investment, especially in commercial real estate used for manufacturing and research and development.
- Interest Deduction (Section 163(j)): Deductibility of interest expense now serves 30% of EBITDA rather than EBIT, improving conditions for real estate investors.
- Qualified Business Income (QBI) Deduction: The 20% deduction is permanent, with a raised soft cap from $10,000 to $40,000 for individuals, which is particularly beneficial in high-tax states.
- Low Income Housing Tax Credit: The 9% credit allocation increased by 12%, with bond test thresholds lowered from 50% to 25%, supporting affordable housing development.
- Carried Interest: No changes were made, preserving current tax treatment despite political discussions about eliminating it.
- Accredited Investor Definition: The bill encourages expanding the definition beyond arbitrary income or net worth thresholds to include financial professionals like CPAs and lawyers, potentially broadening access to private real estate investments.
Understanding Opportunity Zones: The 2027 Overhaul
One of the most significant updates concerns Opportunity Zones. The bill sets the stage for a rolling designation of OZs every ten years, with governors responsible for identifying qualifying areas. This change is designed to keep the program dynamic and responsive to shifting economic conditions.
Rural areas receive special attention, with a 30% basis step-up after five years, a generous incentive compared to urban zones. However, investors should be aware that to qualify for these enhanced benefits, investments must be made starting January 1, 2027. Investments made before this date can still defer gains for ten years but will not receive the stepped-up basis benefits under the new rules.
Dan emphasizes that purchasing property within an OZ does not automatically confer Opportunity Zone benefits. Proper structuring and compliance with the program’s rules are essential to maximize tax advantages.
Section 721 Exchanges and Delaware Statutory Trusts (DSTs): Flexible Investment Options
Section 721 exchanges allow investors holding fractional interests in DSTs to convert their ownership into shares of private REITs, providing a pathway to liquidity. Dan explains that while this represents a “dead end” from a 1031 Exchange perspective, it offers investors flexibility to exit real estate holdings in a structured manner.
DSTs have become popular among investors who want to defer gains but prefer a passive investment without the day-to-day responsibilities of property management. Dan likens DST income to “mailbox money,” underscoring the appeal of this investment class.
Bonus Depreciation, SALT, and QBI: Enhancing Tax Efficiency for Investors
The bill makes the 100% bonus depreciation permanent, allowing investors to immediately expense qualifying property instead of depreciating it over time. This is particularly impactful for commercial real estate used in manufacturing and research and development, aligning with broader economic goals to encourage domestic production.
The interest deduction rules have been relaxed, with a shift to 30% of EBITDA, increasing the allowable deduction for many real estate investors.
The Qualified Business Income (QBI) deduction is also made permanent, with the soft cap increased to $40,000 for individuals. This provides significant tax relief, especially in states with high property taxes like Illinois and California.
State and Local Tax (SALT) deductions remain a contentious issue, but the increase in the cap from $10,000 to $40,000 offers much-needed relief for taxpayers in high-tax states.
The Accredited Investor Definition: Opening Doors or Raising Barriers?
One of the most debated topics is the definition of an accredited investor. Currently, individuals must have $1 million in net assets (excluding their primary residence) or meet income thresholds to qualify for many private investment opportunities, including DST offerings.
Dan highlights the irony that many retail investors can trade stocks with no limits, yet face stringent restrictions when investing in real estate products that could be safer and more tangible. The bill signals a push to expand the accredited investor definition to include those with financial expertise—such as CPAs, lawyers, and licensed professionals—regardless of asset levels.
This move could democratize access to real estate investments, but there remains opposition from those who believe higher thresholds protect investors from unsuitable products. The debate continues, and the final outcome will shape the future of real estate investment accessibility.
Real Estate as America’s Ultimate Piggy Bank
Throughout the discussion, the underlying theme is the role of real estate as a critical vehicle for wealth preservation and growth in America. David Moore reflects on how real estate remains a foundational asset class for families, providing stability and long-term value.
Despite rising home prices making homeownership more challenging for younger generations, tools like the 1031 Exchange and DSTs offer ways to participate in real estate investment and build generational wealth.
Dan and David agree that tax strategies like 1031 Exchanges are not just for the wealthy elite but are accessible to everyday investors, including farmers and small business owners. The ability to defer capital gains taxes keeps the market fluid, encourages reinvestment, and ultimately benefits communities by maintaining and improving properties.
Looking Ahead: Staying Vigilant and Educated
While the passage of the OBBBA bill brings many victories for real estate investors, Dan cautions that the fight to preserve beneficial tax provisions like the 1031 Exchange is ongoing. New members of Congress often lack familiarity with these complex topics, requiring persistent advocacy and education.
The political landscape is expected to shift in upcoming election cycles, with potential changes in congressional control that could impact tax policy. Investors and industry leaders must remain vigilant and informed to protect these valuable tools.
Dan also stresses the importance of working with knowledgeable tax professionals and advisors. Tax planning is critical given the multiple layers of taxation investors face—from acquisition to ownership, sale, and even inheritance. Proper use of strategies like 1031 Exchanges, charitable remainder trusts, and deferred sales trusts can significantly enhance wealth preservation.
Conclusion: A Bright Future for Real Estate Investors
The One Big Beautiful Bill represents a significant milestone in real estate tax policy, securing key benefits and introducing thoughtful reforms to Opportunity Zones, depreciation, SALT deductions, and investor qualifications. Thanks to the tireless efforts of advocates like Dan Wagner and organizations like Inland Private Capital, the 1031 Exchange remains a vital tool supporting market liquidity and economic growth.
For investors, agents, and property owners, staying educated on these changes and working with trusted advisors will be essential to maximizing opportunities and safeguarding investments. Real estate continues to be America’s ultimate piggy bank—an asset class that, when leveraged wisely, can provide stability, growth, and prosperity for generations to come.
Equity Advantage remains committed to guiding investors through the evolving landscape, ensuring that the powerful benefits of 1031 Exchanges and related strategies remain accessible and effective in the years ahead.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
