Welcome to an in-depth exploration of the sweeping real estate tax changes ushered in by the recent legislation popularly known as Trump’s “One Big Beautiful Bill.” In this article, David Moore, of Equity Advantage and special guest, Dan Wagner of Inland Private Capital, unpack the significant updates affecting real estate investors, particularly around Opportunity Zones, 1031 Exchanges, bonus depreciation, cost segregation, and the Qualified Business Income Deduction.
If you’re a real estate investor, CPA, or tax strategist, understanding these changes is critical for making informed investment decisions in 2025 and beyond. Let’s dive into what these permanent tax reforms mean for you and your portfolio.
Introduction to the 1031 Exchange Bros and Dan Wagner
Before we delve into the details, let’s introduce the key players guiding us through these complex tax waters.
- David Moore, Equity Advantage, is a seasoned expert in structuring 1031 Exchanges, helping investors defer capital gains taxes by exchanging like-kind properties.
- Dan Wagner, representing Inland Private Capital, brings a wealth of expertise in real estate investment strategies, particularly in Opportunity Zones and private capital deployment.
Together, they provide a comprehensive perspective on how the new tax landscape affects real estate investors nationwide.
Permanent Tax Rate Changes: What Investors Need to Know
One of the most notable updates from the 2017 Tax Cuts and Jobs Act (TCJA) was the introduction of a top federal income tax rate of 37%. Initially set to expire at the end of 2025, this top rate has now been made permanent, creating a new baseline for tax planning strategies.
Why does this matter to real estate investors? Because your tax bracket influences your overall tax liability on rental income, capital gains, and other investment proceeds. With the 37% top rate here to stay, investors need to be mindful of how they structure their deals to maximize tax efficiency.
Mortgage Interest Deduction Limitations
The TCJA also introduced a mortgage interest limitation for individuals who itemize deductions. Interest on mortgage debt is only deductible up to $750,000 of mortgage principal. Any mortgage balance beyond this threshold reduces the deductible interest.
This mortgage interest limitation has also been made permanent, meaning high-net-worth investors with large mortgages need to factor this into their tax planning.
Elimination of 2% Itemized Deductions
Another permanent change is the elimination of the 2% itemized deductions. These deductions previously allowed taxpayers to deduct certain expenses exceeding 2% of their adjusted gross income, such as investment fees and unreimbursed employee expenses.
With this elimination, taxpayers lose some flexibility in reducing taxable income through miscellaneous deductions, making other tax strategies more important.
The SALT Cap Expansion: A Major Concern for Many Investors
Perhaps the most debated aspect of the TCJA was the introduction of the State and Local Tax (SALT) deduction cap. Initially set at $10,000, this cap limits the amount of state and local taxes—including state income taxes, sales taxes, and real estate property taxes—that taxpayers can deduct on their federal returns.
For many real estate investors, particularly those in high-tax states like Oregon, California, and New York, this cap has been a significant constraint on tax planning. The recent expansion of the SALT cap means that the $10,000 limit remains firmly in place, with no relief in sight.
David Moore emphasizes that this permanent SALT cap expansion forces investors to rethink how they approach property acquisitions, financing, and tax deductions. It also impacts the overall attractiveness of owning real estate in high-tax states, potentially influencing investment decisions and portfolio diversification strategies.
Opportunity Zones: Navigating New Rules and Opportunities
Opportunity Zones remain a powerful tool for real estate investors looking to defer and potentially reduce capital gains taxes by investing in designated economically distressed areas.
Dan Wagner from Inland Private Capital sheds light on how the new legislation affects Opportunity Zones in 2025:
- Extended timelines: Investors have more clarity on the timing for investing capital gains into Opportunity Zone funds.
- Enhanced compliance requirements: Fund managers and investors must adhere to stricter reporting and investment guidelines.
- Potential changes in bonus depreciation: The rules around bonus depreciation—a key factor in Opportunity Zone investments—have been adjusted, impacting how quickly investors can write off certain costs.
For investors considering Opportunity Zones, staying abreast of these changes is essential for maximizing benefits and avoiding pitfalls.
1031 Exchanges: What’s Permanent and What’s New?
The 1031 Exchange remains one of the most effective tax deferral strategies for real estate investors. It allows the exchange of like-kind properties to defer capital gains taxes, enabling investors to grow their portfolios more efficiently.
David Moore highlights several critical points regarding 1031 Exchanges under the new tax environment:
- 1031 Exchange rules remain intact: The core principles allowing deferral of capital gains through like-kind exchanges continue to be available.
- Increased scrutiny on timing and identification: Investors must continue to adhere strictly to the 45-day identification and 180-day closing rules to maintain compliance.
- Integration with Opportunity Zones: Some investors are combining 1031 Exchanges with Opportunity Zone investments to optimize tax benefits, but this requires careful planning.
These points underscore the importance of working with knowledgeable facilitators and advisors who understand the nuances of these strategies.
Bonus Depreciation and Cost Segregation: Maximizing Deductions
The bill also introduces new rules around bonus depreciation and cost segregation, two powerful tools for accelerating depreciation deductions and reducing taxable income.
Bonus depreciation allows investors to immediately deduct a large percentage of the cost of qualifying property, rather than spreading it out over many years. Cost segregation studies break down property costs into shorter-lived asset categories, further accelerating depreciation.
Dan Wagner explains that while bonus depreciation benefits remain, some limitations and phase-outs have been introduced, impacting how much can be deducted upfront. Investors should revisit their depreciation strategies to ensure they are leveraging these tools effectively under the new rules.
Qualified Business Income Deduction: A Permanent Benefit
The Qualified Business Income (QBI) deduction, which allows eligible taxpayers to deduct up to 20% of their qualified business income, has been made permanent. This deduction can significantly reduce taxable income for real estate investors operating through pass-through entities like LLCs and partnerships.
David Moore advises investors to review their business structures and income streams to maximize the QBI deduction. Proper entity structuring and income categorization are more important than ever to capitalize on this permanent tax benefit.
Strategic Takeaways for Real Estate Investors
With these permanent tax changes now in place, what should real estate investors do to adapt and thrive?
- Plan for permanence: Since the top tax rates, mortgage interest limits, SALT cap, and QBI deduction are now permanent, investors should incorporate these into long-term tax strategies rather than expecting temporary relief.
- Leverage 1031 Exchanges strategically: Continue to use Exchanges to defer taxes but be mindful of timing rules and integration with other tax benefits.
- Evaluate Opportunity Zone investments carefully: Understand new compliance and timeline requirements to maximize benefits.
- Optimize depreciation tactics: Use bonus depreciation and cost segregation wisely, considering the new limitations.
- Review business structures: Ensure entity formations are aligned to maximize the Qualified Business Income deduction and minimize overall tax liability.
- Consult trusted advisors: Work with CPAs, tax strategists, and Exchange facilitators who are up to date on these permanent changes and can tailor strategies to your unique situation.
Conclusion
The permanence of key tax provisions from the 2017 tax reforms marks a new era for real estate investing. David Moore, Equity Advantage, together with Dan Wagner of Inland Private Capital, provide invaluable insights into navigating this landscape with confidence.
Whether you’re an investor leveraging 1031 Exchanges, exploring Opportunity Zones, or maximizing depreciation benefits, understanding these updates is critical to preserving and growing your wealth. The “One Big Beautiful Bill” may be permanent, but with the right knowledge and planning, so can be your financial success.
For more tailored advice and Exchange facilitation services, consider reaching out to the Equity Advantage or Inland Private Capital to ensure your investment strategies align perfectly with the evolving tax environment.