2026 Tax Changes for Real Estate Investors: Key OBBBA Updates and Planning Opportunities

Learn key OBBBA tax changes for real estate investors including bonus depreciation, QBI updates, business interest deductions, Opportunity Zone changes, and estate planning strategies.

By Kendall Maccagnan, CPA, CFP® and Financial Advisor in Tampa, Florida

Key Takeaways

1. 100% bonus depreciation is restored under current law, which may allow real estate investors to accelerate deductions on qualifying property through cost segregation strategies

2. The Section 163(j) interest limitation reverts to an EBITDA based calculation, which may allow greater interest expense deductions for leveraged real estate investments

3. Enhancements to the QBI deduction may allow more rental real estate investors to qualify for the 20% deduction depending on income levels and eligibility requirements

4. Additional provisions including changes impacting developers, specialized property types, and estate planning may create further planning opportunities depending on investment structure

Introduction

The One Big Beautiful Bill (OBBBA) (Public Law 119–21) introduces several updates that may impact how real estate investors approach depreciation, interest deductions, and long term tax planning. While many provisions under the Tax Cuts and Jobs Act (TCJA) were originally scheduled to expire after 2025, OBBBA extends key rules and introduces additional changes beginning in 2026.

For real estate investors, these updates may influence investment decisions, how quickly property costs can be recovered, and how debt and capital investments are structured. Changes to bonus depreciation, business interest limitations, the QBI deduction, and Opportunity Zone rules may create new planning considerations depending on investment strategy and income levels.

Understanding how these provisions apply may help provide clarity as investors evaluate acquisitions, improvements, and long term portfolio decisions heading into 2026 and beyond.

A Summary of Important Tax Changes for Real Estate Investors

Brief history

The Tax Cuts and Jobs Act (TCJA) was signed into law in December 2017 and contained several tax provisions that were beneficial to real estate investors. Several provisions in this legislation were scheduled to sunset after December 31, 2025, reverting legislation back to prior law. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA)(Public Law 119–21) was enacted extending and enhancing provisions in the tax code relevant to real estate investors. As a result, several reforms that were expected to expire have been continued, while new rules have also been added to the tax code.

This article focuses on some of the federal tax changes most relevant to real estate investors for the 2026 tax year. The impact of these changes may vary based on income level, filing status, and individual circumstances. Certain provisions may be subject to limitations or phaseouts, and state tax treatment may differ.

Key 2026 Tax Changes for Real Estate Investors (OBBBA Updates)

100% Bonus Depreciation Restored

OBBBA restores 100% bonus depreciation for qualifying business property in the year it is placed into service. The provision applies to qualifying property acquired and placed in service after January 19, 2025, generally including assets with a recovery period of 20 years or less such as equipment, furniture, machinery, and certain improvements. For real estate investors, this provision can be impactful when combined with a cost segregation study. By front loading deductions into the year of acquisition, investors may be able to significantly reduce taxable income in years of major property purchases or improvements.

Section 179 Expensing Limits Increased

The OBBBA increases the Section 179 expensing limit and phaseouts to $2.5M and $4M respectively. Per the IRS 2026 inflation indexed amounts are $2.560M for the 179 expensing limit and $4.090M for the phaseout limit. While Section 179 is often overshadowed by bonus depreciation for real estate investors, it remains particularly useful for property types that do not qualify for bonus depreciation such as roofs, HVAC systems, and certain other nonresidential building improvements. For real estate investors making targeted property improvements, Section 179 may provide immediate expensing flexibility that bonus depreciation does not.

EBITDA Calculation Restored for Business Interest Expense

The OBBBA restores the EBITDA based calculation for the Section 163(j) business interest deduction limitation, effective for tax years beginning after December 31, 2024. For real estate investors, this is a meaningful change as real estate is one of the most debt intensive asset classes, and the prior EBIT based calculation excluded depreciation and amortization from the income base which limited how much interest expense could be deducted. By adding depreciation and amortization back into the calculation, investors carrying significant mortgage or acquisition debt may be able to deduct more interest expense in a given year.

Real estate businesses that previously made or were considering the Real Property Trade or Business election to opt out of Section 163(j) entirely may consider reevaluating whether that election remains beneficial under the restored EBITDA calculation, as the tradeoffs including longer depreciation periods and loss of bonus depreciation on qualified improvement property may no longer be justified.

QBI Deduction: Rental Real Estate and Pass-Through Considerations

Real estate investors who hold rental property through pass-through entities may benefit from the QBI deduction enhancements taking effect in 2026, including expanded phase in ranges from $50k to $75k for single filers and from $100k to $150k for married filing jointly. This means more investors at higher income levels may qualify for a full or partial deduction before wage and property limitations fully apply.

Rental real estate must meet specific requirements to qualify as a trade or business under Section 199A and benefit from the QBI deduction including the IRS safe harbor rule which generally requires 250 or more hours of rental services annually. Investors who qualify may deduct up to 20% of net rental income, potentially reducing the effective tax rate on pass-through rental income. Qualified REIT dividends are also eligible for the 20% QBI deduction without the wage and property limitations that apply to other pass-through income, which may benefit higher income investors holding REIT positions.

Under the OBBBA, beginning in 2026, REITs may hold up to 25% of their total assets in taxable REIT subsidiary securities, up from 20% under the TCJA, providing REITs with greater operational flexibility.

Additional OBBBA Provisions for Real Estate Developers and Specialized Investors

Special Depreciation Allowance for Qualified Production Property (QPP)

Under the OBBBA, eligible taxpayers may immediately deduct 100% of the cost of qualifying domestic production facilities in the year placed in service, rather than depreciating them over the standard 39 year period. This provision may be most relevant to real estate investors who both own and operate manufacturing, production, or refining facilities. This is a high level overview of Section 168(n). Significant technical requirements apply that may impact eligibility.

Changes to the Qualified Opportunity Zone Program under OBBBA

The OBBBA permanently extends the Qualified Opportunity Zone program, which was previously set to expire for new investments after December 31, 2026. Investors who reinvest eligible capital gains into a Qualified Opportunity Fund after December 31, 2026 may defer those gains until the investment is sold or for up to five years, whichever comes first, and may be eligible for a 10% step up in basis on deferred gains after five years. For investments held at least 10 years, appreciation on the QOF investment generated after the original investment date may be excluded from federal income tax, though the exclusion applies only to appreciation accrued through the 30th year of the investment.

Investors who made qualifying investments prior to January 1, 2027 remain subject to the original program rules, including the fixed December 31, 2026 gain recognition date.

Percentage of Completion Method Exception for Residential Construction

Prior to the OBBBA, contractors building multifamily residential projects with more than four dwelling units were generally required to recognize taxable income as construction progressed under the percentage of completion method. The OBBBA expands an existing exception to allow qualifying residential construction contractors, including those building apartment complexes, student housing, and senior living facilities, to defer income recognition until project completion, which may improve cash flow and reduce the tax burden during the construction phase.

A Quick Note on Estate and Wealth Transfer Planning for Real Estate Investors

OBBBA has increased the federal estate and gift tax exemption to $15M per individual indexed annually for inflation. For real estate investors holding significantly appreciated property, this expanded exemption may allow more wealth to be transferred to heirs without triggering federal estate tax.

What This Means for Your Real Estate Investment Strategy

• Restored 100% bonus depreciation may allow investors to accelerate deductions and improve after tax cash flow in years of property acquisition or improvement

• Changes to the business interest deduction (Section 163(j)) may allow greater deductibility of interest expense for leveraged real estate investments

• Enhancements to the QBI deduction may allow more rental real estate investors to qualify for the 20% deduction depending on income levels and eligibility requirements

• The Qualified Opportunity Zone program extension may provide continued opportunities for tax deferral and potential tax free appreciation on long term investments

• Increased Section 179 limits may offer additional flexibility for expensing certain property improvements not eligible for bonus depreciation

• Several provisions extend beyond 2026, making multi-year tax planning strategies more relevant for real estate investors

Amounts shown are subject to eligibility requirements and may vary based on individual circumstances.

This content is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. It is not intended as a solicitation or offer to provide advisory services in any jurisdiction where Off The Bay Wealth, LLC is not properly registered or otherwise permitted to operate. Information presented is based on sources believed to be reliable; however, accuracy and completeness are not guaranteed. This material is not intended to be a comprehensive analysis of all topics discussed. Tax provisions are subject to ongoing IRS guidance and regulatory updates. Any financial decisions should be made in consideration of your individual circumstances, including your goals, risk tolerance, and time horizon. Investing involves risk, including the potential loss of principal.