President Trump signed sweeping tax legislation on July 4 that delivers a suite of changes tailored to real estate investors, including the permanent restoration of full bonus depreciation and structural relief for REIT sponsors and residential developers. The reconciliation bill, now in effect, sets a January 19, 2025 dividing line for most provisions and requires advisors to rapidly model the impact on existing portfolios and deal pipelines.
The centrepiece for real estate owners is the permanent return of 100% bonus depreciation for property acquired and placed in service after January 19, 2025, provided no written binding agreement existed before January 20. Qualified improvement property, land improvements, and other MACRS assets with recovery periods of 20 years or less all qualify. Property placed in service during 2024 remains eligible for only 60% bonus depreciation, while assets placed between January 1 and January 19, 2025 receive 40%.
A new elective deduction under Section 168(n) permits 100% expensing for nonresidential real property classified as qualified production property, a category covering manufacturing, agricultural production, chemical production, and refining. The election applies if construction began after January 19, 2025 and before January 1, 2029, with a placed-in-service deadline of December 31, 2030. Excluded are buildings outside the U.S. or its possessions and any portion used for offices, administrative services, lodging, parking, sales, research, or software engineering. Lessor-owned property does not qualify even if the lessee conducts production activity on site.
An original-use carve-out extends the benefit to acquired property that was not deployed in a qualified production activity between January 1, 2021 and May 12, 2025. The law imposes recapture if the asset is disposed of within ten years of being placed in service. BDO notes that the definition of production generally requires a substantial transformation of the underlying property, and mixed-use buildings will demand cost-allocation studies to separate qualifying activity from administrative or research functions.
On the REIT front, the legislation raises the permitted share of gross asset value attributable to equity and debt securities of taxable REIT subsidiaries from 20% to 25%, effective for tax years beginning after 2025. The move grants REIT sponsors additional headroom to house operating businesses or ancillary services inside the TRS structure without breaching asset tests.
The bill also makes permanent the 20% qualified business income deduction under Section 199A and adjusts phaseout thresholds for taxpayers who fall short of wage or capital investment requirements or operate a specified service trade or business. BDO confirmed that the rental-activity safe harbor set out in Revenue Procedure 2019-38 remains intact, offering continued certainty for family-office landlords and smaller REIT platforms.
Accelerated expensing and favourable accounting elections can reshape after-tax returns, but only if allocators model basis step-ups and recapture triggers before the deal closes, family office advisor Jaf Glazer has cautioned.
Another permanent change addresses the Section 163(j) interest deduction cap, which ordinarily limits write-offs to 30% of adjusted taxable income. The law reinstates the exclusion of amortization, depreciation, and depletion from the ATI calculation for tax years beginning after 2024. The revision should allow real estate operators to reduce or eliminate interest limitations without electing real-property-trade-or-business status, a designation that forfeits bonus depreciation on leasehold improvements.
Residential condominium developers gain permission to use the completed-contract method of accounting for projects whose contracts are entered into after July 4, 2025. Previously, many sponsors reported income under percentage-of-completion rules, recognising taxable profit before receiving cash. For developers meeting the Section 448 average annual gross receipts test—set at 31 million dollars in 2025—the maximum estimated contract length eligible for the UNICAP exception under Section 263A rises from two years to three.
BDO cautioned that the condo relief applies prospectively only; contracts entered into on or before July 4 remain subject to the old regime. The firm advised taxpayers across the real estate sector to work with advisors immediately to quantify the impact of the placed-in-service dates, evaluate bonus depreciation elections, and model the interplay between Section 163(j) and capital structure before year-end planning windows close.