Federal Legislation Incentives for CRE in 2025

August 25, 2025 | Author:  David J. Murphy

Several sweeping changes have arrived for commercial real estate (CRE) investors, developers, and property owners following the July 4, 2025 enactment of the “One Big Beautiful Bill Act” (OBBBA). This federal legislation, together with the 2025 budget bill, introduces significant new incentives and reforms that are reshaping the CRE market.

100% Bonus Depreciation Restored and Made Permanent

One of the headline changes is the permanent restoration of 100% bonus depreciation. This means commercial property owners and investors can immediately and fully expense qualifying property and improvements such as building systems, renovations, and non-structural tenant improvements placed into service on or after January 19, 2025. Previously, bonus depreciation was scheduled to phase out, which would have reduced the immediate tax benefit for these investments. The change enhances near-term cash flow, streamlines tax planning, and incentivizes acquisition and renovation strategies. Particularly for operators managing multifamily or mixed-use portfolios, the combination of bonus depreciation and cost segregation studies allows substantial offset of taxable rental income and supports competitive funding models for acquisitions and upgrades.

Section 179 Expensing Doubled

The OBBBA doubles the Section 179 expensing limit from $1.25 million to $2.5 million with a phase-out threshold starting at $4 million. This expansion gives real estate operating businesses, including those managing office, retail, or industrial assets, the ability to immediately write off costs of qualifying improvements such as HVAC systems, fire protection, and security upgrades. The permanence of this provision supports capital planning and amplifies the tax efficiency of ongoing property upgrades.

Permanent Pass-Through and Small Business Relief

Key tax mechanisms for pass-through entities, such as LLCs, partnerships, and S-corps, have been made permanent. The 20% Qualified Business Income (QBI) deduction under Section 199A, which directly benefits income from many real estate businesses, now continues indefinitely. Additionally, the Excess Business Loss limitation was made permanent but softened, allowing more flexibility for real estate firms with cyclical earnings or large-scale value-add projects. These changes provide stability for long-term planning but may require more sophisticated tax strategies to maximize benefits and offset cyclical losses.

Enhanced Affordable Housing and Opportunity Zone Incentives

The legislation raises the ceiling for the 9% Low-Income Housing Tax Credit (LIHTC) and lowers the financing threshold for the 4% LIHTC. These modifications are designed to stimulate affordable and mixed-income housing development. Alongside these, incentives for Opportunity Zones and New Markets Tax Credits have been made permanent, providing investors and developers fresh tools to direct capital toward economically distressed or high-priority areas. Collectively, these reforms pave the way for accelerated affordable housing production and community revitalization in regions most in need.

Sustainably-Focused Provisions and Expensing for Production Property

The OBBBA introduces new incentives for sustainable development and modernized infrastructure pipelines, though it also sunsets the Section 179D Energy Efficient Commercial Building deduction after June 30, 2026. Owners planning energy-efficient retrofits need to act quickly to maximize their benefit before eligibility runs out. A new subsection, Section 168(n), allows 100% first-year expensing for qualified nonresidential production property, particularly benefiting those involved in manufacturing, production, or refining but not standard real estate lessors, unless tied to qualified production activities.

Capital Gains and 1031 Exchanges Remain Unchanged

Section 1031 like-kind exchanges remain untouched, fully preserving the ability to defer capital gains when trading properties. No new caps on deferred gains or additional reporting requirements were introduced, maintaining a critical tool for CRE investors planning portfolio transitions, upgrades, or generational wealth transfers.

Market and Investment Outlook

Industry leaders expect these legislative changes to trigger increased investment, transaction activity, and development across commercial real estate sectors. The combination of immediate expensing, permanent credits and deductions, and new community-focused incentives is driving renewed interest in both traditional asset classes (like office and industrial) and emerging opportunities within affordable housing, mixed-use, and revitalization projects. In particular, the restoration of 100% bonus depreciation and increased Section 179 caps are generating short-term pressure to accelerate acquisitions and retrofits, especially for those aiming to capitalize on time-limited sustainability incentives.