Real estate has long been one of the most tax-advantaged asset classes in the United States, but only for those who understand the rules. The U.S. tax code contains a number of powerful provisions specifically designed to reward commercial property owners and investors, yet many leave significant savings on the table simply because they aren’t aware of what’s available to them.
The tax landscape also continues to evolve. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced several significant changes that directly affect commercial real estate investors; some expanding opportunities, others closing windows that won’t be open much longer.
Whether you own a single commercial building or manage a large portfolio, understanding these foundational tax laws can have a direct and meaningful impact on your cash flow, your investment returns, and your long-term wealth-building strategy.
Section 168: Modified Accelerated Cost Recovery System (MACRS)
At the heart of real estate depreciation is the Modified Accelerated Cost Recovery System, commonly known as MACRS. Under this framework, commercial real estate is typically depreciated over 39 years using a straight-line method. While that’s a well-known baseline, what many investors don’t fully appreciate is how MACRS creates the foundation for more advanced depreciation strategies, most notably, cost segregation.
By reclassifying building components into shorter depreciation schedules (5, 7, or 15 years), investors can dramatically accelerate their deductions rather than waiting nearly four decades to realize them. That acceleration translates directly into improved cash flow in the years when it matters most, and when paired with the permanent restoration of 100% bonus depreciation under the OBBBA, the impact can be substantial.
Section 168(k): Bonus Depreciation
This is one of the most significant developments for commercial real estate investors in recent memory.
Prior to the One Big Beautiful Bill Act, bonus depreciation had been phasing down annually since 2023 and was set to fall to just 40% in 2025 before eventually reaching zero. The OBBBA reversed that trajectory entirely. Bonus depreciation is now permanently reinstated at 100% for qualified property acquired and placed in service after January 19, 2025.
For commercial real estate investors, this provision is most powerful when combined with a cost segregation study. When a study identifies and reclassifies building components into 5, 7, or 15-year property, those reclassified assets are now immediately eligible for a full 100% first-year deduction rather than being depreciated over decades. In practical terms, every dollar reclassified into short-life MACRS property through a cost segregation study can now potentially be written off in full in the year of acquisition or placed-in-service date.
There are important timing nuances to be aware of. The definition of qualifying property is unchanged, and the bill does not apply retroactively to asset purchases in 2023 or 2024. Additionally, for property acquired under a binding contract entered into prior to January 20, 2025, different rules may apply, and taxpayers should work closely with their advisors to document acquisition dates properly.
For investors currently holding properties that have not yet been subject to a cost segregation study, the permanent restoration of 100% bonus depreciation makes this an exceptionally compelling time to act.
Section 179: Immediate Expensing of Qualifying Property
The OBBBA also significantly enhanced Section 179 expensing. The Section 179 deduction cap has been increased from $1 million to $2.5 million, with phase-outs beginning at $4 million for property placed in service after December 31, 2024.
For commercial real estate investors, Section 179 is most relevant for personal property components within a building, certain qualified improvement property, and equipment used in the operation of a commercial property. When strategically combined with cost segregation and bonus depreciation, Section 179 can be a powerful tool for maximizing first-year deductions; though rental real estate entities may face certain limitations in qualifying, making professional guidance essential.
Section 179D: Energy-Efficient Commercial Building Deduction: A Critical Deadline Is Approaching
The Section 179D deduction has historically provided a meaningful tax benefit for commercial building owners and developers who install qualifying energy-efficient systems including: lighting, HVAC, and building envelope improvements. The deduction was significantly expanded and made permanent by the Inflation Reduction Act of 2022. However, the OBBBA has changed that picture.
The expanded Section 179D deduction is still available for projects that begin construction by June 30, 2026, but the deduction is terminated for property whose construction begins after this date.
This makes the current window critically important. Commercial property owners and developers who have completed or are currently planning qualifying energy-efficient construction or renovation projects should prioritize a 179D analysis now; before this opportunity closes entirely. Given the technical nature of qualification requirements, a proper 179D analysis requires both engineering expertise and a thorough understanding of tax law to ensure the deduction is calculated accurately and defensibly.
If you own or have recently built or renovated a commercial property with energy-efficient systems, the time to evaluate your 179D eligibility is now, not later.
Section 1031: Like-Kind Exchanges
One of the most well-known provisions in real estate tax law, Section 1031 allows investors to defer capital gains taxes when they sell a qualifying property and reinvest the proceeds into a “like-kind” property. When executed properly, a 1031 exchange allows investors to roll gains forward indefinitely, compounding their investment capital without an immediate tax consequence.
Key requirements include strict timelines, investors have 45 days to identify a replacement property and 180 days to close, as well as rules around qualified intermediaries and equal or greater replacement value. Missteps in the process can result in the full gain becoming taxable, so careful planning and execution are essential.
Section 1250: Depreciation Recapture on Real Property
When a commercial property is sold at a gain, Section 1250 governs how previously claimed depreciation deductions are recaptured and taxed. For real property, unrecaptured Section 1250 gain is generally taxed at a maximum federal rate of 25%, which is higher than the standard long-term capital gains rate for many investors.
This is an important planning consideration for investors who are actively taking advantage of accelerated depreciation strategies, including cost segregation and bonus depreciation. The upfront cash flow benefits are often substantial and well worth capturing; but a thoughtful exit strategy, which may include a 1031 exchange or other planning tools, should account for recapture implications at the time of sale.
Section 199A: The Qualified Business Income (QBI) Deduction: Now Made Permanent
The QBI deduction, which allows eligible pass-through business owners to deduct up to 20% of their qualified business income, had been scheduled to expire after 2025 under the original TCJA framework. The OBBBA changed that. The OBBBA makes the Section 199A deduction permanent.
For real estate investors who operate through LLCs, S-Corps, or partnerships, this is a meaningful long-term benefit. Whether a real estate enterprise qualifies as a “trade or business” for purposes of Section 199A remains a facts-and-circumstances determination, and professional guidance is particularly valuable in structuring activities to maximize this deduction.
Section 163(j): Business Interest Expense Limitation
The OBBBA also improved the deductibility of business interest expense in a way that directly benefits real estate investors. For tax years beginning after December 31, 2024, the legislation permanently extends the modified calculation of the business interest expense limitation to EBITDA, rather than EBIT. In practical terms, this means depreciation and amortization are added back when calculating the limitation, resulting in a higher deduction cap for many property owners. Investors who previously made an Electing Real Property Trade or Business (ERPTB) election should revisit that decision with their tax advisor in light of this change.
Section 45L: Energy-Efficient Home Credit (Applicable to Multifamily Developers)
While primarily associated with residential construction, Section 45L is worth noting for developers and investors involved in multifamily projects. It provides a tax credit for each qualifying energy-efficient dwelling unit constructed or substantially reconstructed. However, similar to Section 179D, the OBBBA has modified the availability of this credit, and multifamily developers should consult with a tax specialist to understand the current status and any applicable deadlines before planning around it.
A Note on Qualified Opportunity Zones
The OBBBA also made Qualified Opportunity Zones (QOZs) a permanent feature of the tax code, providing added certainty for long-term real estate investors considering QOZ strategies. Enhanced benefits are now available for investments in rural opportunity zones, expanding the geographic scope of attractive QOZ opportunities. Investors currently evaluating QOZ investments should be aware that two separate sets of rules may apply depending on the timing of their investment, making careful planning essential.
The Bottom Line: The Rules Have Changed and Your Strategy Should Too
The One Big Beautiful Bill Act has reshaped the tax landscape for commercial real estate investors in meaningful ways. The permanent restoration of 100% bonus depreciation is a generational opportunity for property owners who haven’t yet fully leveraged cost segregation. At the same time, the looming June 30, 2026 sunset of Section 179D creates a finite and urgent window for building owners with qualifying energy-efficient improvements.
Staying informed is the first step. Acting on that information; with a defensible, engineering-based strategy; is how you turn tax law into real financial advantage.
At CSSI Services, we’ve spent more than 23 years helping commercial property owners and investors navigate exactly these kinds of opportunities. Our engineering-based approach to cost segregation, Section 179D, and R&D tax credits ensures that every study we deliver is accurate, well-documented, and built to withstand IRS scrutiny; so our clients can capture meaningful savings with confidence.
If you’d like to understand which of these provisions may apply to your properties, we invite you to request a free, no-obligation analysis. Our team will review your situation and provide a clear picture of your potential tax savings, with no pressure and no guesswork.
