What the 2025 Tax Law Changed for Real Estate Investors
Permanent 100% bonus depreciation put cost segregation back at full strength. The passive rules did not change, the excess business loss cap became permanent, and opportunity zones get a new design in 2027. Here is what applies in 2026 and what comes next.
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For real estate investors, the 2025 tax law (Public Law 119-21, signed July 4, 2025) did one big thing and several quiet ones. The big thing is permanent 100% bonus depreciation for property acquired after January 19, 2025. The quiet ones decide whether you can use it: a permanent excess business loss cap, an EBITDA-based interest limit, a permanent QBI deduction for rentals, and a redesigned opportunity zone program starting in 2027.
The changes at a glance: 2025, 2026 and 2027
Every row is a federal provision of the 2025 law. Figures for 2026 come from IRS Rev. Proc. 2025-32. Where the IRS has not yet published 2027 inflation-adjusted amounts, the table says so; those come out in late 2026.
| Provision | What changed | Effective dates | Who it affects | 2026 | 2027 |
|---|---|---|---|---|---|
| Bonus depreciation | 100% first-year bonus depreciation was restored and made permanent for property acquired after January 19, 2025. Property acquired on or before that date stays on the old phasedown (40% in 2025). | Property acquired and placed in service after January 19, 2025; no end date | Every investor buying or improving property. Cost segregation studies are back to full first-year value. | 100%. Under the old schedule, 2026 would have been 20%. | 100%. Under the old schedule, 2027 would have been 0%. |
| Excess business loss limit | The cap on how much net business loss (including active real estate losses) can offset wages and portfolio income each year became permanent. Disallowed amounts carry forward as a net operating loss. | Permanent | Investors using the short-term rental rules or real estate professional status to deduct losses against wages. | $256,000 single, $512,000 joint. | Indexed for inflation. IRS publishes these in late 2026. |
| Section 179 expensing | The Section 179 limit rose to $2,500,000, with the phaseout starting once qualifying purchases pass $4,000,000. | Property placed in service in tax years beginning after December 31, 2024; indexed after 2025 | Owners of commercial property making roof, HVAC, fire protection, alarm and security improvements. Residential rentals are generally excluded. | $2,560,000 limit; phaseout begins at $4,090,000 of purchases. SUV cap $32,000. | Indexed for inflation. IRS publishes these in late 2026. |
| QBI deduction (Section 199A) | The 20% qualified business income deduction became permanent. The phase-in range above the income threshold widened from $50,000 to $75,000 ($100,000 to $150,000 joint), and a $400 minimum deduction was added for at least $1,000 of QBI from an active business. | Permanent; wider phase-in and minimum start with tax years beginning after December 31, 2025 | Landlords whose rentals rise to a trade or business, including the 250-hour safe harbor. Rental real estate is not a specified service business. | Threshold $201,750 ($403,500 joint). Phase-in ends at $276,750 ($553,500 joint). | Thresholds and the $400 and $1,000 minimum amounts are indexed. IRS publishes these in late 2026. |
| Business interest limit (Section 163(j)) | Adjusted taxable income is again computed before depreciation and amortization (an EBITDA-style base), which allows more interest to be deducted by capital-heavy businesses. | Tax years beginning after December 31, 2024 | Leveraged investors and syndications above the small business gross receipts test. | EBITDA-style base continues. Small businesses under the $32,000,000 gross receipts test remain exempt. | Same rules. The gross receipts test is indexed; IRS publishes it in late 2026. |
| SALT deduction cap | The itemized cap on state and local taxes rose from $10,000 to $40,000 ($20,000 married filing separately). It shrinks by 30% of modified AGI above $500,000, but never below $10,000. Entity-level PTET elections were left in place. | Tax years 2025 through 2029; drops back to $10,000 in 2030 | Your personal residence and state income tax only. Property tax on rentals is a Schedule E expense, not subject to the cap. | Cap $40,400. Phasedown starts at $505,000 of MAGI, and the cap reaches the $10,000 floor at about $606,333. | By statute, 101% of the 2026 amounts: about $40,804 cap and a $510,050 threshold. IRS confirms in late 2026. |
| Opportunity zones | The program became permanent with a new rolling design: gains invested after 2026 are deferred five years, with a 10% basis increase (30% for rural funds), and the 10-year tax-free growth benefit stays. Zones are redrawn every 10 years. | New rules for gains invested after December 31, 2026; new zone map effective January 1, 2027 | Investors with capital gains to defer, especially from a business or stock sale. | Old rules still govern 2026 investments, and old-program deferred gains are recognized at the end of 2026. | New zone designations and the rolling deferral begin January 1, 2027. |
| Clean energy credits ended early | Several credits end years ahead of schedule: the new and used EV credits after September 30, 2025; the home efficiency and residential solar credits after 2025; the new energy-efficient home credit (45L) for homes acquired after June 30, 2026; and the 179D commercial building deduction for construction beginning after June 30, 2026. | Dates vary by credit, September 30, 2025 through June 30, 2026 | Developers and builders claiming 45L on new homes or 179D on commercial buildings. | 45L and 179D still available for qualifying homes acquired, or construction begun, by June 30, 2026. | Gone, apart from projects grandfathered under the begin-construction rules. |
| Mortgage interest | The $750,000 acquisition debt limit became permanent, and home equity interest stays nondeductible unless the loan buys, builds, or improves the home. Mortgage insurance premiums are deductible as interest again. | Permanent; mortgage insurance from tax years beginning after December 31, 2025 | Your own home. Rental mortgage interest is a business expense and was not changed. | $750,000 limit; mortgage insurance premiums count as interest for itemizers. | Same rules. |
| Estate and gift tax exemption | Instead of falling to roughly half in 2026, the basic exclusion was set at $15,000,000 per person and made permanent, with inflation indexing after 2026. The GST exemption matches it. | Deaths and gifts after December 31, 2025 | Portfolio owners planning to pass property to heirs with a stepped-up basis. | $15,000,000 per person ($30,000,000 per married couple with portability). Annual gift exclusion $19,000 per recipient. | Indexed from $15,000,000. IRS publishes these in late 2026. |
| Tax brackets and standard deduction | The 10% to 37% bracket structure and the higher standard deduction became permanent instead of expiring after 2025. The law also raised the 2025 standard deduction to $15,750 single, $31,500 married filing jointly, $23,625 head of household. | Permanent, starting with 2025 | Every investor. Permanent rates make multi-year depreciation and sale timing easier to model. | Standard deduction $16,100 single, $32,200 joint, $24,150 head of household. The 37% rate starts at $640,600 single and $768,700 joint. | Indexed for inflation. IRS publishes these in late 2026. |
Worked example (hypothetical, illustrative round numbers)
A 2026 short-term rental purchase with a cost segregation study
A married couple buys a short-term rental in March 2026 for $1,250,000, with $250,000 allocated to land. A cost segregation study moves 25% of the $1,000,000 building basis into 5, 7 and 15-year property.
The property was acquired after January 19, 2025, so the 2025 law's permanent 100% bonus depreciation applies. Under the old schedule, 2026 bonus would have been 20%.
- Building basis (land is not depreciable)
- $1,000,000
- Reclassified to 5, 7 and 15-year property (25%)
- $250,000
- First-year bonus at 100% (2025 law)
- $250,000
- First-year bonus at 20% (old 2026 schedule)
- $50,000
- Remaining $750,000 on a 39-year schedule, placed in service in March
- about $15,200
- First-year depreciation under the 2025 law
- about $265,200
- 2026 excess business loss limit, joint
- $512,000
That is roughly $200,000 more first-year depreciation than the old phasedown would have allowed. Whether it offsets wages depends on the passive activity rules, which the 2025 law did not change: the loss is nonpassive only if the owners materially participate in a rental with an average guest stay of 7 days or less, or one spouse qualifies as a real estate professional.
If it is nonpassive, the excess business loss limit ($512,000 joint in 2026, now permanent) caps how much net business loss can offset wages in one year. The rest carries forward. See our short-term rental loophole guide for the participation tests.
Illustrative only. Real results depend on your full return, state rules, and facts this example leaves out. It is not a promise of any tax outcome.
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Bonus Depreciation and Cost Segregation After the 2025 Law
The acquisition date matters more than the closing date
Before the 2025 law, bonus depreciation was phasing down 20 points a year: 60% in 2024, 40% in 2025, 20% in 2026, then zero. That made cost segregation studies less valuable every year. The 2025 law restored 100% bonus depreciation permanently, for property acquired after January 19, 2025.
The key date is acquisition, not placed in service. Under IRS Notice 2026-11, property is generally not treated as acquired after January 19, 2025 if a written binding contract was signed on or before that date. A property under contract in December 2024 and closed in February 2025 can be stuck on the old 40% rate for its reclassified components. For the first tax year ending after January 19, 2025, taxpayers can also elect the lower 40% rate instead of 100%, which can matter when a large first-year loss would be wasted.
Section 179 expensing rose to $2,560,000 for 2026, but for real estate it mostly helps commercial owners: it covers qualified improvement property and roofs, HVAC, fire protection, alarm and security systems on nonresidential buildings. Residential rental property is generally not eligible. Our cost segregation guide covers how studies allocate basis.
Using the Losses: Passive Rules, REPS, and the Excess Business Loss Cap
What the law left alone matters as much as what it changed
The 2025 law did not touch the passive activity rules, the short-term rental exception, or real estate professional status. Those still decide whether depreciation offsets W-2 or business income. What changed is the size of the deduction those rules apply to.
The excess business loss limit was made permanent. For 2026, net business losses (including nonpassive rental losses) above $256,000 single or $512,000 joint cannot offset wages and portfolio income in the current year and become a net operating loss carryforward instead. With 100% bonus back, more investors will hit that line in the acquisition year, so the size and timing of purchases is worth modeling.
For leveraged investors and syndications, the business interest limit again uses an EBITDA-style calculation, adding depreciation back before applying the 30% limit. That frees more interest deduction for capital-heavy real estate. Real property businesses can still elect out of the limit, but the election permanently requires slower ADS depreciation on buildings and improvements, and with the EBITDA base back, fewer investors need it. Learn the participation tests in our REPS guide.
SALT, QBI, and Mortgage Interest for Landlords
Rentals and your personal return are treated differently
The new $40,400 SALT cap for 2026 applies only to taxes on your personal return: state income tax and property tax on your home. Property tax on a rental is a deductible expense on Schedule E and is not subject to the cap at all, under the old law or the new one.
The 20% QBI deduction for rental income is permanent now. Rentals that rise to the level of a trade or business, including those using the IRS 250-hour safe harbor, can qualify. Because rental real estate is not a specified service business, investors above the 2026 threshold ($201,750 single, $403,500 joint) keep a deduction limited by the greater of 50% of W-2 wages paid, or 25% of wages plus 2.5% of the unadjusted basis of depreciable property, rather than losing it outright.
On your own home, the $750,000 acquisition debt limit is permanent, and mortgage insurance premiums are deductible as interest again starting in 2026. Interest on rental property debt is a business expense and was never subject to that limit.
Deadlines That Land in 2026
Energy incentives and the old opportunity zone program
Developers and builders have two hard dates. The 45L new energy efficient home credit ends for homes acquired after June 30, 2026, and the 179D energy efficient commercial building deduction ends for property whose construction begins after June 30, 2026. Projects that miss those dates lose the benefit.
Investors with gains deferred into opportunity zone funds under the original program recognize that deferred gain at the end of 2026, so it shows up on the 2026 return. Planning cash for that tax bill is a 2026 task.
Like-kind exchanges did not change. Section 1031 still applies to real property held for investment or business use. Our 1031 exchange guide covers the timelines.
What Is Scheduled for 2027
A redesigned opportunity zone program and indexed limits
The redesigned opportunity zone program starts January 1, 2027. Gains invested after 2026 get a rolling five-year deferral and a 10% basis increase (30% for qualified rural funds), and the 10-year exclusion on appreciation continues. A new map of zones takes effect the same day. Treasury guidance on the new rules was still being issued when this page was reviewed.
Bonus depreciation stays at 100% in 2027 and beyond. The excess business loss limit, Section 179 limits and QBI thresholds are inflation-indexed. IRS publishes these in late 2026. The estate exemption is indexed from $15,000,000, which keeps the basis step-up at death central to long-term portfolio planning.
Frequently Asked Questions
Real Estate Investors: common questions
Is 100% bonus depreciation permanent for real estate investors?
Yes, for property acquired after January 19, 2025. The 2025 law removed the phasedown and set no end date. It applies to the short-life components a cost segregation study identifies (5, 7 and 15-year property), not to the building shell itself.
Does 100% bonus apply to a property I closed on in early 2025?
It depends on the acquisition date under the binding contract rules. If you signed a written binding contract on or before January 19, 2025, the property is generally treated as acquired then, and the old 40% rate applies for 2025. A contract signed after January 19, 2025 qualifies for 100%.
Are property taxes on rental properties subject to the SALT cap?
No. Property tax on a rental is a business expense deducted on Schedule E. The SALT cap ($40,400 for 2026, with a phasedown above $505,000 of MAGI) applies to personal state income tax and property tax on your home.
Did the 2025 tax law change 1031 exchanges?
No. Section 1031 like-kind exchanges of real property held for business or investment work the same way they did before the law, with the same 45-day identification and 180-day exchange periods.
Is there a limit on how much rental loss can offset my W-2 income?
Yes. Even when a loss is nonpassive under the short-term rental rules or real estate professional status, the excess business loss limit caps net business losses that offset other income at $256,000 single or $512,000 joint for 2026. The 2025 law made that limit permanent. Amounts above it carry forward as a net operating loss.
What changes for opportunity zones in 2027?
Starting January 1, 2027, new investments get a five-year rolling deferral with a 10% basis increase, or 30% for qualified rural funds, and new zone designations take effect. Investments made under the original program follow the old rules, and their deferred gains are recognized at the end of 2026.
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Authoritative Sources
- Public Law 119-21 (H.R. 1, 119th Congress), enrolled text on Congress.gov
- IRS: One, Big, Beautiful Bill provisions
- IRS Rev. Proc. 2025-32: 2026 inflation adjustments
- IRS Notice 2026-11: interim guidance on 100% bonus depreciation
- IRC Section 164(b)(6) and (b)(7): SALT limitation and phasedown
- IRS: Tax inflation adjustments for tax year 2026
Citations reflect U.S. federal tax law as of the article's last reviewed date.