With key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire, commercial real estate professionals must stay informed about potential tax policy shifts. Proposed changes under a new administration could significantly impact tax liabilities, investment strategies, and property development costs.
Corporate Tax Rate Adjustments
One of the most notable proposed changes is a reduction in the corporate tax rate for U.S. manufacturers, lowering it from 21% to 15%. While this could provide tax relief to certain sectors, the introduction of high tariffs on imported goods may drive up construction and development costs, increasing financial pressure on new CRE projects.
Potential Repeal of the Qualified Business Income Deduction (Section 199A)
The qualified business income (QBI) deduction currently allows pass-through entities and Real Estate Investment Trusts (REITs) to deduct 20% of their domestic business income. If repealed, REIT dividends and pass-through income would be taxed at individual rates, resulting in higher tax burdens for many commercial property owners.
Interest Deduction Modifications (Section 163(j))
The limitation on business interest deductions could be revised to use earnings before interest, taxes, depreciation, and amortization (EBITDA) instead of EBIT. This shift could allow real estate businesses to reclaim deductions by factoring in property depreciation, offering a potential tax advantage for firms that have not opted out of interest expense limitations.
Bonus Depreciation Phase-Out (Section 168(k)) and Cost Segregation
The 100% bonus depreciation introduced in the TCJA is set to be phased out entirely by 2026. While some lawmakers advocate for reinstating full bonus depreciation, its expiration could lead to higher upfront costs for CRE investors who rely on accelerated depreciation for land improvements, fixtures, and qualified improvement property.
Cost segregation studies, which identify and reclassify building assets to accelerate depreciation, will become even more critical as bonus depreciation phases out. Without the ability to deduct 100% of qualifying assets in year one, property owners will need to optimize depreciation schedules to maintain cash flow benefits.
State and Local Tax (SALT) Deduction Cap Expiration
The current $10,000 cap on SALT deductions is scheduled to expire, with some proposals suggesting its removal. If eliminated, investors in high-tax states may see substantial benefits, whereas a continued cap would likely drive increased use of pass-through entity-level tax strategies to minimize the impact.
Section 179 Expensing Limit Increase and 179D Implications
Proposed changes to Section 179 would raise the expensing limit from $1 million to $2 million. However, since long-lived real property generally does not qualify, the impact on commercial real estate is expected to be minimal.
For property owners focused on energy efficiency, the Section 179D tax deduction for energy-efficient commercial buildings remains a key incentive. If tax policy changes alter depreciation timelines or deduction eligibility, 179D deductions could become an even more attractive option for CRE professionals investing in sustainable upgrades.
R&D Tax Credits and Commercial Real Estate
R&D tax credits primarily benefit companies investing in innovation, including architectural, engineering, and construction firms within the commercial real estate sector. Changes to corporate tax rates and deductions may impact the net value of R&D credits.
If bonus depreciation is phased out, firms involved in developing innovative building materials, sustainable construction techniques, or energy-efficient systems could rely more heavily on R&D tax credits to offset costs. Ensuring eligibility and proper documentation will be crucial for maximizing these benefits.
Preparing for a Changing Tax Landscape
With tax policy rising in importance in Deloitte’s annual CRE outlook—from 11th place in 2024 to 5th in 2025—the commercial real estate industry is preparing for potential legislative shifts. If these tax changes take effect, REITs, pass-through entities, and property developers may need to revisit their tax strategies to optimize financial outcomes.
Staying proactive and working with tax professionals will be critical in navigating these evolving regulations and ensuring that CRE investments remain profitable amid a shifting tax environment.
With over 45,000 completed studies nationwide, CSSI stands ready to help you optimize your tax strategy under current and future tax policies. Contact us to learn how these proposed changes could benefit your business.