7 Ways Real Estate Investors Should Prepare For the New Tax Laws On the Way

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In This Article

If nothing else, the “One Big Beautiful Bill” Act is definitely big, at over a thousand pages long.

Critics on both sides of the aisle have slammed the bill for setting up unchecked deficit spending. Republican senators will likely rework the bill to reduce that budget deficit, although true fiscal conservatives look increasingly rare these days.

As a real estate investor, what provisions in the bill should you start preparing for now? Keep an eye on these likely tax changes.

Plan for Renewed Bonus Depreciation

The Tax Cuts and Jobs Act of 2017 (TCJA) allowed real estate investors to take up to 100% depreciation within the first year of buying some properties. That has been phasing out, however. It’s down to 40% this year and scheduled to drop to 20% next year before disappearing entirely in 2027.

In the co-investing club I invest through, we’ve enjoyed bonus depreciation in our own hands-off real estate investments. It’s enabled us to show huge “losses” on our tax returns, even though we typically collect 5% to 16% in cash flow distributions in real life.

Bonus depreciation also makes the “lazy 1031 exchange” strategy even more effective. Because I invest $5,000 each month in new investments through the co-investing club, I never have a shortage of new depreciation, even as older investments sell and the profits pay out.

The new tax bill would renew bonus depreciation at 100% through Jan. 1, 2030. That would make the kinds of passive real estate investments I love even more tax-friendly.

Rethink Your Roth Strategy

The Yale Budget Lab forecasts a U.S. debt-to-GDP ratio of 183% by 2054 if the new tax bill passes. Even without the deficit-laden bill, the debt-to-GDP ratio would still surge to a worrying 142%.

The bottom line? The federal government just keeps on spending like a teenager with daddy’s credit card. At some point, the music will stop, and taxpayers will be left holding a huge bill that can no longer be kicked down the road.

When that time comes, Congress will have to do one of two things: ugly tax hikes or ugly budget cuts. They’ll probably do some combination of both, and it will hurt—a lot.

And yes, I realize the government can just print money and inflate away some of the problem (which they inevitably will, to some extent) until no one wants to buy Treasury bonds anymore, because their value evaporates from inflation.

Where I’m going with all this is that the One Big Beautiful Bill Act (OBBBA) will drive down tax rates to the lowest they’re likely to be in our lifetimes. By that logic, you should max out your Roth retirement accounts to get taxes out of the way now, forever. Your contributions will compound tax-free, and you’ll avoid paying taxes on withdrawals later, when tax rates have risen.

As a final thought, you can invest in passive real estate investments through a self-directed Roth IRA.

Review Your HSA Strategy

Health savings accounts (HSAs) come with even better tax benefits than Roth retirement accounts. You get to deduct the contributions now, they compound tax-free, and you don’t pay any taxes on withdrawals either.

That makes them useful not just for health savings, but also for retirement investing. After all, you’ll have no shortage of health-related expenses in retirement.

The OBBBA doubles the annual contribution limit for HSAs, from $4,300 to $8,600 ($17,100 for families). Unfortunately for higher earners, the ability to contribute starts phasing out for Americans earning over $75,000 ($150,000 for married couples).

The tax benefits on these accounts are too sweet to ignore, so keep an eye on the final changes to HSAs.

Act Now for Clean Energy Upgrades

The current version of the bill that passed the House scraps the residential clean energy credits. Currently, property owners can offset 30% of the cost of clean energy upgrades such as solar panels, batteries, and geothermal pumps with a tax credit. Companies that lease this equipment also currently qualify for a 30% tax credit.

Under the current bill, those tax credits would expire at the end of 2025. If you’ve been thinking about making these upgrades to your properties, make them now to lock in your tax credit.

Reconsider Itemizing Deductions

The Tax Cuts and Jobs Act of 2017 doubled the standard deduction, although that’s scheduled to revert after 2025. The OBBBA would make the higher standard deduction permanent, and add an extra $1,000 from 2025-2028 ($2,000 for married couples).

That said, the OBBBA would lift the cap on state and local tax (SALT) deductions from $10,000 to $40,000. For many higher earners, especially in high-tax states, that would change the calculus on itemizing versus taking the standard deduction.

If you pay high state and local taxes, start tracking all deductible expenses now. It may make more sense to itemize deductions for 2025 than to take the standard deduction.

As part of that conversation, charitable gifts would come with better tax benefits again for families who itemize.

Revisit Your Estate Plan

Likewise, the TCJA roughly doubled the estate and gift tax exemption, currently $13.99 million in 2025 ($27.98 million for married couples). That higher exemption is scheduled to drop back down for 2026, however.

The OBBBA would keep the exemption higher, pushing it to $15 million per person in 2026 and indexing to inflation thereafter.

As a real estate investor, you may end up leaving considerable assets behind for your children and other heirs. The higher exemption could make it advantageous to start giving more to your children while you’re still alive, or to otherwise restructure how you plan to leave wealth for the next generation.

After the final bill passes, consider speaking with an estate planning attorney if you hope to leave significant assets to your heirs.

Meet With a CPA After the Final Bill Passes

At this point, we don’t know which provisions will be scrapped or tweaked by the Senate. But some form of this tax bill is almost certain to become law.

When that happens, sit down for a powwow with your accountant. Talk through all these strategy changes outlined—and whatever others your CPA suggests. You may not need to change your strategy at all. More likely, you’ll want to make at least one or two course corrections.

Who knows? Maybe you’ll find a way to convert some of your income to classify as “tips” or “overtime” to avoid paying taxes on it, since apparently some types of active income will be taxable, while others won’t.

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