As members of the US Congress debate the future of the 2017 Tax Cuts and Jobs Act (TCJA), real estate investors should prepare for potentially favorable tax changes that could impact their portfolios. The proposed extensions of TCJA provisions—including 100% bonus depreciation, a reduction in the corporate tax rate to 15%, and the indefinite extension of the Qualified Business Income (QBI) deduction—offer substantial incentives for investors. However, these cuts come with a major hurdle: funding them. With an estimated $4.5 to $5 trillion price tag over the next decade, some form of compromise may be required.
Key Provisions to Watch
100% Bonus Depreciation
One of the most significant tax incentives for real estate investors has been 100% bonus depreciation, which allows the immediate expensing of certain property components. This provision, which started to sunset in 2023, was a game-changer for investors who were ready for it, enabling them to deduct the full cost of certain property improvements in the year of acquisition.
In a speech Wednesday, Trump reiterated its importance to tax bill. If successfully reinstated, this deduction would allow real estate investors to again front-load much their depreciation, significantly reducing taxable income in the early years of ownership. Cost segregation studies—which break down property components into shorter depreciable lives—will be essential for investors looking to maximize this tax break. Leverage is also very important here. The ratio of tax savings to dollars invested can drive investment decisions.
Reduction of Corporate Tax Rate to 15%
A key element of Trump’s tax plan—at least what he ran for office on—is cutting the corporate tax rate from 21% to 15%. While critics argue that such a reduction would increase the deficit, proponents believe it would make the U.S. one of the most tax-competitive jurisdictions in the world, encouraging more businesses to domicile in the U.S. and broadening the corporate tax base.
Republican lawmakers point to the success of the 2017 Tax Cuts and Jobs Act (TCJA) in reversing corporate inversions as evidence that another rate cut could further strengthen American competitiveness. Prior to the TCJA, 28 U.S. companies moved their headquarters overseas under the Obama administration to avoid the then-35% corporate tax rate. Once the corporate rate was lowered to 21%, corporate inversions stopped entirely, according to House Ways and Means Committee Chairman Jason Smith (R-MO).
For real estate professionals with an operating business, a lower corporate tax rate could make the C-Corporation a more attractive structure, especially for those reinvesting profits rather than distributing them. Investors who currently operate through pass-through entities may want to reevaluate their tax structures if this cut becomes law.
Indefinite Extension of the QBI Deduction
The QBI deduction allows pass-through entities, such as LLCs and S-Corps, to deduct up to 20% of their business income. However, this provision is set to expire in 2025 unless extended. Making it permanent would provide long-term tax planning stability for real estate investors who structure their businesses as pass-through entities.
Investors who rely on this deduction should monitor the legislative process closely, as its extension—or lack thereof—could impact whether pass-through structures remain advantageous compared to C-Corporations.
Legislative Hurdles and Fiscal Implications
Extending these tax provisions is expected to add anywhere from $4.5 to $5 trillion to the federal deficit over the next decade. With rising interest rates and growing concerns over government spending, finding offsets will be a key challenge.
While some Republicans argue that economic growth from tax cuts will help cover the cost, others acknowledge the need for a plan to address the fiscal impact. House Budget Committee Chairman Jodey Arrington (R-TX) recently emphasized, “We’re looking for ways to lower the tax burden, but we must do it in a way that encourages economic growth while not adding to our national debt.”
Many Republican lawmakers are hesitant to pass tax extensions without addressing the deficit. While there is strong support for business-friendly tax cuts, some members of Congress are advocating for spending reductions or alternative revenue sources to offset the cost.
Smith notes that while tax cuts remain a priority, “We have to be mindful of the long-term fiscal impact and ensure that we’re enacting policies that don’t just provide temporary relief but create sustained economic growth.”
While many Republicans want a full extension of the TCJA tax cuts, compromise may be necessary to get the bill through Congress. Some provisions, such as the 15% corporate tax rate and full bonus depreciation, may not pass in their entirety. Instead, negotiators could look at adjustments to the SALT deduction cap, a phased-in corporate tax cut, or a revised depreciation schedule to make the bill more politically viable.
Even Rep. Kevin Brady (R-TX), the architect of the original TCJA, acknowledged that not everything in the 2017 bill will make it through unscathed. “We want to make these tax cuts permanent, but we also have to navigate the realities of Washington,” he said. “The focus will be on delivering as much relief as possible while maintaining the support needed to get it across the finish line.”
Strategic Planning for Real Estate Investors
Get Your Cost Segregation Studies Queued Up
If bonus depreciation is reinstated, cost segregation studies will be one of the most effective strategies for real estate investors. These studies break properties into different asset classes with shorter depreciable lives, allowing investors to claim larger deductions upfront. Investors should proactively conduct these studies in preparation for potential changes, ensuring they can take full advantage of immediate expensing.
Targeting Investments with High Depreciation Potential
Certain property types are particularly well-positioned to benefit from tax cuts. Properties such as gas stations, car washes, manufacturing facilities, data centers
…often have substantial short-life assets that qualify for bonus depreciation. Investors should consider adding these property types to their portfolios before any tax changes take effect, allowing them to lock in larger depreciation deductions immediately.
Evaluating Entity Structures
A corporate tax rate reduction could make C-Corporations more attractive for certain investors, particularly those who reinvest profits rather than distributing them. Investors should work with tax advisors to determine whether restructuring their business entity could lower their overall tax liability under new tax laws.
Consider the SALT Deduction Cap and PTE
The $10,000 cap on state and local tax (SALT) deductions remains a major sticking point in tax negotiations. While some Republicans support raising the cap to $20,000, others oppose any changes, arguing that it primarily benefits high-income taxpayers in blue states.
One workaround that many businesses have used is the pass-through entity (PTE) tax, which allows state taxes to be deducted at the entity level, bypassing the SALT cap. Investors in high-tax states should continue to utilize PTE elections where available, as SALT cap changes remain uncertain.
Todd A. Phillips, JD, is a tax attorney, CEO, author and investor. As he says, “I make the tax code work for you, not against you.” Visit his website at SmarterAboutTaxes.com.
