The 2025 Tax Act for Real Estate Investors: Bonus Depreciation, Opportunity Zones, SALT and 1031

Bonus depreciation is back at 100%, and the acquisition date rather than the closing date decides which rate you get

Section 70301 rewrote section 168(k) so that qualified property acquired after January 19, 2025 is expensed in full in the year it is placed in service. Under the Form 4562 instructions, property acquired before January 20, 2025 and placed in service during 2025 is limited to 40% (60% for long-production property), and a taxpayer may elect 40% instead of 100% for the first tax year ending after January 19, 2025.

For a real estate buyer the allowance never reaches the building itself, which stays on the 27.5-year or 39-year schedule in section 168(c). It reaches what a cost segregation study carves out: furnishings, land improvements and 15-year qualified improvement property. Bonus depreciation and cost segregation on replacement property covers how that works after an exchange, and accelerated depreciation funds describes funds built around the deduction.

Two companion changes: section 179 now allows $2,500,000 of expensing for 2025, phasing out above $4,000,000 of purchases, rising to $2,560,000 and $4,090,000 for 2026; and a new section 168(n) lets a producer expense a manufacturing or agricultural production building placed in service after July 4, 2025 and before January 1, 2031, but leased property and office space are excluded, so it does not help landlords.

Opportunity zones became permanent, with new maps and a rolling five-year deferral starting with 2027 investments

Section 70421 removed the program's expiry. Under amended section 1400Z-2, gain invested in a qualified opportunity fund within 180 days of a sale is deferred until the earlier of the date the fund interest is sold or, for investments made after December 31, 2026, five years after the investment. Basis then rises by 10% of the deferred gain at the five-year mark (30% in a qualified rural opportunity fund), and an interest held ten years is sold with basis equal to fair market value, subject to a new thirty-year outer limit for post-2026 investments.

Investments made before 2027 keep the old rule: their deferred gain comes into income on December 31, 2026, or earlier on sale, though the ten-year exclusion still applies to the fund's own appreciation. Section 1400Z-1 now runs a nomination round every ten years, the first beginning July 1, 2026, with a tighter low-income test at 70% of area median income and no more contiguous-tract designations.

For a seller the practical questions are timing and fit, worked through on 1031 versus opportunity zone versus paying the tax and putting 1031 funds into an opportunity zone fund. The client's opportunity zone page describes the fund structure it offers.

The SALT cap rose to $40,400 for 2026 but phases back toward $10,000 above $505,000 of income, and rental property taxes were never inside it

Section 70120 amended section 164(b)(6): the Schedule A limit is $40,000 for 2025, $40,400 for 2026 and 101% of the prior year's figure through 2029, then $10,000 from 2030. The cap is reduced by 30% of modified AGI above $500,000 for 2025 and $505,000 for 2026, never below $10,000. Married-separate filers get half the cap.

The exception that matters to landlords survived untouched: taxes paid in a trade or business or in an activity described in section 212 are not subject to the cap, so property taxes on a rental still go on Schedule E in full. The SALT cap and rental property page separates the two.

QBI, the estate exclusion, rates and the standard deduction were made permanent, and a new haircut hits top-bracket itemizers

Section 70105 made the 20% deduction in section 199A permanent, widened the phase-in range above the threshold to $75,000 single and $150,000 joint, and added a $400 minimum deduction for taxpayers with at least $1,000 of active qualified business income from 2026. Section 70106 set the section 2010 basic exclusion at $15,000,000 for 2026, indexed after that. Section 70101 made the 10% to 37% rate tables permanent and section 70102 the enlarged standard deduction, $32,200 joint for 2026.

Two provisions cut the other way. Section 70111 replaced section 68 with a reduction, from 2026, of itemized deductions by 2/37 of the lesser of the deductions or the taxable income above the 37% bracket threshold. Section 70601 struck the sunset from section 461(l), so the excess business loss cap, $256,000 or $512,000 joint for 2026, is permanent from 2027, which limits how much of a bonus depreciation loss can offset wages in one year.

Section 1031 was not amended, so the exchange rules you planned around in 2024 still apply

The amendment history on section 1031 ends with Public Law 115-97 in 2017. Real property held for investment or business use is still exchangeable for other real property; property held primarily for sale is still excluded; the 45-day identification and 180-day closing periods are unchanged; and deferred gain still rides into the replacement property under section 1031(d). Rev. Rul. 2004-86, which lets a DST interest serve as replacement property, was not disturbed.

The 25% ceiling on unrecaptured section 1250 gain, the 3.8% NIIT and the three capital gains bands were also left alone, so the arithmetic on the 2026 numbers page is the arithmetic an exchange defers. 1031 and DST tax-law risk covers what a future Congress could change.

Lining the changes up against each other when you are selling in 2026

A seller in 2026 has four federal paths. Exchange under section 1031 and defer every layer, including the state layer in conforming states. Pay the tax and invest the net in a bonus depreciation fund, where 100% expensing of the fund's eligible components creates a first-year deduction against ordinary income but the 461(l) cap, passive activity rules and later recapture apply. Invest the gain in an opportunity fund and defer it five years from the investment date if you invest after December 31, 2026. Or sell and pay.

Only the first path removes the gain from this year's taxable income and MAGI. Bonus depreciation versus 1031 and 1031 into a bonus depreciation fund compare the first two in numbers.