6.10.26 Charleston Chapter Meeting

Charleston Chapter Key Take Aways!

100% Bonus Depreciation Returns

• Full 100% bonus depreciation is reinstated for qualified property acquired after January 19, 2025.
• This eliminates the phase-down schedule that had been reducing bonus depreciation benefits.
• Cost segregation studies become even more valuable because reclassified short-life assets can be fully deducted in year one.
• Section 179 expensing limit increases to $2.5 million.

Impact: Real estate owners and investors can generate significantly larger upfront tax deductions and improve project cash flow.

2. Energy Incentives Are Being Eliminated or Reduced

Several popular energy-related tax incentives are ending:

Commercial Real Estate

• Section 179D Energy Efficient Commercial Building Deduction ends for projects that do not begin construction before June 30, 2026.
• Section 45L Energy Efficient Home Credit terminates for homes purchased after June 30, 2026.

Individual Tax Credits

• EV credits end after September 30, 2025.
• Residential energy improvement and solar credits end after December 31, 2025.

Impact: Developers and owners should accelerate qualifying projects before these deadlines.

3. New Qualified Production Property (QPP) Deduction

• Manufacturing and production facilities may qualify for a 100% deduction in the year placed in service.
• Applies to certain nonresidential real property used in manufacturing, production, or refining activities.
• Construction must generally begin between January 19, 2025 and January 1, 2029.

Impact: Major incentive for industrial, manufacturing, and production-related development.

4. Improved Business Interest Deduction Rules

• Section 163(j) returns to the more favorable EBITDA-based calculation.
• Businesses can once again add back depreciation, amortization, and depletion when calculating Adjusted Taxable Income (ATI).

Impact: Many real estate and capital-intensive businesses will be able to deduct more interest expense.

5. Qualified Business Income (QBI) Deduction Made Permanent

• The Section 199A 20% deduction for pass-through businesses was scheduled to expire after 2025.
• The deduction is now permanent.
• Income phase-out thresholds are expanded.
• New minimum deduction available for certain active business owners.

Impact: Strong long-term tax planning benefit for LLCs, partnerships, S-Corps, and many real estate ownership structures.

6. Excess Business Loss Rules Continue

• Section 461(l) limitations remain in place.
• Business losses remain limited to:
  • $626,000 for Married Filing Jointly
  • $313,000 for Single taxpayers
• Excess losses continue to carry forward as NOLs.

Impact: High-income investors still face restrictions on using large business losses.

7. IRS Strengthens Partnership Anti-Abuse Rules

• Clarifies that disguised sales of partnership interests can be challenged even without specific regulations.
• Reinforces the substance-over-form doctrine.

Impact: Partnership transactions and capital restructuring will receive greater IRS scrutiny.

8. Opportunity Zone (OZ) Deadline Approaching

• Deferred Opportunity Zone gains must generally be recognized by December 31, 2026.
• Valuations will be critical because fair market value directly affects tax liability.

Impact: Existing OZ investors should begin planning now for the 2026 recognition event.

9. Opportunity Zone Program Becomes Permanent

The new OZ 2.0 framework:

• Creates a permanent Opportunity Zone program.
• Introduces new zone designations beginning in 2027.
• Allows recurring 5-year gain deferrals.
• Adds enhanced reporting requirements.
• Provides additional incentives for rural investments.

Impact: Long-term certainty for Opportunity Zone investing and development.

10. Rural Development Receives Significant Benefits

New Qualified Rural Opportunity Funds (QROFs):

• Receive enhanced Opportunity Zone benefits.
• Rural projects require only a 50% substantial improvement threshold versus 100% under traditional OZ rules.
• Additional basis step-up opportunities available.

Impact: Rural industrial, logistics, housing, and economic development projects become much more attractive.

11. Affordable Housing Incentives Expanded

• New Markets Tax Credit (NMTC) made permanent.
• Low Income Housing Tax Credit (LIHTC) enhanced:
  • Permanent 12% increase to 9% allocations beginning in 2026.
  • Reduced Private Activity Bond threshold for 4% LIHTC projects.

Impact: Significant boost for affordable housing development nationwide.

12. Additional Real Estate Benefits

• New tax exclusion for certain rural and agricultural real estate loans.
• Percentage-of-Completion accounting relief expanded for certain residential construction projects, including condominiums.

Impact: Additional financing and accounting advantages for residential and rural development.

What CRE Professionals Should Be Paying Attention To

1. 100% Bonus Depreciation is back – cost segregation studies become even more valuable.
2. Energy incentives are disappearing – accelerate projects before deadlines.
3. QBI deduction is now permanent – positive for pass-through ownership structures.
4. Industrial/manufacturing development receives major tax incentives through QPP.
5. Opportunity Zone investors need a 2026 strategy now.
6. Affordable housing and rural development receive some of the biggest new benefits.
7. Interest deductibility improves, helping highly leveraged real estate projects.

For commercial real estate owners, developers, investors, lenders, and service providers, the legislation generally shifts incentives away from clean energy projects and toward domestic production, industrial development, pass-through businesses, affordable housing, and rural investment opportunities.