Alert

The sweeping tax and spending legislation enacted on July 4, 2025, commonly referred to as the One Big Beautiful Bill Act (OBBBA), includes several provisions related to real estate and fixed assets, such as bonus depreciation, clean energy deductions and credits, among others, that introduce significant changes impacting taxpayers that own real estate and other fixed assets.

Key changes are as follows.

Bonus Depreciation

Prior to the OBBBA, the first-year bonus depreciation allowance under Section 168(k) was scheduled to phase down to 40% in 2025, 20% in 2026, and sunset entirely to 0% in 2027.

The OBBBA increases the first-year bonus depreciation allowance under Section 168(k) to 100% for property acquired after January 19, 2025, and makes the allowance permanent. This allows taxpayers to frontload depreciation deductions for qualifying property in the first year of ownership, lowering initial tax liability.

Qualified Production Property

The OBBBA introduces qualified production property as a new class of property under new subsection of Section 168. This class of property includes nonresidential real property used in qualified production activities and is eligible for a 100% special depreciation deduction in the year placed in service.

Qualified production property is generally the portion of any nonresidential real property that meets the following requirements:

• Must be used by the taxpayer—not by a lessee—as an integral part of a qualified production activity
• Must be placed in service in the US or a US territory
• Original use must commence with the taxpayer, with some exceptions for certain property not previously used in qualified production activities
• Construction must begin after January 19, 2025, and before January 1, 2029
• Must be placed into service after July 4, 2025, but before January 1, 2031
• Taxpayer must elect to claim an immediate deduction with respect to the qualified property

Key definitions and items to note:

• A qualified production activity is generally the manufacturing, production, or refining of a qualified product.
• A qualified product is any tangible personal property other than food or beverage prepared in the same building as a retail establishment in which it is sold.
• Production is defined as agricultural production and chemical production.
• An activity generally does not count as a qualified production activity unless it results in a substantial transformation of the product. Additional guidance is expected regarding what constitutes substantial transformation.
• This class of property excludes the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales, research, or other non-production functions.

Consider engaging a tax professional to assist in determining the extent to which production property is qualified versus the portion of property excluded from the qualified production property definition, and to ensure you understand all the requirements and limitations in order to claim the deduction.

Section 179 Asset Expensing

Under previous tax law, within Section 179 in tax year 2025, qualifying taxpayers may expense up to $1.25 million of qualifying property, with a phase-out for amounts of qualifying property placed in service above $3.13 million.

The OBBBA increases the Section 179 expense limit to $2.5 million, and the phase-out floor to $4 million, effective for property placed in service in taxable years beginning after December 31, 2024. This allows businesses to immediately expense a higher amount of qualifying property, supporting investment and cash flow.

Section 179D

Prior to the enactment of the OBBBA, a deduction under Section 179D was available for companies that own or design newly constructed or renovated commercial buildings which met certain energy efficiency standards.

This deduction had previously been made permanent by the Consolidated Appropriations Act of 2021 and was enhanced in the Inflation Reduction Act of 2022. For tax year 2025, the deduction ranges between $0.58 per square foot of building area to $5.81 per square foot of building area, depending on compliance with the prevailing wage and apprenticeship requirements within the Inflation Reduction Act.

The OBBBA terminates the Section 179D deduction for property in which construction begins after June 30, 2026. Taxpayers looking to construct commercial buildings should consider this date during the planning and modeling of their project.

Section 45L

Before OBBBA, a tax credit under Section 45L was available for single-family homes and multifamily units acquired—sold, leased, or rented—for the first time as a residence before December 31, 2032, that met certain energy efficiency standards.

The credit ranged from $500 to $5,000 per residential dwelling unit based on the type of development, applicable Energy Star program, and whether prevailing wage compliance was met in accordance with the Inflation Reduction Act.

The OBBBA terminates the Section 45L credit. However, the credit remains available for residential dwelling units acquired—sold, leased, or rented—on or before June 30, 2026.

Taxpayers looking to obtain the tax credit should consider engaging a 45L professional early on in the planning or construction phase to ensure proper testing and inspection requirements are met.

We’re Here to Help

To learn more about the OBBBA as it relates to real estate and other fixed assets, contact your firm professional.

Additional Resources

• Tax Services
• Real Estate Practice