Major Real Estate Tax Changes in 2026: Bonus Depreciation, QOZs, SALT, and More

Real estate tax law has actually remained relatively steady over the past couple of decades. Our tax law is long, complex, and doesn’t see a lot of change.

But, with the One Big Beautiful Bill, a lot of new (and old) opportunities have come into play for real estate investors.

100% Bonus Depreciation

In 2026, Bonus depreciation WAS slated to sunset into 20%… and 0% in 2027. But, with the July 4th passage, 100% bonus depreciation is back in full force.

Bonus depreciation (defined in S168(k) ) is taken on 5, 7, & 15 year assets. This is fantastic because it allows these assets to be immediately expensed instead of taken over their longer life span. This creates a significant amount of tax savings today for real estate investors versus receiving small amounts of tax savings over time.

However, real estate is normally depreciated at 27.5 years for residential property (think rented out for someone to live) and 39 years for commercial property (think hotel or shopping square).

But with a cost segregation study, you can pull 25%+ of a property (so $25,000 of a $100,000 property) and immediately expense that $25,000. This is a major win for 90% of investors, and a great tax play if you are investing in an STR or qualify for real estate professional status.

Quick Example:

A real estate investor purchases an STR today at $500,000. They will depreciate that $500,000 over 39 years.

If that real estate investor instead utilized a cost segregation study, there’s a chance 25% of their purchase price ($125,000) would be able to offset their taxable income, creating almost $40,000 of tax savings, creating an immediate cash-on-cash return for the investor.

179 Threshold Increased

This is bonus depreciation’s older cousin. It used to just allow $25,000 of a deduction. Now, you can expense (write-off) up to $2.5M for S179.

S179 has more limitations than bonus depreciation. It is only available for commercial property and applies to 5 and 7 year assets on new property and only 15 year property AFTER the property is placed in service. But, if you purchased a property on January 1st of 2025, or anytime before January 20th of last year, it might be your saving grace.

Example: Sally purchases and closes on a short-term rental on January 15th of 2025. Unfortunately, Sally is going to be stuck with 40% bonus depreciation. But Sally is able to use 179 on her furniture (5-year property), as well as the 5-year pulled from the cost segregation study.

The 15-year property would not be eligible in this example. Now, if Sally decides to place a fence and waterfall after running the property for a year, this might qualify as 15-year property, and then would be eligible for 179.

TLDR: 179 is great for STRs that can’t take bonus depreciation or states that don’t follow bonus depreciation

PS: This is confusing to CPAs and AI. Book a call with our team.

Permanence of Qualified Opportunity Zones

Qualified Opportunity Zones have been around since 2017, and have been an area of both confusion and speculation on ‘does this work’. We have data now that says ‘yes this works’ and, it’s not a permanent part of the tax code going forward. We are in the last year of the ‘old’ QOZ rules (all gain deferrals are now recognized this year).

What is a QOZ?

A qualified opportunity zone are low-income census tracts hand-picked by state governors — up to 25% of eligible tracts — and rubber-stamped by the Treasury. Once designated in 2018, the map was frozen. But the new tracts will be released this year if they have not already been created. To invest, one typically takes capital gains and invests in a Qualified Opportunity Fund, which then invests in a Qualified Opportunity Zone Business.

Caution: Investing in a QOZ without guidance could result in loss of tax benefits and ultimate recognition of gain.

We are at the end of the runway under the original QOZ program. But once again, the OBBBA made QOZs a permanent part of the tax code.

But the rules are more helpful than ever. In 2027, your capital gain can be deferred into a QOZ for 5 years. If you keep your gain invested in the QOZ, then at year 5, you receive a 10% haircut on your capital gain, effectively causing a $100,000 capital gain to be $90,000 (this is 30% for rural opportunity zones).

If you hold your investment in the QOZ, then any and all appreciation after 10 years is immediately tax-free. There is a max appreciation at 30 years, but imagine the amount of appreciation over 30 years (which, if you look historically, that’s 200% of appreciation, and all of it would be tax-free)

TLDR: If you can hold on for long enough, this becomes the best way to defer AND eliminate tax.

New Qualified Production Property

Qualified Production Property is the newest provision for real estate investors. This provision allows for the immediate expensing of the entire cost of any ‘manufacturing, production, or refining’ of a qualified product that results in a substantial transformation.

What are some examples of this?

Substantial Transformation means a product being turned from one clear item to another

1. Turning metal rods into nails
2. Turning a tree into lumber
3. Processing meat into hot dogs (don’t watch the YouTube video)
4. Processing tuna into a can

This is also rather narrow, because the purchase must happen after January 19th and cannot have been used in this capacity before. It must essentially have been a brand new build or newly converted for this purpose.

Office space and warehouse storage also cannot be used for this, but there is a 95% De Minimis Safe Harbor that was released by Notice 2026-16.

Estate & Gift Tax Exemptions

This was up for expiration in 2025, and once again, the One Big Beautiful Bill made this a permanent provision.

Real estate investors can grow their portfolio and pass it to their descendants up to $15,000,000 tax free.

Those who need to think about this planning should consider various estate planning methods to lock in the $15M exemption and also plan for their future generations.

SALT Increase to $10,000

State and Local Tax (SALT) deductions were limited to $10,000 since 2017. The OBBBA increased the cap to $40,000 for anyone who has an AGI (adjusted gross income) of $500,000 or less.

I call this the ‘Salty’ spot. This is a major point of tax planning for clients, and around $10,000 in taxes.

If you are a high net worth individual, you can reduce your taxable income to be less than $500,000, you’ll be getting an additional $10,000 of tax savings on top of your current tax savings from your strategies (real estate, oil & gas, etc)

PS: Book a free call with us today, and our team will always keep you informed and optimized.