Senate Tax Bill Draft: Major Wins for Real Estate Investors & Business Owners

The Senate Finance Committee recently unveiled its draft of a major tax bill, and while it’s still early in the legislative process, the provisions on the table could have a significant impact on real estate investors, small business owners, and high-income earners.

Below, we’ll break down the most relevant proposals from the draft text and then tackle a few real-world investor questions to clarify how some of these changes could apply in practice.

100% Bonus Depreciation Could Become Permanent

The standout feature of the Senate bill is the proposal to make 100% bonus depreciation permanent. This would allow businesses to immediately deduct the full cost of qualifying property in the year it is placed in service.

• House version: 5-year extension
• Senate version: Permanent, with no phase-out
• Effective date: Property acquired and placed in service after January 19, 2025

This is one of the most widely supported provisions across parties and industries, and would be a massive win for real estate investors and operators acquiring depreciable assets.

Section 179 Expensing Expanded

The Senate retains the House’s favorable changes to Section 179:

• Expensing threshold: Increased to $2.5 million
• Phase-out threshold: Begins at $4 million

This provides immediate expensing power for small and mid-sized businesses, especially those investing in property improvements and equipment.

Factory Expensing Stays, with Limits

The Qualified Production Property provision remains, but with two differences from the House version:

• The timeframe is shorter by two years
• Food and beverage facilities are excluded

Still, the ability to fully expense the cost of building qualified factories is a big deal for industrial developers.

Interest Expense Deduction More Flexible

The proposed changes to Section 163(j) would:

• Eliminate the requirement to add back depreciation and amortization to EBITDA
• Effectively allow more interest to be deducted

This is a more flexible, pro-leverage provision, especially helpful for syndicators and those financing large real estate deals.

Qualified Opportunity Zones (QOZs) Revamped

QOZs would get a major facelift:

• Permanent program (no sunset)
• Tiered basis step-up schedule:
  • Years 1–3: 1% per year
  • Years 4–5: 2% per year
  • Year 6: 3%
  • Total step-up by Year 6: 10%
• FMV exclusion at Year 10 remains
• Rolling tranches allow continued eligibility

Start date: These changes begin January 2027

QSBS Expansion

The exclusion for Qualified Small Business Stock (QSBS) increases:

• From $10 million to $15 million
• Now indexed for inflation

Great news for startup founders and early-stage investors.

Excess Business Losses Stay But Less Flexible

Currently, Excess Business Losses (EBLs) can convert into Net Operating Losses (NOLs) for future years.

The Senate bill changes that:

• Starting in 2025, EBLs will carry forward as EBLs only
• They will no longer convert to NOLs
• This limits flexibility for offsetting future income

This mostly impacts W-2 high earners and those with large passive losses. It won’t apply to most business owners generating income from their operating entities.

Qualified Business Income Deduction Held at 20%

The Senate kept the QBI deduction at 20%, making it permanent, but did not raise it to 23% as the House proposed. There is no significant change for Specified Service Trade or Businesses (SSTBs) like accountants, consultants, or attorneys.

SALT Cap: Still Up for Debate

The current $10,000 SALT deduction cap is not final. It’s being used as a negotiation position. Senate leaders signaled they expect to compromise, but we’re unlikely to see the House’s proposed $40,000 cap restored in full.

What Happens Next?

This draft must still clear the Senate markup process, get through the Budget Committee, pass the full Senate, and then go to the House, so we’re far from finished.

• Original goal: July 4th passage
• New reality: More likely after Labor Day

With the House and Senate reportedly aligned on 90% of the provisions, the final sticking points (like SALT and IRA credits) will need negotiation.

Real Estate Investor Q&A

To wrap up, here are a few common questions we’ve been getting from the Tax Smart Investor community in light of these changes:

Can I deduct depreciation on a short-term rental if no one rents it this year?
A: You can place the property in service and take depreciation if it’s rent-ready and listed, but if you don’t have any guest stays, the IRS won’t let you qualify for the short-term rental (STR) tax loophole.

Why? Without any customer use, you can’t prove an average stay of 7 days or less, which is a key requirement for claiming losses as non-passive. So get someone, anyone paying fair market rent, to stay there before year-end if this strategy matters to you.

Are there CPAs who review self-prepared returns?
A: Technically, yes, but it’s uncommon. Most CPAs charge a fee that’s close to just doing the return themselves, since reviewing a return properly takes time and carries liability. If you’re dealing with strategies like STR loopholes, QOZs, or large deductions, hiring a specialist is almost always worth it, both for accuracy and audit risk reduction.

I bought a property for $200K and sold it for $100K. Can I deduct the $100K loss?
A: Yes, but make sure to adjust for depreciation. If you claimed $10K in depreciation, your adjusted basis is $190K, which means you’d recognize a $90K ordinary loss under Section 1231. That loss is typically non-passive, since you’re fully disposing of the property.

Final Thoughts

The Senate’s version of the tax bill leans strongly toward investment incentives, especially for real estate. While negotiations still lie ahead, the core provisions like bonus depreciation, QOZ enhancements, and interest deductibility have strong momentum.

Key Takeaway: Now is the time to work with a tax advisor and plan proactively. If the bill passes (likely after Labor Day), your 2025 tax year could look very different.

Book a free discovery call with our team.

Transcript

Introduction

Thomas Castelli 00:01:
Today we’re covering the Senate’s version of the big tax bill and the implications for real estate investors. We’ll walk through the updates, including key provisions and community Q&A.

100% Bonus Depreciation Made Permanent

Ryan Carriere 00:39:
The biggest update: the Senate draft makes 100% bonus depreciation a permanent provision, unlike the House’s five-year extension.

Thomas Castelli:
This is a major win for real estate investors and small business owners. Since it’s one of the least expensive provisions and broadly supported, the chances of it becoming law are high, 95% in my view.

Ryan Carriere, CPA:
Even GPT said 75%, but we both agree it’s probably closer to 90–95%. High likelihood, though not a done deal.

SALT Cap Reversion

Thomas Castelli 03:32:
The House wanted to increase the SALT cap to $40K, but the Senate wants it back at $10K. The $10K is a negotiation anchor, not final policy. This affects high-tax states like NY, CA, MN, TX, and FL.

Ryan Carriere, CPA:
In high-tax states like Minnesota, it’s a bit of a bummer. But I’d trade that loss for keeping 100% bonus depreciation.

Additional Provisions in the Senate Bill

Interest Expense Limitations (Section 163(j))

Thomas Castelli 06:25:
The proposal would let syndicators deduct more interest by excluding depreciation and amortization from the calculation, easing the limitation on interest deductibility.

QSBS Expansion

Raising the exemption from $10M to $15M for qualifying small business stock sales and indexing for inflation.

Section 179 Expansion

Increased expensing thresholds to $2.5M with a $4M phase-out—mainly helping business owners and commercial property components.

Factory Expensing

Entire factory construction costs could be deducted similarly to gas stations or car washes, if certain conditions are met.

Qualified Opportunity Zones (QOZs)

Ryan Carriere, CPA 10:59:
Senate proposes making QOZs permanent with step-up basis incentives similar to the original version. Great for long-term real estate investors.

Thomas Castelli:
New step-up model:

• Years 1–3: 1% per year
• Years 4–5: 2% per year
• Year 6: 3%
• Total: 10% step-up in basis after 6 years

In the 7th year, you are required to realize the initial gains invested (just like the current plan). And QOZs have a rolling tranche every 10 years, which means it’s not a tap that turns off and gain relies on Congress. The step up to fair market value is still at year 10.

This begins January 2027.

Qualified Business Income Deduction (QBID)

Thomas Castelli 21:41:
Senate keeps the deduction at 20%, rejecting the House’s proposed 23%. No significant changes for specified service trades like accounting or consulting. A small carve-out exists, offering $400 per $1,000 of QBI, though it’s minimal.

Excess Business Loss Rule Changes

Ryan Carriere, CPA 24:20:
The current rules allow EBLs to convert to NOLs. The Senate draft would remove this starting 2025, meaning EBLs just carry forward as EBLs, not as NOLs, making them less flexible.

Thomas Castelli:
This change mainly affects high-income earners with W-2 or portfolio income. Business owners remain mostly unaffected.

Community Q&A

STR Depreciation Without Guest Stays

Q: Can I take a depreciation deduction on a STR if I don’t have any guests in 2025?

A (Thomas) 29:52:
You can place it in service and take passive deductions, but without guest stays, you can’t qualify for the short-term rental loophole.

Ryan Carriere:
Rent it at least once, even in off-season, to activate the STR loophole if that’s your strategy.

Should I Hire a CPA to Review My Return?

Q: Are there CPAs who will review a self-prepared return?

A (Thomas) 33:33:
Not many, and the fee may be close to what you’d pay to have it done professionally. With complex situations (bonus depreciation, DAFs, farm income), hiring a pro is likely the better option.

Ryan Carriere:
DIY tax prep for real estate investors with multiple strategies is risky. A tax pro saves time and catches what software or inexperience may miss.

Taking a Loss on a Property Sale

Q: Bought for $200K, sold for $100K. Can I deduct the $100K loss?

A (Thomas) 41:44:
Yes, but factor in depreciation. If you took $10K of depreciation, your adjusted basis is $190K. So you’d report a $90K loss, and it would be treated as an ordinary loss under Section 1231.

And if you’re looking for help? The link to request a free discovery call is in the show notes. We’d love to learn more about your situation and how we can help.

Thanks for tuning in, and we’ll see you next week on the Tax Smart REI Podcast.

Disclaimer: This podcast summary and transcript were partly generated and may contain some errors or miss key points from the audio recording.