Commercial Real Estate After OBBBA: Three Incentives Supporting Long-Term Growth

Higher interest rates and rising vacancy levels have weighed on commercial real estate activity in recent years. But the One Big Beautiful Bill Act (OBBBA), signed into law in July, introduces durable tax incentives that are poised to strengthen the asset class over time. From permanent Opportunity Zones to restored bonus depreciation and interest deductibility, the legislation supports long-hold strategies and improves after-tax returns.

While the impact may be gradual, these incentives offer a compelling reason for investors to revisit CRE as part of long-term planning:

Opportunity Zone Incentives

Opportunity Zones (OZs) offer tax incentives for investing in underserved areas, making them a valuable tool for commercial real estate. Investors who reinvest capital gains into Qualified Opportunity Funds (QOFs) can defer, reduce, or eliminate taxes on those gains, especially when holding the investment for 10 years or more. This structure aligns well with long-hold CRE strategies like housing, retail, and industrial development.

The One Big Beautiful Bill Act (OBBBA) strengthens the program's long-term appeal. By making OZs permanent and introducing new rules starting in 2027, such as rolling deferral windows and enhanced basis step-ups, the legislation positions OZs as a strategic lever for tax-efficient growth and community-focused investment.

What's Changed Under OBBBA: Opportunity Zone Incentives

• Permanent Integration: OZs are now a permanent part of the tax code, removing the 2026 sunset and enabling long-term planning.
• Rolling Designations: Zones refresh every 10 years, allowing the program to stay responsive to shifting economic conditions.
• Rural Expansion: One-third of new zones must be rural, directing capital toward underserved markets with CRE potential.
• RQOF Incentives: Rural Qualified Opportunity Funds offer enhanced tax benefits, including a 30% basis step-up and relaxed improvement rules.
• 2027 Reset: Starting January 1, 2027, new rules take effect that allow rolling 5-year deferrals of capital gains, enhanced basis step-ups (10% for standard QOFs, 30% for RQOFs), and a 30-year cap on gain exclusion.

Looking Ahead

The 2027 reset marks a turning point for Opportunity Zone investing. New designations, improved incentives, and rolling deferral windows will make OZs more flexible and attractive for long-term CRE strategies. Investors should evaluate whether current gains can be timed or structured to take advantage of the new incentives. As the program evolves, OZs may become a more popular option in tax-efficient real estate planning.

Bonus Depreciation Incentives

Bonus depreciation allows investors to immediately deduct a significant portion of the cost of qualifying property, rather than depreciating it over time. For commercial real estate, this means faster recovery of capital invested in assets like buildings, improvements, and equipment, boosting cash flow and internal rates of return. Historically, bonus depreciation has been a cyclical incentive, subject to phase-outs and legislative uncertainty.

The One Big Beautiful Bill Act (OBBBA) reinstates and makes permanent 100% bonus depreciation for qualifying property placed in service after January 19, 2025. This change provides long-term clarity and planning flexibility for CRE investors. By enabling immediate expensing of capital improvements, the provision strengthens the after-tax economics of real estate investment and may encourage reinvestment in underutilized or aging assets.

What's Changed Under OBBBA: Bonus Depreciation Incentives

• 100% Bonus Depreciation Restored: Investors can fully deduct the cost of qualifying property in the year it's placed in service.
• Permanent Treatment: The provision is no longer subject to phase-out, allowing for consistent long-term planning.
• Expanded Eligibility: Applies to a broader range of improvements, including leasehold improvements and certain building systems.
• Section 179 Expensing Boosted: Limits increased to $2.5 million (with a $4 million phase-out), supporting smaller-scale CRE owners and operators.
• Cash Flow Impact: Immediate deductions improve project-level ROI and reduce taxable income in early years.

Looking Ahead

Bonus depreciation is now a permanent fixture in CRE tax planning. Investors can confidently model accelerated deductions into long-term development and renovation strategies. With interest rates still elevated, the ability to offset income quickly is especially valuable. CRE professionals may want to revisit depreciation schedules and improvement plans to take full advantage of the restored incentives.

Interest Deductibility Incentives

Interest deductibility plays a critical role in commercial real estate, where leverage is often central to deal structuring and long-term asset management. Under prior law, limitations on interest expense deductions, especially for pass-through entities, created complexity for partnerships, REITs, and LLCs operating in capital-intensive sectors.

The One Big Beautiful Bill Act (OBBBA) restores and makes permanent the EBITDA-based interest deductibility framework under Section 163(j), allowing investors to deduct a greater portion of interest expenses. This change improves after-tax returns and enhances financing flexibility, particularly for CRE investors planning multi-phase developments.

What's Changed Under OBBBA: Interest Deductibility Incentives

• EBITDA-Based Deductibility Restored: CRE investors can now deduct interest expenses based on earnings before interest, taxes, depreciation and amortization, rather than EBIT.
• Permanent Treatment: The change is no longer temporary or subject to phase-out, enabling consistent long-term planning.
• Pass-Through Entity Relief: Partnerships, LLCs, and REITs benefit from restored deductibility, improving tax efficiency across common CRE structures.
• Improved Financing Flexibility: The ability to deduct more interest supports deal structuring, refinancing, and capital stack optimization.

Looking Ahead

With interest rates still elevated, restored deductibility under Section 163(j) provides meaningful relief for CRE investors relying on leverage. The permanence of the rule allows for more confident underwriting and long-term planning. As capital markets adjust, this provision may help support deal flow and stabilize returns in a higher-rate environment.

Bottom Line: A Long-Term Tailwind for Commercial Real Estate

The OBBBA introduces durable tax incentives that support long-hold, capital-intensive real estate strategies. By making Opportunity Zones permanent, restoring bonus depreciation, and expanding interest deductibility, the legislation reinforces the long-term investment case for commercial real estate. While these provisions may not spark immediate momentum, they lay the groundwork for more flexible planning, improved after-tax returns, and broader geographic opportunity.

Now is the time to revisit your portfolio and explore how these incentives can support long-term growth. Your relationship manager at Citizens Private Bank can help align tax strategy, liquidity planning, and real estate goals, especially as new provisions take effect in 2027.