Minimizing Federal Taxes in 2025 for Commercial & Affordable Housing Real Estate

The 2025 tax year is one of the most pivotal in recent memory for real estate owners, operators, and developers. The One Big Beautiful Bill Act (OBBBA) significantly reshapes depreciation, interest deductions, R&E amortization, and SALT-related planning, creating powerful opportunities to reduce taxable income before the end of the year. Below are the highest-impact strategies for commercial real estate and affordable housing organizations to consider.

100% Bonus Depreciation Returns

OBBBA permanently restores 100% bonus depreciation for qualified new and used assets placed in service after January 19, 2025. Purchases placed in service on or before that date remain subject to the 40% limit.

Real estate businesses benefit substantially because many improvements qualify as §1245 property.

High-value examples:

• Tenant improvements and FF&E
• Security, telecom, and access control systems
• Appliances and equipment for LIHTC properties
• Certain site improvements and parking lot elements

A cost segregation study is now even more valuable. Reclassifying assets into shorter lives dramatically expands what qualifies for a 100% bonus.

Action item: Time asset placements after January 19 where possible; evaluate cost segs for acquisitions and renovations.

Section 179 Expensing

OBBBA raises the Section 179 expensing limit to $2.5 million (with a phaseout at $4 million). For real estate, Section 179 is especially useful for:

• Nonresidential roofs
• HVAC systems
• Fire protection and alarm systems
• Security systems
• Certain lodging property

Section 179 allows asset-by-asset elections but is limited by taxable income. Bonus depreciation has no income limit, so modeling both is essential.

Interest Deduction Changes

2025 brings more favorable interest deductibility under OBBBA, benefiting capital-intensive real estate businesses.

Key planning steps:

• Reevaluate whether to maintain or revoke the Real Property Trade or Business (RPTB) election.
• If revoking, bonus depreciation eligibility may increase; if maintaining, more interest may be deductible.
• For affordable housing, evaluate impacts on tax-exempt bond financing, eligible basis, and partnership allocations.

These decisions can materially affect both cash flow and long-term tax efficiency.

PTET Elections

Despite the temporary SALT cap increase to $40,000, Pass-Through Entity Tax (PTET) elections remain beneficial for partnerships, LLCs, and S corps.

PTET is especially effective when:

• Owners have high personal income
• Owners take the standard deduction
• Lower pass-through income reduces NIIT or self-employment taxes
• Preservation of other deductions (e.g., rental losses, credits) depends on reducing taxable income

For affordable housing developers, PTET can help smooth income spikes from developer fees or guarantee payments.

Maximizing the QBI Deduction for Real Estate Owners

Pass-through real estate owners can deduct up to 20% of qualified business income (QBI), subject to wage and property tests.

Strategies for 2025:

• Increase W-2 wages at property-management entities
• Purchase qualified property (cost seg increases UBIA)
• Accelerate deductible expenses before year-end
• Defer income into 2026 where beneficial

For LIHTC projects, where taxable income is often low, QBI planning intersects with PTET and NIIT considerations, requiring careful modeling.

R&E Expense Planning

Real estate firms frequently incur overlooked §174 R&E expenses, including:

• Energy-efficiency modeling
• Proprietary software development
• Engineering feasibility and materials testing

OBBBA allows:

• Five-year amortization beginning in 2025
• Retroactive deductions (back to 2022) for small businesses
• Accelerated amortization of 2022–2024 amounts

These deductions can offset taxable income from dispositions or large developer fees.

Traditional Year-End Moves That Still Deliver

Timing Income and Expenses

• Prepay repairs, maintenance, insurance, and utilities
• Accelerate needed repairs (not capital improvements)
• Defer rent or fee income where contractually permissible

Retirement Plans

• Increase 401(k), SEP, or profit-sharing contributions
• Consider a cash balance plan for high-income principals

Accounting Method Optimization

• Evaluate cash vs. accrual for property management companies
• Apply de minimis safe harbor ($2,500/$5,000 per item)
• Ensure repairs are not being capitalized unnecessarily

Tax Credits

• 179D energy-efficient commercial buildings
• 45L energy-efficient homes
• Solar and clean-energy investment credits
• WOTC for property-level hiring

Depreciation & Loss Review

• Write off abandoned or retired assets
• Harvest capital losses or dispose of underperforming properties
• Review passive loss utilization opportunities

Affordable Housing–Specific Opportunities

Optimize LIHTC Transactions

• Use cost segregation to maximize depreciable basis (without inflating eligible basis)
• Use bonus depreciation to offset developer fee income

Partnership & Financing Considerations

• Reevaluate allocations, DROs, and capital account maintenance
• Coordinate interest deduction limitations with tax-exempt bond strategies
• Model PTET effects across multi-state LIHTC partnerships

Conclusion: 2025 Real Estate Tax Planning Requires Immediate Action

Between restored 100% bonus depreciation, expanded Section 179 expensing, improved interest deductibility, and PTET/QBI planning opportunities, 2025 offers unusually powerful tax-minimization options for commercial and affordable housing businesses.

Real estate tax planning is complex, and achieving the best results requires modeling strategies in conjunction with an experienced advisor. Before December 31, businesses should review their asset acquisitions, entity elections, depreciation schedules, credits, and income timing to ensure they fully capitalize on the opportunities created by the OBBBA.