Q2 2025 Real Estate Tax & Market Insights

Key Updates for Commercial and Affordable Housing Clients

As we reach the halfway mark of 2025, our Real Estate Tax team is sharing the latest insights to help our clients stay ahead of emerging challenges and opportunities. This quarterly update includes relevant tax developments, market trends, and planning considerations for both commercial real estate and affordable housing stakeholders.

Tax Law Updates: What You Need to Know

Affordable Housing

Recent updates surrounding the Low-Income Housing Tax Credit (LIHTC) program emphasize the continued importance of compliance and strategic planning. Several states have introduced new or expanded affordable housing tax incentives, while the IRS has issued clarifying guidance on tax-exempt bond financing and income eligibility certifications. Providers should also be aware of proposed changes to basis boosting criteria under the Housing Credit.

Legislative Watch: Potential Changes Ahead

Several provisions in the proposed Affordable Housing Credit Improvement Act (AHCIA)—still under consideration in Congress—could significantly expand the availability and usability of LIHTCs. Key proposals include:

• Restoration of the 12.5% allocation increase, which expired in 2021.
• Lowering the 50% bond financing threshold to 25%, making it easier for more projects to qualify for 4% credits.
• Increased basis boosts for certain hard-to-develop projects and populations.

While the bill has not yet passed, affordable housing developers should remain aware of its progress, as it could impact deal structures, funding availability, and long-term tax credit strategy. We’re monitoring developments and will share updates as they unfold.

Commercial Real Estate

Cost segregation remains a critical tool, particularly with the ongoing phase-out of bonus depreciation (currently at 60% in 2025). Business interest expense limitations under Section 163(j) continue to impact commercial real estate partnerships—especially for properties acquired with leveraged financing. Strategic tax planning can now mitigate exposure and maximize deductions through year-end.

Q2 Market Trends

Commercial Sector

• Office & Retail: Market corrections are continuing, with suburban office space seeing moderate leasing activity while central business districts lag behind.
• Industrial: Demand remains strong, especially for logistics and cold storage. Rental rates have plateaued in many areas but remain above pre-pandemic levels.
• Investment Activity: Transactions are increasing slightly as cap rates stabilize. However, refinancing remains challenging, given elevated interest rates and cautious lending environments.

Affordable Housing

• Rental Demand: Waitlists for income-restricted housing have grown in most states, signaling increased need across all affordability tiers.
• Construction Updates: Rising construction and financing costs are delaying some new affordable developments. HUD's income limits and Fair Market Rent increases are driving higher rental ceilings in many areas.
• Funding Environment: Federal and state grant timelines are tightening—housing providers should stay alert to deadlines for gap financing and preservation funds.

Q2 Tax Planning Opportunities

Don’t wait until Q4 to identify potential savings. Q2 offers timely tax moves to optimize your real estate portfolio:

• Mid-year cost segregation studies can uncover new depreciation opportunities.
• Property tax appeals are underway in many jurisdictions. We recommend reviewing your most recent assessment data and deadlines now.
• Estimated tax payments for Q2 are due June 17. Ensure you’re accounting for recent income shifts or refinancing activity.
• Entity structure reviews may reveal opportunities for tax efficiency, especially if your portfolio has grown or diversified this year.

Compliance & Regulatory Developments

Commercial Real Estate

The SECURE 2.0 Act has introduced new retirement plan obligations for small to mid-size real estate businesses. If your business sponsors a 401(k), you may be impacted by auto-enrollment, Roth mandate, or new filing thresholds.

Affordable Housing

HUD and IRS continue to emphasize documentation integrity and tenant file audits. We recommend early preparation for annual LIHTC compliance reviews. Additionally, some state housing authorities are revising their audit sampling methodologies, so be sure your team is up to date.

IRS Audit Watch: Real Estate Triggers to Avoid

As IRS enforcement intensifies, real estate investors and developers should be mindful of these audit flags:

• Misclassification of repairs vs. capital improvements.
• Improper grouping of passive activities.
• Inaccurate depreciation schedules on new acquisitions.
• Overstated cost allocations for rehab and construction.

A mid-year check-in with your tax advisor can ensure your filings are audit-ready.

Looking Ahead to Q3

Planning now can set you up for a smooth second half of the year. Here’s what to prioritize:

• Prep for LIHTC audits and tenant file reviews.
• Begin gathering information for partnership K-1s.
• Explore new energy efficiency incentives and green building grants.
• Review real estate debt terms and potential refinancing opportunities for 2026.

Let’s Talk Strategy

Whether you're navigating HUD compliance, evaluating new projects, or planning for year-end tax positions, our Real Estate team is here to support your goals. If you’d like to schedule a Q2 check-in or receive a customized planning checklist, contact us today.