When we started out last year, there was a lot of uncertainty in the tax landscape. We were faced with many expiring provisions, most of which are favorable to the real estate industry. 2026 looks vastly different as we have what I call “temporary permanence.” On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, which gave the ability for taxpayers to finally plan for the upcoming years. This bill made many of the expiring provisions permanent and added some new fun laws to deal with. As with anything, the law can always be re-written but is unlikely for at least the next few years.
Don’t be fooled by bonus depreciation
This was one of the more important provisions that business owners and investors were anxious to know the outcome of. Prior to the OBBBA, bonus depreciation was reduced to 40% for 2025 and set to fully expire after 2026. Now, any assets acquired and placed in service after January 19th, 2025, are eligible for 100% bonus depreciation. The placed-in-service date is relatively easy to determine as it’s the date an asset is ready for use. For real estate, this means the date the property is ready to be occupied and/or leased. However, it’s the acquired date that will trip up many taxpayers.
An asset under the new tax law will be treated as acquired if there is a binding contract. For a purchase, this could mean a contract to purchase an asset. If the contract is entered into prior to January 19th, 2025, then the asset may only be eligible for 40% bonus depreciation even if the purchase date or closing date is after January 19th. The definition of what counts as a binding contract is important in these situations if taxpayers want to take advantage of 100% bonus depreciation.
For constructed property, the outcome may be more favorable as the law allows taxpayers to look at different components separately. For example, a real estate development where construction has begun, but only the parking and foundation have been completed prior to January 19th, may have a portion that is subject to 40% while the remainder is eligible for 100% bonus depreciation on qualifying assets. Therefore, reviewing these dates and planning for deductions will be critical for taxpayers this season, rather than assuming everything purchased in 2025 qualifies for 100% bonus depreciation.
To 1031 Exchange or not to 1031 Exchange
Anyone who has looked at implementing a 1031 exchange is likely aware of the challenges that exist. You must identify a property within 45 days of selling one and subsequently close on the replacement property within 180 days. Those can be tough deadlines to meet while ensuring that investment criteria are met. With 100% bonus depreciation back in full force, there is another option that exists for investors.
The law allows real estate owners to do what’s referred to as a cost segregation study. This study effectively breaks the components of a real estate asset into separate assets that are eligible for shorter depreciable lives. By doing this, certain portions of the building will qualify for bonus depreciation.
In the event a 1031 exchange is not feasible, but an investor still intends to replace the property sold, they may consider performing a cost segregation study on the replacement property to offset gains from the sale. If the sale and the purchase occur in the same tax year, the depreciation deductions from the cost segregation study can offset the gains from the sale of the property. Of course, one would need to consider whether passive loss or other limitations might apply.
Where does opportunity lie?
One provision that has been widely used in the real estate industry is the Opportunity Zone rules. This is a provision that will result in many tax-free investments. It was set to expire at the end of 2026, but was made permanent. Additionally, there are some changes that many will see as enhancements. The new rules take effect January 1st, 2027. There is still tax-free appreciation of an opportunity zone investment if it is held for at least 10 years.
To take advantage of this, many forget you must invest deferred capital gains. Any capital gains that are deferred in an investment for five years will receive a 10% exclusion. The exclusion jumps to 30% if the investment is in a rural area.
The real planning around these updates will be attempting to qualify under the new rules, with an investment post-2026, rather than falling under the current rules, which do not result in a deferral of gains anymore or an exclusion of any portion of those gains. With less than a year left before the transition, this may only involve knowing the rules rather than major structural changes to your investment horizon.
Game plan for 2026
The tax environment moving into 2026 brings a welcome sense of stability for the real estate industry, offering clearer guidance for planning and decision making. Recent legislative changes provide long awaited certainty around several provisions that investors have been monitoring closely, while also introducing new opportunities that call for thoughtful consideration. As always, timing, structure, and understanding how these rules interact will be key to making the most of what’s available. With important updates affecting deductions, transaction strategies, and long-term investment incentives, this is a year where proactive planning can make a meaningful difference for taxpayers navigating an evolving landscape.
As always, please reach out to anyone at BeachFleischman, PLLC for your tax, assurance, and consulting needs.
This article was originally published in the February 2026 issue of TREND report.