REITs and the One Big Beautiful Bill Act: What Changed for Investors and Sponsors

May 19, 2026

By: Wiss Team

Wiss Team

Key Takeaways

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the Section 199A deduction for ordinary REIT dividends permanent at the existing 20% rate, eliminating the prior sunset and giving investors a stable, indefinite planning horizon.
The taxable REIT subsidiary (TRS) asset limit increased from 20% to 25% of REIT assets, effective for taxable years beginning after December 31, 2025, expanding the structural flexibility available to REIT sponsors.
The OBBBA permanently restores the EBITDA-based calculation for Section 163(j) interest deduction limitations, a favorable shift that directly reduces the bite of interest expense caps on leveraged real estate entities.
1031 exchanges are preserved, opportunity zone incentives are made permanent with a new rural OZ tier, LIHTC allocations increase by 12%, and 100% bonus depreciation returns permanently for qualifying property placed in service after January 19, 2025.
Bottom line: The OBBBA did not merely extend existing provisions. It permanently reconfigured the tax architecture for REIT investors, sponsors, and developers in ways that affect capital structure decisions, dividend planning, and deal economics right now.

The legislative process rarely produces clarity. The One Big Beautiful Bill Act is an exception. When President Trump signed it into law on July 4, 2025, it resolved several significant REIT-related uncertainties that had been accumulating as TCJA’s expiration date loomed. For REIT investors and real estate sponsors, the relevant question is no longer what might change. It is what changed, what it means, and what to do about it.

The Section 199A Permanence Story Is Bigger Than the Headline

The OBBBA permanently extended the Section 199A qualified business income deduction for ordinary REIT dividends. The prior sunset was December 31, 2025. That deadline is gone.

What the headlines often miss: earlier versions of the bill proposed increasing the deduction rate from 20% to 23%. The final legislation retained the existing 20% rate. For individual REIT investors, the practical effect is stability rather than improvement. The deduction on ordinary REIT dividends will continue to reduce the effective tax rate on that income by up to 20% of the qualifying amount, permanently, under current law.

That permanence matters more than the rate question. Investors can now structure portfolios, evaluate REIT dividend income against other yield alternatives, and plan distributions without the recurring uncertainty of congressional extension cycles.

The TRS Limit Expansion Opens Structural Options

Taxable REIT subsidiaries allow REITs to hold assets and conduct activities that would otherwise disqualify them from REIT status. The OBBBA increased the quarterly asset test limit on TRS securities from 20% to 25%, effective for taxable years beginning after December 31, 2025.

This is a structural change, not a change in the tax rate. It gives REIT sponsors more room to house non-qualifying assets and activities inside a TRS without failing the REIT asset tests. For diversified REITs with hotel operations, lending activities, or fee-based service businesses within their structures, that additional 5 percentage points of headroom can meaningfully reduce compliance risk and expand what is achievable within the REIT wrapper.

Sponsors evaluating new platform structures or acquisitions of operating businesses should model the impact of this change before assuming existing TRS capacity is the binding constraint.

Section 163(j) and the Return of EBITDA-Based Interest Limits

Since January 1, 2022, Section 163(j) has calculated the 30% business interest deduction limitation using an EBIT-based figure, which includes the full impact of depreciation and amortization in reducing adjusted taxable income. For capital-intensive real estate entities, that treatment was consistently punishing.

The OBBBA permanently restores the EBITDA-based calculation. Adjusted taxable income for Section 163(j) purposes will again be calculated before deducting depreciation and amortization, which substantially increases the amount of interest expense that qualifies for deduction.

Real estate entities that previously made the irrevocable election to be treated as an “electing real property trade or business” under Section 163(j) should revisit whether that election still makes sense in light of the restored EBITDA calculation. The election may no longer be necessary to avoid a meaningful limitation, and once made, it cannot be undone.

The Provisions That Reshape Deal Economics

Several additional OBBBA provisions directly affect real estate transactions and development economics:

100% bonus depreciation is permanently restored for qualifying property acquired and placed in service after January 19, 2025. When combined with cost segregation analysis, this provision can materially accelerate deductions for commercial acquisitions and new development.

1031 exchanges were preserved in their current form, maintaining indefinite capital gains deferral on like-kind real estate exchanges. This was not guaranteed during the legislative process, and its survival is significant for portfolio management strategies.

Opportunity zones are now permanent. The prior sunset is eliminated for new investments, governors will redesignate eligible tracts every 10 years, and a new rural opportunity zone tier offers enhanced benefits including a 30% basis step-up after five years. The prior December 31, 2026, gain recognition deadline for deferred gains under the original TCJA program remains in effect.

LIHTC allocations to states increase by 12% permanently beginning in 2026, and the private activity bond financing requirement for projects without a state credit allocation drops from 50% to 25%. For affordable housing developers, this is a meaningful improvement in the feasibility of deals.

What the Final Bill Did Not Do

Two provisions that generated significant concern during the legislative process were dropped from the final bill. The proposed Section 899 retaliatory tax on foreign persons from countries with digital services taxes, which had raised concerns about gross-up clauses in real estate credit agreements, does not appear in the enacted legislation. Carried interest taxation was also left unchanged from prior law.

What the OBBBA Means for Real Estate Advisors and Owners

The OBBBA establishes a materially more favorable and more permanent tax environment for real estate investment than existed at any point since 2021. The permanence of multiple provisions, specifically the Section 199A deduction, 100% bonus depreciation, EBITDA-based interest limitations, opportunity zone incentives, and 1031 exchange preservation, allows for long-term planning without the recurring risk of legislative sunset.

That stability creates opportunity. Wiss works with REIT sponsors, real estate developers, and real estate investors to translate these changes into concrete planning strategies, from capital structure modeling to TRS structuring to cost segregation analysis. If you are evaluating how the OBBBA affects your specific REIT structure or real estate portfolio, contact Wiss’s real estate advisory team.