2025 Year-End Tax Strategies for Real Estate Investors

Key Points

• Legislative Changes: The One, Big, Beautiful Bill Act (OBBBA) brings major tax updates for real estate investors, including 100% bonus depreciation, increased Section 179 limits, expanded low-income housing credits, new Opportunity Zone rules, and a permanent 20% QBI deduction.
• Tax Credit Deadlines: Key energy efficiency credits (45L, 179D, 48E) are expiring after 2026 or 2027—investors should act before these sunset dates.
• Cost Segregation Opportunities: With 100% bonus depreciation reinstated for property placed in service after January 19, 2025, cost segregation studies can accelerate deductions and enhance cash flow.
• 1031 Exchanges and Portfolio Review: Investors should consider like-kind exchanges to defer capital gains and conduct a year-end review to identify underperforming assets for strategic repositioning.
• Debt Management: Analyze refinancing options and ARM schedules to maximize deductibility and minimize risk amid shifting interest rates.
• Bookkeeping Readiness: Finalize adjusting entries, reconcile accounts, and verify all real estate transactions with supporting documentation to ensure smooth tax filing.

Understanding the Tax Landscape

Before exploring specific strategies, it’s essential to first understand the current tax environment for real estate investors. The financial landscape is constantly evolving, influenced by legislative updates, economic trends, and regulatory changes. Staying informed is the foundation for making sound, strategic decisions.

Legislative Updates - One, Big, Beautiful Bill Act 2025 Application

The tax landscape is constantly changing, and staying updated on legislative updates is key for real estate investors. The most important item for real estate investors to be aware of is the changes from the One, Big, Beautiful Bill Act (OBBBA) that was signed into law. Below are the key changes for real estate investors in 2025 and beyond:

1. Increased Bonus Depreciation

This new bill restores bonus depreciation to 100% for property placed into service after January 19, 2025, and increases the section 179 limit to $2.5 million with a phase-out threshold of $4 million (applicable to non-residential real estate).

• Planning: For properties purchased after January 19, 2025, it could be beneficial to do a cost segregation study. This study will give real estate investors the opportunity to take more depreciation in 2025 and help lower their tax burden. While the increased Section 179 limits can help commercial real estate owners write off more of their qualified improvements, which can also help lower taxable income.

2. Increased Low-Income Housing Credits

The OBBBA permanently increases the low-income housing tax credit to 12% in 2026 while lowering the 4% bond test to 25%.

• Planning: Real estate professionals can leverage expanded federal allocation and consider state/local options to help increase ROI on these types of projects. Additionally, investors can investigate new opportunities like direct pay options and expanding eligibility for smaller investors to participate. Project developers should consider how to best leverage these credits through state-level Qualified Allocation Plans (QAP) by focusing on specific housing needs, locations, and project features to maximize impact. 

3. Opportunity Zones – New Round, New Rules

Existing designations end in 2026, with a new Opportunity Zone program launching for 2027–2033. It includes stricter eligibility and reporting, plus new standards for basis step-up and substantial improvements, which include an enhanced basis step-up from 10% to 30%.

• Planning: Reevaluate your investment pipeline. Zones that previously qualified may no longer qualify, so stay updated and consult professionals to reassess project viability under the new framework.

4. Elimination of Energy Efficiency Credits

Credits for energy-efficient homes (45L), commercial buildings (179D), and commercial clean energy (48E) are set to sunset after 2026 or 2027.

• Planning: Push to finalize qualifying energy-efficient developments before the cutoff dates and recalculate ROI for future projects with the assumption that these tax incentives will no longer apply.

5. Qualified Business Income (QBI) Deduction Made Permanent: 

The 20% QBI deduction is now permanent and includes higher income phase-out thresholds.

• Planning: For those operating through passthrough entities, consider how your structure might optimize the QBI benefit. For those with many activities, consider aggregating activities to maximize your QBI benefit.

Economic Considerations

Economic conditions significantly affect real estate investments. Factors such as interest rates, inflation, and market trends can influence the overall tax implications of real estate transactions. Additionally, tariffs and trade policies are becoming an increasingly important consideration — particularly for larger real estate developers. Rising tariffs on construction materials like steel, aluminum, and lumber can drive up development and renovation costs, which may, in turn, impact project timelines and profitability. Investors and developers should carefully evaluate how these economic and policy shifts might affect their cost structures and incorporate these insights into their year-end tax planning strategies.

Strategic Year-End Tax Planning Tips

1. Evaluate Portfolio Performance. 

Begin your year-end tax planning by conducting a comprehensive review of your real estate portfolio performance. Identify underperforming assets and assess whether selling, exchanging, or reinvesting makes sense.

Remember, a detailed portfolio analysis can uncover hidden opportunities for tax optimization. For instance, divesting from underperforming assets may generate capital losses that can be offset against capital gains, reducing overall tax liabilities.

2. Leverage Cost Segregation Studies. 

Cost segregation studies can be a powerful tool for accelerating depreciation deductions on certain components of a real estate investment. This involves identifying components of a property that can be reclassified for faster depreciation, leading to increased tax deductions in the short term.

These studies are particularly advantageous for real estate investors in larger properties, as they allow them to front-load depreciation deductions and improve cash flow. 

Bonus depreciation is 100% for assets placed into service after January 19, 2025. This will allow the taxpayer to accelerate eligible assets' depreciation in year one versus the assets' tax life. 

3. Optimize 1031 Like-Kind Exchanges

1031 like-kind exchanges remain a valuable tool for deferring capital gains taxes on real estate transactions. The basic premise is simple: instead of recognizing capital gains on the sale of a property, investors can reinvest the proceeds into a similar property, deferring the tax liability until a future sale.

Navigating the complexities of like-kind exchanges requires careful planning and adherence to IRS regulations. Moreover, the potential changes to Section 1031 highlight the importance of staying informed and adapting strategies accordingly. 

4. Strategic Debt Management

Reviewing your debt portfolio is a vital component of year-end tax planning for real estate investors. Assess whether refinancing or restructuring existing debt can provide tax advantages. It is essential to be mindful of any adjustable-rate mortgages (ARM) and when they are coming due. Model out the cash flow impact of the interest rate increase when the ARM begins, and be sure to be in conversation with the bank before it's too late, and they don't allow you to refinance out of the ARM.

Prudent debt management can have broad implications for your overall tax position. Interest payments on debt are generally deductible, and optimizing this aspect of your financial structure can contribute to significant tax savings.

5. Prepare Your Books for Year-end Tax Preparation

First, make any adjusting entries that were provided by your CPA in 2024. It is important to check your final TB from 2024 against what your CPA has prepared to avoid additional preparation time in 2025 to correct any differences. Then, reconcile your cash accounts to spot and correct any errors in your financial records. Next, verify your debt against the year-end bank statement for accurate accounting. Finally, provide all HUD/settlement sheets to your CPA so that all real estate purchases and sales are accounted for and set up properly in your books.

In conclusion, strategic year-end tax planning is essential for real estate investors seeking to maximize returns and minimize tax liabilities. The landscape is dynamic, with legislative changes, economic shifts, and evolving regulations requiring investors to stay informed and adapt their strategies accordingly.

As the year comes to a close, take proactive steps to assess your portfolio, explore tax-saving opportunities, and stay informed about potential legislative changes. The decisions you make in the coming weeks can have a lasting impact on your financial success as a real estate investor.

How Trout CPA Can Help

Trout CPA stands as a trusted partner in this journey, offering personalized guidance to help investors navigate the complexities of the tax landscape. By leveraging the expertise of Trout CPA and implementing these key strategies, real estate investors can position themselves for financial success in 2025 and beyond.

About the Authors

Randall joined Trout CPA in 2011. He graduated from Millersville University with a Bachelor of Science degree in Business Administration (magna cum laude) in 2006. Randall has over 19 years of accounting experience. He currently serves on the firm's Construction and Real Estate, Manufacturing, and Estate & Trust Practice Groups. As a Partner, Randall manages all aspects of tax planning and preparation and business consulting for some of the firm's significant clients. 

Anthony Calamia, CPA, CMA, MBA

Anthony joined Trout CPA in August 2022 after two summer internships. He graduated magna cum laude from Millersville University with a Bachelor of Science degree in Accounting and Finance in the Fall of 2021 while playing soccer all four years. As an Associate, Anthony assists with audit and attest services, including financial statement preparation. He also assists with corporate and individual tax preparation.