Real Estate Investors’ Guide to Sunsetting Tax Provisions

2025 marks the beginning of the end for many temporary tax provisions introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. The act made sweeping permanent changes to federal corporate tax and temporary changes to other areas of tax, including those that affect real estate investors. That means we may be in for significant tax changes over the next couple of years.

The precise nature of these changes remains to be seen. Although many provisions affecting real estate investors are slated to sunset, U.S. Congress may act to extend or make permanent any of the temporary TCJA tax rules.

Working with an experienced tax advisor can help real estate investors prepare for potential tax reform and take advantage of the tax perks available today.

Which Sunsetting Tax Provisions Affect Real Estate Investors?

The TCJA created many tax provisions that benefit real estate investors but temporarily suspended other favorable perks. Here’s what’s scheduled to go away—or come back—after 2025 or 2026.

Out After 2025: Qualified Business Income Deduction

The qualified business income (QBI) deduction generally provides a 20% deduction on taxable business income for owners of pass-through entities, including sole proprietorships, partnerships, and S corporations. It also offers a 20% deduction on pass-through entities’ dividend income from real estate investment trusts (REITs).

Let’s say you and a 50/50 partner invest in and rent out residential real estate. After utility and maintenance expenses, the partnership earns $75,000 in rental income for the year. If all requirements and thresholds are met, you and your partner can each claim a QBI deduction of up to $7,500 on your individual tax returns.

As with most tax provisions, there are restrictions. For example, the QBI deduction amount may be reduced for taxpayers with income above $191,950 (filing single) or $383,900 (married filing jointly) in 2024.

The QBI deduction is slated to go away after 2025.

Note: To be eligible for the QBI deduction, the income must be earned in a qualified trade or business. Although relaxed requirements exist for rental real estate activities, we recommend talking to a Smith + Howard advisor before assuming that you can take a QBI deduction for your real estate activities.

Out After 2026: Bonus Depreciation

For tax purposes, the entire cost of a capital asset purchase usually can’t be deducted in the same year you buy it. You typically claim annual depreciation deductions over the asset’s IRS-estimated useful life, ranging from three to 39 years. However, bonus depreciation makes it possible to deduct some—or even all—of an asset’s cost in the year it’s placed in service in your business. Residential and nonresidential real estate may be eligible for bonus depreciation.

The concept of bonus depreciation has existed for years, but the TCJA temporarily raised the additional first-year depreciation deduction to 100% of a qualified asset’s cost. After 2022, the allowable first-year deduction drops by 20 percentage points annually until it reaches 0% in 2027 for most types of assets.

Bonus depreciation can be claimed for most tangible long-term assets, but unfortunately, the short list of exceptions includes real property. However, bonus depreciation can often be claimed on renovations to the inside of nonresidential buildings, landscaping, and more.

Out After 2026: Certain Qualified Opportunity Zone Benefits

Typically, you must pay a capital gain tax in the year you sell appreciated investments. However, when you invest your capital gains in a Qualified Opportunity Zone (QOZ), you can defer your capital gains tax bill—for years. You can invest in QOZs through qualified opportunity funds (QOFs).

Let’s say you sell an investment property for $500,000. If you originally paid $300,000 for the property a couple of years ago, you’ll owe capital gain tax based on the $200,000 gain.

That tax bill is typically due with the tax return for the year of the sale. However, if you invest that $200,000 in a QOF, you may not have to pay that capital gain tax bill until the due date of the tax return for the year QOF investment is sold or your 2026 return filed by April 15, 2027, whichever comes first.

There were even more benefits if you rolled capital gains into a QOF five or seven years before the December 31, 2026, expiration of QOZ provisions. If you held your QOF investment for at least five years by the end of 2026, you could get a 10% exclusion on the gain, meaning you’ll pay capital gain tax on only $180,000. If held for seven years by the end of 2026, the exclusion increases to 15%. And if you held a QOZ investment for 10 years and sell or exchange the asset by December 31, 2047, 100% of the capital gain is excluded.

In after 2025: Miscellaneous Itemized Deductions

Before 2018, individual taxpayers who itemized their deductions could write off a host of expenses on their personal tax returns through the miscellaneous itemized deduction provision. There was a long list of eligible expenses, including unreimbursed employee expenses, investment fees, and tax advice fees. Only expenses that exceeded 2% of your adjusted gross income (AGI) were eligible for miscellaneous itemized deductions.

Say you’re a real estate investor with five rental properties. To help you identify tax credits for renovating these properties, you hire a specialized tax advisor. Related to your properties, you also incur tax return preparation fees and management fees for the management of a brokerage account that holds profits earned in your real estate business.

If your AGI is $200,000, and your eligible miscellaneous expenses are $25,000, you may claim a miscellaneous itemized deduction worth $21,000 ($25,000 – 2% of $200,000).

Taxpayers have been barred from claiming miscellaneous itemized deductions since 2018, but the provision is scheduled to return starting in the 2026 tax year.

Frequently Asked Questions About Expiring TCJA Provisions

Which other TCJA provisions are expiring?

The TCJA made sweeping changes to the federal tax landscape. In addition to the tax provisions we’ve already discussed, additional soon-to-expire TCJA provisions include the following:

• State and local tax (SALT) deduction caps: Starting in 2026, taxpayers who itemize their federal tax deductions will no longer be limited to the $10,000 cap on SALT deductions.
• Standard deductions: Across filing statuses, the standard deduction is slated to halve starting in 2026.
• Itemized deductions: Starting in 2026, itemized deductions will again be limited for taxpayers with AGI above specific thresholds.
• Individual tax brackets: The TCJA adjusted individual tax brackets, but they’ll return to their pre-2018 levels starting in 2026.
• Individual alternative minimum tax (AMT): TCJA provisions meaningfully lessened the AMT burden for individuals in part by raising the threshold after which the AMT applies. Starting in 2026, pre-TCJA AMT rules return.
• Mortgage interest limitation: Starting in 2026, interest payments on up to $1 million of mortgage debt (up from $750,000) and $100,000 of home equity loan will be eligible for deduction.
• Personal exemptions: The TCJA temporarily suspended personal exemptions, which reduce your taxable income by $2,000 (adjusted for inflation) for each taxpayer and qualified dependent on your return. Personal exemptions are scheduled to come back in 2026.

What can real estate investors do now to prepare for sunsetting tax laws?

Although we don’t know what U.S. Congress will do as TCJA provisions sunset, it’s smart to consider what you can do now to take advantage of the many tax perks that may be going away. Talk to your tax advisor about the following:

• Accelerating purchases to maximize first-year depreciation deductions
• Maximizing QBI deductions
• Preparing exit strategies for QOF investments for which capital gains tax will be due
• Structuring real estate deals, either purchasing or exiting property

Smith + Howard: Your Real Estate Tax Advisor

We can’t be sure that all the TCJA provisions scheduled to sunset will actually sunset. For example, U.S. Congress may retroactively reinstate bonus depreciation or extend the availability of the QBI deduction.

Smith + Howard tax advisors track key tax changes to inform their real estate clients of tax-saving opportunities. Contact an advisor to start planning for the effect of potentially significant tax legislation.