The recent signing of the "Big Beautiful Bill" by the President on July 4th heralds a significant shift in real estate policy, aiming to bolster affordable housing and support homeownership. This comprehensive legislation introduces a suite of tax incentives and provisions designed to benefit both current property owners and prospective buyers, potentially stimulating the housing market and the broader economy.
Key Takeaways for Real Estate
- Affordable Housing Boost: The Low Income Housing Tax Credit has been made permanent and increased by 12.5%, with reduced bond financing requirements and a 30% basis boost for rural and tribal properties. This aims to increase the supply of affordable housing and assist first-time homebuyers.
- Investor Benefits: Section 1031 Like-Kind Exchanges are preserved, allowing investors to defer capital gains. The permanent 20% deduction for Qualified Business Income also benefits real estate investors by lowering effective tax rates on net rental income.
- Homeownership Support: The bill establishes a permanent cap on the mortgage interest deduction at $750,000 and makes the mortgage insurance deduction permanent, reducing the effective cost of low-down payment loans.
- Temporary SALT Deduction Increase: The State and Local Tax (SALT) deduction cap is temporarily raised from $10,000 to $40,000 per household from 2025 to 2029, offering relief in high-tax states.
- Depreciation and Rollover Provisions: 100% bonus depreciation is restored for new construction, acquisitions, and renovations. The gain on sale rollover provision is also maintained, enabling owners to reinvest gains into other properties.
Economic Stimulus and Investment
The "Big Beautiful Bill" also includes provisions aimed at stimulating the broader economy. Increased Section 179 expensing caps, elimination of retaliatory taxes, and a permanent small business estate tax exemption are designed to encourage domestic investment and job creation. The estate tax threshold, set at $15 million and inflation-adjusted, aims to facilitate generational wealth transfer.
Market Outlook
With falling inflation and potential boosts to real wages, the legislation could provide a much-needed catalyst for the real estate market. For buyers struggling with affordability, a combination of potential price corrections, lower interest rates, and these new tax provisions might create a more accessible entry point into homeownership and wealth building.