The House of Representatives recently passed the “One Big Beautiful Bill Act,” a legislative package featuring several tax provisions with notable implications for the housing industry, homeownership, and real estate investment.
Key Tax Provisions Impacting Real Estate:
The bill includes several measures relevant to the housing sector:
- Enhanced Qualified Business Income (QBI) Deduction: The deduction for pass-through entities, which includes many real estate professionals and small businesses in the housing sector, is set to increase permanently from 20% to 23%.
- Modified State and Local Tax (SALT) Deduction: The cap on SALT deductions would be quadrupled from $10,000 to $40,000 for households earning under $500,000, with planned annual growth. This change could impact homeowners in areas with higher property and state income taxes.
- Permanent Individual Tax Rates: Current lower individual income tax rates are slated to become permanent and indexed for inflation, a factor that can influence overall housing affordability.
- Mortgage Interest Deduction (MID) Maintained: The existing deduction for mortgage interest is preserved at its current level and made permanent, continuing a long-standing tax consideration for homeowners.
- Treatment of 1031 Like-Kind Exchanges & Business SALT: Section 1031 like-kind exchanges, a provision often utilized in real estate investment, are protected. Current state and local tax deduction rules for most businesses are also largely unchanged, though some limitations are introduced for certain high-income professional services, which are not anticipated to significantly affect most real estate businesses.
Additional Provisions Relevant to Housing and Investment:
The legislation also contains other measures that could influence the housing market and real estate investment:
- Affordable Housing Support: Includes enhancements to the Low-Income Housing Tax Credit (LIHTC) to encourage the development of affordable housing.
- Family Financial Measures & Home Purchase Incentives: Features an increased Child Tax Credit (to $2,500 through 2028, then inflation-indexed) and introduces new tax-advantaged Child Investment Accounts, which could be used for expenses such as first-time home purchases.
- Investment and Estate Planning: Establishes a permanent $15 million (inflation-adjusted) estate and gift tax threshold and renews incentives for Opportunity Zones, aimed at encouraging investment in designated communities.
- Business Tax Environment: Restores several business tax provisions, including those for R&D expensing and bonus depreciation. The bill does not include an increase in the top individual tax rate or changes to the tax treatment of carried interest.
These provisions, aimed at supporting homeowners, real estate professionals, and community development, will now move to the Senate for further consideration. If enacted, this bill could significantly shape the financial landscape for the housing industry and those involved in it.
