One Big Beautiful Bill: What It Means for Real Estate Sellers
The 2025 tax law (P.L. 119-21, the One Big Beautiful Bill Act, or OBBBA) restored 100% bonus depreciation for property acquired after January 19, 2025, made the individual rate brackets permanent, and made the excess business loss limit permanent. For a real estate seller, the two changes that matter most are the new bonus depreciation, which makes it easier to create losses that meet sale gain, and new income-based phase-outs that reward keeping each year's income moderate. The law did not touch §1031, the installment method or the step-up at death.
This page covers what changed, what has an end date, what a future Congress has already proposed, what the states do, and how to plan around a law that will keep moving.
Before and after the 2025 law, for sellers
| Rule | Before the 2025 law | After | What it means for a seller |
|---|---|---|---|
| Individual brackets | Set to expire after 2025 | Permanent, 37% top rate (§1(j)) | Spreading gain is planned against rates with no end date, though Congress can still change them |
| Bonus depreciation | Phasing down (40% for 2025, then lower, then zero) | 100% for property acquired after January 19, 2025 (§168(k)) | New buildings and cost segregation create bigger year-one losses to meet sale gain |
| Senior deduction | None | $6,000 per person 65 or older, 2025 through 2028, phasing out above $150,000 joint modified AGI (§151(d)(5)(C)) | A lump sale year phases it out; smaller installment years can keep it |
| SALT deduction cap | $10,000 | $40,000 for 2025, $40,400 for 2026, reduced above $500,000 ($505,000 for 2026) of modified AGI; back to $10,000 in 2030 (§164(b)(7)) | A lump sale year can shrink the cap toward $10,000 |
| Excess business loss cap (§461(l)) | Set to expire | Permanent; $512,000 joint for 2026 | Matters for real estate professionals with big bonus losses |
| Estate and gift exemption | Set to fall by about half in 2026 | $15 million per person for 2026, indexed (§2010(c)(3)) | For most owners the step-up, not estate tax, drives hold-versus-sell |
| Opportunity Zones | Old program; deferral ends December 31, 2026 | New rolling program for money invested after 2026 (§1400Z-2) | A separate tool with its own rules |
| Farmland | Ordinary installment rules | Election to pay the tax on certain farmland sales to farmers in four installments (§1062) | Spreads the tax payments, not the gain |
| Production buildings (§168(n)) | Not eligible | 100% expensing for new production buildings the owner uses, within set dates | For owner-operators, not landlords |
The law made no change to §1031, §453, §453A or §1014.
What was made "permanent"
- Individual rates and brackets, with a 37% top rate (§1(j)).
- 100% bonus depreciation for property acquired after January 19, 2025 (§168(k)). A written binding contract signed before January 20, 2025 fixes the acquisition date and keeps the old rate. Only property with a recovery period of 20 years or less qualifies: the 5-, 7- and 15-year parts a cost segregation study identifies, not the building. Used property qualifies if bought from an unrelated seller; inherited property does not.
- The excess business loss cap (§461(l)): $512,000 joint for 2026 (Rev. Proc. 2025-32). Its inflation index was reset, which is why 2026's figure is lower than 2025's.
- The estate and gift exemption: $15 million per person for 2026, indexed.
- Opportunity Zones, rebuilt as a standing program for money invested after 2026.
"Permanent" means the statute has no end date. It does not mean the next Congress cannot change it.
What bonus means for sellers: a new rental bought with a loan and cost-segregated can throw off a large first-year passive loss, and gain on selling a passive rental is passive income. They can meet in the same year, or, with an installment note, year after year. Every bonus dollar generally comes back as ordinary recapture when that property is sold, taxed in the year of sale even on an installment sale (§453(i)). California does not allow bonus. See cost segregation before selling.
What has an end date
| Provision | Dates | Why it matters to a seller |
|---|---|---|
| Senior deduction (§151(d)(5)(C)) | Tax years 2025 through 2028 | Reduced by 6% of modified AGI above $75,000 ($150,000 joint). Sale gain raises that income |
| SALT cap (§164(b)(7)) | $40,000 for 2025, $40,400 for 2026, up 1% a year through 2029; $10,000 from 2030 | Reduced by 30% of modified AGI above $500,000 (2025) or $505,000 (2026), never below $10,000 |
| Qualified production property (§168(n)) | Construction after January 19, 2025 and before 2029; placed in service after July 4, 2025 and before 2031 | A window for owner-operators, not landlords |
| Old Opportunity Zone deferral | Deferred gain taxed December 31, 2026 | New money into the old program now buys almost no deferral |
A simple example: A married couple in a high-tax state itemizes and pays well over $40,400 of state and local tax a year. Their modified AGI is normally $300,000. A cash sale in 2026 adds a $1,000,000 gain: modified AGI of $1,300,000 is $795,000 over the $505,000 threshold, 30% of that is $238,500, and the cap falls to its $10,000 floor. If instead the gain arrives at $150,000 a year, modified AGI is $450,000, under the threshold, and the full $40,400 cap applies in 2026 (simple example; the cap drops to $10,000 for everyone in 2030).
The dollar value depends on your bracket and how much state tax you pay, but it shows the pattern. The new phase-outs reward moderate income each year, which is what spreading a gain does.
What a future Congress could do
These are proposals, not predictions. Treasury's annual budget explanations (the "Green Book") for fiscal years 2022 through 2025 carried several of them. None became law.
Higher rates on gain you have not received yet. The Green Books proposed taxing long-term gain at ordinary rates above $1 million of income (adjusted gross income in the fiscal 2022 version, taxable income in fiscal 2023 through 2025) and raising the top rate to 39.6%. Installment gain is taxed under the law in effect the year each payment is recognized. A rate increase would hit every payment still to come, and a structured schedule cannot be sped up. Your one exit is electing out of the installment method by the due date of the sale year's return, extensions included (§453(d)); after that, late elections are allowed only in rare circumstances (Temp. Reg. §15a.453-1(d)(3)(ii)). The flip side: a yearly $1 million line is exactly what spreading keeps you under.
A cap on 1031 exchanges. Every Green Book from fiscal 2022 through 2025 proposed limiting deferred gain on real property exchanges to $500,000 per taxpayer per year ($1 million joint). Gain above the cap would be taxed much like boot, making it more common to take boot on an installment note.
Ending the step-up at death. The proposals would treat gifts and death as sales, with a per-donor exclusion ($1 million in fiscal 2022; $5 million in fiscal 2023 through 2025) and a separate $250,000 per-person home exclusion. That would shrink the main advantage of holding a building until death. An installment note already gets no step-up (it is income in respect of a decedent), so it would lose nothing it has today. See 1031, borrow and hold vs. an installment sale.
Depreciation at ordinary rates. From fiscal 2023, the Green Books proposed treating gain on buildings as ordinary income to the extent of depreciation taken after the effective date, for taxpayers with AGI of $400,000 or more. Today straight-line building depreciation is taxed at a maximum of 25%. The proposal would reach only depreciation taken after its effective date, but on an installment sale that layer comes out of the earliest payments first (Reg. §1.453-12), so those payments would cost more.
A bigger net investment income tax. The House passed a version in 2021 (H.R. 5376) extending the 3.8% tax to active business income above $400,000 ($500,000 joint); it never became law. The fiscal 2024 and 2025 Green Books also proposed raising the rate to 5% for high earners. Real estate professionals who now keep rental gain out of the tax could lose that.
Carried interest. Proposed to be taxed as ordinary income. That falls mainly on sponsors and fund managers, not owners selling their own buildings.
Installment sales themselves. The Green Books reviewed for fiscal 2022 through 2025 did not propose changes to §453 or §453A. That could change. Monetized installment sales, a different arrangement, are a live IRS target: proposed regulations would make them listed transactions (Prop. Reg. §1.6011-13, not final).
What the states could do
- California conforms to the federal Code as of January 1, 2025 for tax years from 2025 (R&TC §17024.5), so it does not pick up the 2025 federal law, §168(n) included. It allows no bonus depreciation (R&TC §17250(a)(11)), does not follow the real estate professional rule (R&TC §17561(a)), and taxes capital gain as ordinary income, with a 1% surcharge on taxable income over $1 million.
- Other states decouple from pieces of federal law. Many refuse bonus depreciation outright, including New York, New Jersey, Pennsylvania, Massachusetts and Illinois. Minnesota adds back 80% and North Carolina 85%, returning it over the next five years. Illinois adds back §168(n) expensing starting in 2026.
- The state where the property sits keeps taxing the gain after you move away, including installment payments on a California property (FTB Pub. 1100).
A state that does not follow bonus makes a created-loss plan weaker on the state return. A state that raises its top rate makes spreading more valuable if its brackets are graduated.
Planning points to discuss with your CPA
- Keep access to money you might need. A note cannot be sped up if rates rise or cashed out if you get sick.
- Spread the gain, not your whole net worth. Many sellers take some cash at closing.
- Prefer the shortest schedule that does the job. In the book's engine, spreading gain over the years your losses exist did as well as fancier schedules. A shorter term means less exposure to law changes years out.
- Stress-test. Ask your CPA to rerun the numbers with higher capital gain rates on later payments.
- Know your one exit: the §453(d) election out, by the sale year's return due date.
- Write down the timers: the senior deduction ends after 2028, the SALT cap resets in 2030, the Opportunity Zone rules switch after 2026.
- Don't sell to beat a bill that has not passed. People who rushed to sell in 2021 to beat rate increases that never came paid tax early for nothing.
Bottom line
The 2025 law made 100% bonus depreciation and today's brackets permanent in the statute, left 1031 exchanges, installment sales and the step-up alone, and added income phase-outs that reward moderate income each year. Congress has proposed higher rates, a 1031 cap, the end of the step-up and ordinary rates on depreciation; none passed, and any of them could return. Build the plan on today's law with slack for a worse one. The book's "What Could Change" chapter goes deeper: get it free. The neutral §453 overview is the installment sale guide, and farm sellers should read selling land and farmland on an installment sale.
Questions to ask your CPA
- If I buy a replacement or new rental, what did I sign and when, for the January 19, 2025 bonus date?
- Which of my deductions phase out with income (senior deduction, SALT cap), and what does a lump sale year cost me in each?
- What does my plan look like if long-term gain were taxed at ordinary rates on the later payments?
- By what date would I have to elect out of the installment method, and should I?
- How does my state treat bonus depreciation, and does it tax gain after I move?
- If the step-up at death were ever repealed, would holding still beat selling for me?
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Educational only, not tax, legal or investment advice. Examples are illustrative. Have your CPA or tax attorney review your facts before you act. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294) and is not a CPA or attorney. He is paid a commission only if a structured installment sale is funded; seller financing pays him nothing. Disclosures.