Real Estate Tax Changes for 2026

Starting in 2026, several important tax law changes will impact commercial real estate investors, shaping investment strategies and project development. One of the most notable updates is that the Opportunity Zone program—designed to encourage investment in economically distressed areas—will now be permanent. While the program remains accessible, stricter eligibility rules will apply, and investors can benefit from a rolling deferral of capital gains every five years, along with a permanent 10% step-up in basis for investments made after December 31, 2026. The 100% bonus depreciation provision will also be made permanent. This allows investors to fully expense qualifying property immediately, providing a significant incentive for redevelopment and new construction projects. The Qualified Business Income (QBI) deduction of 20% for pass-through entities involved in real estate activities will remain permanent, with higher income thresholds that will be adjusted annually for inflation beginning after 2026. This effectively maintains a key tax advantage for smaller and mid-sized real estate firms.  In addition, the Low-Income Housing Tax Credit (LIHTC) will see a permanent increase of 12% in allocation starting in 2026, along with a reduction in private bond-financing thresholds from 50% to 25%. These changes are aimed at incentivizing the development of affordable housing projects.  However, the Section 179D energy-efficient building deduction will be phased out, terminating after June 30, 2026. This means new projects starting construction afterward will no longer benefit from this incentive. For individual investors, the top income tax rate will stay capped at 37%, instead of reverting to the previous 39.6%, providing some relief and stability for high-income real estate investors. Other adjustments include updates to the Alternative Minimum Tax (AMT), itemized deduction limits, REIT asset tests, and new reporting requirements for Opportunity Zone funds. 

Overall, these changes are designed to promote long-term, strategic investments, especially in Opportunity Zones and affordable housing—while reducing some incentives like the energy-efficient building deduction. For commercial real estate investors, understanding these shifts is crucial for optimizing investment planning going forward.