M id A tlantic Real Estate Journal — Fall Preview — 9
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T ax I ncentives
By Adam Zweibel, Hudson Atlantic Realty The Big Beautiful Tax Advantages in CRE: Empowering High-Income Investors & Developers
A
s we approach 2026, it’s not surprising that the Northeast com-
Opportunity Zones (OZs), another cornerstone from the 2017 Tax Cuts and Jobs Act, have been supercharged and made permanent by OBBBA, with current designations sun- setting at the end of 2026 and states able to redesignate every 10 years. These designated lowincome census tracts—now with expanded rural incentives and a lowered income thresh- old to 70% of median family income—offer developers and investors enhanced benefits. Key perks include temporary deferral of capital gains taxes on amounts reinvested into Qualified Opportunity Funds
(QOFs) until 2026 or later, a 10% to 30% basis step-up for holdings of five to seven years (enhanced for rural invest- ments), and complete exclusion of post-investment gains after a 10-year hold. For developers, this translates to subsidized capital for revitalizing retail centers, multifamily housing, or medical properties in OZs across the Northeast, such as urban pockets in Newark or Elizabeth. High-income individuals can roll over gains from stock sales into OZ projects, offsetting up to millions in taxes while support- ing community development. These incentives are poised
to create surging demand for Northeast CRE by attracting a wave of high-income buy- ers and developers seeking tax-optimized returns. With lower effective costs and de- ferred liabilities, more capital will flow into acquisitions and developments, intensifying competition for prime proper- ties in high-density markets like New York City and New Jersey suburbs. This could drive up property values, spur new multifamily and mixed-use projects in OZs, and accelerate rural revitalization in upstate New York or Pennsylvania, ultimately boosting inventory
turnover and economic vitality in the region. Beyond these headliners, CRE offers additional tax gems for high earners. The perma- nent 20% Qualified Business Income (QBI) deduction for pass-through entities like LLCs reduces taxable income on rental profits. Interest expense deductions remain robust, al- lowing leverage without full tax hits. Non-mortgage expenses— property taxes, management fees, and repairs—are fully de- ductible against rental income, often creating passive losses that real estate professionals continued on page 34
mercial real estate (CRE) landscape— from bustling urban cen- ters in New York and New Jersey to revitaliz- ing markets
Adam Zweibel
in Pennsylvania and beyond— is buzzing with renewed op- timism, thanks to a suite of tax incentives revitalized by the One Big Beautiful Bill Act (OBBBA) of 2025. For high-income individuals and developers, these “big beauti - ful” advantages offer powerful tools to offset income, defer taxes, and accelerate wealth building. From the reinstate- ment of 100% bonus deprecia- tion to enhanced Opportunity Zones, CRE investments are more attractive than ever, enabling savvy players to minimize tax liabilities while fueling economic growth in underserved areas. At the forefront is the trium- phant return of 100% bonus depreciation, made perma- nent under OBBBA for quali - fied property placed in service after January 19, 2025. This provision allows high-income earners to immediately de- duct the full cost of eligible assets, such as building im- provements, equipment, and certain interior fixtures in commercial properties. For instance, a physician or executive earning over $500,000 annually could pur - chase a multifamily building in New Jersey, conduct a cost segregation study to identify depreciable components, and offset a substantial portion of their ordinary income in the acquisition year. Unlike standard depreciation over 39 years for non-residential real estate, bonus deprecia- tion supercharges cash flow by front-loading deductions. Paired with Section 179 expens - ing—now inflated to $2.5 mil - lion with a $4 million phase-out threshold—this creates a tax shield that can reduce effective rates dramatically. Develop- ers benefit too, as it lowers the after-tax cost of new construc- tions or renovations in sectors like industrial warehouses or mixed-use projects, making am - bitious ventures more feasible amid rising interest rates.
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