Real Estate Investor Tax Planning for 2026: Strategies to Maximize Deductions and Protect Income

Overview

Real estate investing continues to offer meaningful tax advantages, including depreciation, mortgage interest deductions, operating expense deductions, and the qualified business income (QBI) deduction. Recent tax law changes enacted in the One Big Beautiful Bill Act (OBBB) passed in mid‑2025 have made many of these benefits permanent or clarified their future treatment, giving investors more certainty for planning.

Current Tax Benefits (Through 2025 and Beyond)

1. Depreciation

   • Residential property is depreciated over 27.5 years, and commercial property over 39 years under the standard Modified Accelerated Cost Recovery System (MACRS).

   • 100% bonus depreciation is permanently restored for eligible property placed in service after January 19, 2025. This allows investors to take an immediate full write‑off of qualifying property costs.

2. Mortgage Interest Deduction

   • Interest on loans for investment properties remains fully deductible against rental income for federal tax purposes, subject to ordinary business‑use rules.

3. Operating Expense Deductions

   • Ordinary and necessary business expenses — including repairs, property management fees, insurance, utilities, marketing, legal and accounting fees continue to be deductible against rental income.

4. Qualified Business Income (QBI) — Section 199A

   • The 20% QBI deduction for rental real estate treated as a trade or business under Section 199A is now permanent, giving long‑term certainty to pass‑through investors.

5. Like‑Kind Exchanges

   • 1031 exchanges remain available for deferring capital gains on property held for investment or business use.

Key Tax Law Changes Starting 2025–2026

Thanks to the One Big Beautiful Bill Act (signed July 2025):

1. Bonus Depreciation — Permanent

   • 100% bonus depreciation was reinstated and is now permanent, eliminating the phase‑out previously scheduled under older law. Qualifying property includes assets with a MACRS recovery period of 20 years or less, and certain qualified improvement property.

2. SALT Deduction Cap

   • The SALT (state and local tax) deduction cap was increased to $40,000 (joint) and $20,000 (single) for tax years 2025 through 2029. After 2029, the SALT cap is scheduled to revert to $10,000 unless future legislation extends it further.

3. Standard Deduction & Individual Rates

   • The higher standard deduction and individual tax rates under the Tax Cuts and Jobs Act (TCJA) were extended permanently by the new law (no automatic reversion after 2025).

Planning Strategies (2025+)

1. Timing Investments

   • Acquire or place property in service after January 19, 2025, to take advantage of 100% bonus depreciation where applicable.

2. Cost Segregation

   • Consider a cost segregation study on commercial or large residential rental properties to identify shorter‑lived components that qualify for accelerated depreciation and bonus depreciation.

3. Operating Expense Optimization

   • Make sure to properly document and deduct all ordinary and necessary expenses — these continue to flow through against rental income.

4. QBI Optimization

   • Keep detailed records to support rental activities classified as a trade or business (e.g., separate books, active management) to fully leverage the QBI deduction.

5. SALT Planning

   • Investors in high‑tax states can benefit from the temporarily higher SALT cap, consider itemizing deductions where beneficial.

Impact on Investment Decisions

• Acquisition timing: Bonus depreciation certainty could accelerate purchase planning.

• Cash flow planning: Immediate expensing increases deductions in early years.

• Entity structuring: Pass‑through treatment and QBI eligibility may influence choice of entity (LLC, partnership, S‑corp).

• Financing structures: Interest deductibility continues to matter; consider debt timing and structure.

Conclusion

• Bonus depreciation is now permanent for qualified property after Jan 19, 2025

• QBI deduction under Section 199A is permanent

• SALT caps have increased temporarily (2025–2029)

• Standard deduction and most TCJA tax cuts remain in effect