Tax law can change overnight, but real estate planning plays out over years. As owners and investors complete their 2025 filings, many are finding that timing, structure, and past decisions are proving just as important as the latest legislation.
In this Q&A, Evan Fox, Partner and Real Estate Tax Leader, and Joseph Carnevale, Partner at Grassi, share six tax considerations shaping real estate planning today, including how to avoid timing mismatches, common mistakes, and missed opportunities.
Q: What’s a common real estate tax mistake or issue you’re seeing right now?
Joseph Carnevale: One of the biggest surprises I see for real estate investors is discovering that their rental losses are suspended. This comes up frequently with new clients, where owners assume they can use rental losses to offset other salary or business income.
The IRS classifies rental real estate activities as passive by default. Unless certain participation thresholds are met, those losses remain suspended on the return for future use instead of saving you money today.
One way to potentially avoid this outcome is by demonstrating your involvement, or your spouse’s involvement, in the rental activity. Assuming you do not have another full‑time job, or your spouse does not have a full‑time job, you may qualify for a real estate professional designation, which can allow rental losses to offset other income.
If you are not tracking your hours or actively managing your properties, you could be leaving valuable deductions on the table.
Evan Fox: Right now, the most common issue is a timing mismatch. With the permanent restoration of 100% Bonus Depreciation, many are rushing to take this benefit on acquisitions or renovations with placed‑in‑service dates in 2025. However, the 100% rate only applies to property acquired after January 19, 2025.
The complication here is if a client signed a binding contract for a project or acquisition before that date. In those cases, they may be stuck with the old, lower phase‑out rates (e.g.,40%.) As a result, we need to carefully review binding contract dates for any acquisition and, for renovation projects completed in 2025, look at how much work was done prior to January 19, 2025.
Q: What’s one planning opportunity real estate clients should be considering before filing?
Joseph Carnevale: One of the biggest changes this year is Bonus Depreciation. Under the new legislation, 100% Bonus Depreciation is available for qualifying assets placed in service during the year or newly purchased assets. Over the past few years, that benefit had been phased down.
With the restoration to 100%, subject to the timing noted in Evan’s response above, owners can once again write off the full cost of certain assets in the year they are placed in service.
For example, land improvements such as landscaping, specialty lighting or flooring that are not structural to the building can often be reclassified. These assets can be moved out of a 39-year or 27.5-year class life, depending on whether the property is commercial or residential, and into a 5 or 15-year class life, making them eligible for full bonus depreciation in year one.
By frontloading those deductions, it’s possible to create meaningful cash flow and, in effect, allow tax savings to support the next acquisition or property that you’re looking to purchase.
Q: What’s a tax change this year that could materially impact the real estate industry?
Evan Fox: The interplay between Section 163(j) and Qualified Improvement Property (QIP) has shifted dramatically because of the One Big Beautiful Bill Act (OBBBA). Under the OBBBA, the calculation for “Adjusted Taxable Income” (ATI) has reverted from an EBIT model to an EBITDA model (effective for tax years beginning after Dec. 31, 2024).
By adding back depreciation and amortization, ATI (the base for the 30% limit) becomes larger. For clients who have not made a real property trade or business election for existing assets or entities, or who are entering into a new business altogether, this change may eliminate the need to make that election to deduct interest and avoid being forced into the ADS depreciation schedule.
While the Real Property Trade or Business (RPTOB) election still permitted bonus depreciation on Furniture, Fixtures and Equipment (FF&E) and land improvements, it disabled the Qualified Improvement Property (QIP) portion. For some taxpayers who no longer need to make the election, this could be a powerful boost to their immediate tax deductibility.
Q: What’s a tax issue that feels technical but has real cash-flow implications?
Evan Fox: It may sound like a technical accounting exercise, but Section 481(a) adjustments can have significant cash flow implications.
If a client has not been maximizing depreciation on an older property, they can perform a cost segregation study and take a catch-up deduction for all those missed depreciation years in a single tax year. In some cases, this can result in a “zero-tax” year, allowing the owner to pivot that saved cash directly into a new down payment or necessary capital expenditures without waiting for a refund check.
Q: What’s one State and Local Tax (SALT) issue real estate owners often overlook?
Joseph Carnevale: From a state and local tax perspective, the SALT cap and limitation is still a major sticking point. Many real estate owners don’t fully appreciate how much that cap impacts their taxes.
Even though the cap has increased from $10,000 to $40,000 for some taxpayers, many owners are still failing to properly utilize the passthrough entity tax election at the entity level.
Under a PTET election, businesses can pay state taxes at the entity level rather than at the individual level. Those payments flow through as a credit to the owners, while still allowing the federal deduction.
We see this most often with owners who have multistate properties or operations, where the impact can be significant.
Key Real Estate Takeaways This Filing Season
As real estate owners and investors finalize their 2025 filings and look ahead to 2026, these six takeaways are worth considering:
- Timing matters. Look at binding contract dates, placed-in-service timing, and acquisition history when evaluating new opportunities under OBBBA.
- Passive activity rules still surprise owners. Participation thresholds and documentation continue to dictate whether rental losses can be used.
- Bonus Depreciation requires careful analysis. Ensure that timing and asset classification align.
- Prior elections deserve a second look. Elections that once made sense before may now limit flexibility.
- Technical provisions can drive meaningful cash flow. Conducting a cost segregation study and catch-up deductions for missed years can boost liquidity.
- State-level considerations are still critical. Entity-level planning and multi-state exposure can significantly influence after-tax results.
How Grassi Can Help
Grassi’s Real Estate advisors help property owners, investors, developers, managers, and other professionals navigate complex tax and financial decisions with a focus on timing, structure and long-term outcomes. By combining deep industry knowledge with practical planning strategies, we help clients maximize tax efficiency and make more informed decisions across acquisitions, operations and portfolio planning.
Connect with a Grassi advisor to discuss how these considerations apply to your portfolio and planning for 2026.
