Real estate investment in the United States offers a wealth of tax benefits of real estate investment that can help investors reduce their taxable income and build long-term wealth. Thanks to the One Big Beautiful Bill Act (OBBBA) passed in 2025, 2026 promises even more opportunities to leverage tax breaks.
From bonus depreciation to the Qualified Business Income (QBI) deduction, these updates provide new ways for investors to keep more of their hard-earned money.
In this blog, we’ll explore the top tax benefits of real estate investment, including both traditional deductions and the exciting new provisions introduced by the OBBBA. Whether you’re a seasoned investor or just getting started, these benefits can significantly impact your financial success.
Core Annual Tax Deductions for Real Estate Investors
1. Depreciation: Deduct the Wear and Tear of Your Property
One of the biggest tax benefits of real estate investment is depreciation. This allows you to deduct the “wear and tear” on your property over time, thus lowering your taxable rental income. For residential properties, depreciation is spread over 27.5 years, while commercial buildings are depreciated over 39 years.
However, One Big Beautiful Bill Act (OBBBA) makes this even more powerful with the permanent restoration of 100% bonus depreciation. This allows you to immediately expense qualifying assets like furniture, appliances, and land improvements (such as fences and landscaping) for properties placed in service after January 19, 2025.
How Depreciation Benefits You:
- Residential Properties: 27.5 years to recover the building value.
- Commercial Properties: 39 years to recover the building value.
- Bonus Depreciation: Can apply to assets with a life of 20 years or less, such as appliances or office furniture, allowing immediate expensing.
2. 100% Bonus Depreciation: A Major Tax Benefit
As mentioned, OBBBA reintroduces 100% bonus depreciation for property acquired after January 19, 2025. This provision allows you to immediately expense certain assets that typically depreciate over several years. These assets include appliances, office furniture, and land improvements.
For example, if you buy a property with $50,000 in qualifying improvements, you can deduct the entire $50,000 in the year the property is placed in service. This can significantly reduce your taxable rental income in the year of acquisition.
3. Qualified Business Income (QBI) Deduction: Reduce Your Net Rental Income Tax
The QBI deduction provides a 20% tax break for owners of pass-through entities like LLCs, S-Corps, or sole proprietorships. For 2026, the income phase-in thresholds for the QBI deduction have increased to $203,000 for single filers and $406,000 for joint filers. This means you can deduct up to 20% of your net rental income, further reducing your taxable income.
This QBI deduction can be a game-changer for real estate investors who use pass-through entities, ensuring that they take full advantage of tax breaks.
4. Operating Expense Deductions: Write Off the Costs of Managing Property
Investors can deduct ordinary and necessary costs of managing a rental property. These expenses include mortgage interest, property taxes, insurance premiums, repairs, and management fees. There is no limit for mortgage interest deductions on rental properties, which provides an opportunity for significant tax savings.
Capital Gains and Deferral Strategies
5. 1031 Exchange: Defer Capital Gains Taxes
The 1031 exchange allows real estate investors to defer 100% of capital gains taxes and depreciation recapture taxes if the proceeds from the sale of a property are reinvested into a like-kind property. This deferral strategy enables you to continue growing your portfolio without paying taxes immediately.
For example, if you sell a property for $500,000 and purchase another property for $600,000, the taxes on the $100,000 gain are deferred, allowing you to reinvest the entire amount into a new property.
6. Opportunity Zones: Tax-Free Gains After 10 Years
Investing in Opportunity Zones allows you to defer taxes on capital gains for up to 2026. Furthermore, if the investment is held for 10 years, the appreciation on your Opportunity Fund investment becomes tax-free.
How Opportunity Zones Benefit You:
- Deferral of taxes on capital gains until 2026.
- Tax-free appreciation after 10 years of holding the investment in an Opportunity Fund.
7. Long-Term Capital Gains Tax Rates: Pay Less on Property Sales
Properties held for more than a year qualify for long-term capital gains tax rates of 0%, 15%, or 20%, which are significantly lower than ordinary income tax rates. This benefit encourages long-term investment and helps you keep more of your profit when selling real estate.
Strategic Allowances and Estate Planning for Real Estate Investors
8. $25,000 Special Allowance: Offset Rental Losses Against Ordinary Income
For small-scale investors who “actively participate” in managing their rental property, the IRS allows you to deduct up to $25,000 in rental losses against your ordinary income, such as your W-2 salary, if your modified adjusted gross income is below $100,000.
9. Real Estate Professional Status: Fully Deduct Rental Losses
If you spend 750 hours annually on real estate activities, you can qualify as a real estate professional and deduct 100% of your rental losses against any income. This bypasses the passive activity loss limitations, which typically prevent rental losses from being deducted against other forms of income.
10. Step-Up in Basis: Eliminate Capital Gains Taxes for Your Heirs
The step-up in basis strategy allows heirs to inherit property at its current market value, effectively erasing all deferred capital gains and depreciation recapture taxes that were incurred during the investor’s lifetime.
Depreciation Recovery Periods (2026)
| Asset | Standard Depreciation Period | Bonus Depreciation |
| Residential Building | 27.5 years | N/A |
| Commercial Building | 39 years | N/A |
| Appliances/Carpet | 5 years | 100% |
| Fences/Landscaping | 15 years | 100% |
| Office Furniture | 7 years | 100% |
Frequently Asked Questions (FAQs)
1. How Can Real Estate Investments Save You Big on Taxes?
Discover how real estate investment can reduce your taxable income with deductions you might be missing out on!
2. What Tax Breaks Do Real Estate Investors Get?
Unlock the secret tax benefits that can make your real estate investment more profitable than ever!
3. Is Real Estate Investment the Best Tax Strategy for 2026?
Find out why real estate is still one of the smartest tax-saving strategies in the U.S. for 2026!
Unlock Maximum Tax Savings
The tax benefits of real estate investment in the U.S. are immense, especially with the OBBBA provisions now in play. From the 100% bonus depreciation for qualifying assets to the QBI deduction and Opportunity Zones, the tax advantages available in 2026 offer unparalleled opportunities to maximize returns and minimize tax burdens.
If you’re ready to take advantage of these tax benefits, consider how they align with your investment strategy. Whether you’re a first-time investor or looking to expand your portfolio, these real estate tax benefits are designed to keep your wealth growing while paying fewer taxes.
