What should real estate industry leaders know as 2025 winds down?
2025 is almost over. It’s been a year of significant change, driven by trends like investment in residential communities or operational infrastructure, as well as major tax changes and shifts in energy incentives.
What do you need to know as you round out the year and prepare for what’s next? Keep reading to understand where real estate is going and how you can better position your firm to meet the moment.
Which real estate industry trends are creating opportunities?
Several key trends appear poised to drive opportunity for firms now and in the coming months. Desire for more community is increasing demand for denser residential real estate, while firms with the right expertise can jump in on building operational infrastructure like data centers.
Walkable communities are hot in residential real estate
Forget about a big house in the suburbs. Driven in part by shifting demographic tastes as well as the national housing shortage, the residential real estate market is seeing increased opportunities in denser housing that offers community, like senior living, student accommodations and other rental homes.
More people want to live where everything they need is within walking distance or a short drive. These are known as 20-minute communities (your grocery store, pharmacy and other essential services are all less than 20 minutes away on foot) and typically offer residents not just greater convenience but also the ability to feel less isolated and more connected to their neighbors.
Such communities also typically feature more multifamily housing, which can create more affordable rental alternatives for people priced out of the single-family home market due to supply constraints.
Operational assets are in high demand
You already know that the demand for data centers is high right now. But other operational assets like logistics hubs, healthcare facilities and energy infrastructure are also attracting significant investor interest.
Some of this is simply because these assets tend to offer high returns. But another factor is that building or operating such properties is complicated and requires a great deal of institutional knowledge — which means firms that can leverage that expertise often face a smaller pool of competitors.
Rising generational wealth transfer drives home the need for succession planning
The current generation of real estate leadership is nearing retirement. This is setting the industry up for a massive generational transfer of both wealth and responsibility — which means that for firms not yet engaged in succession planning, now is the time to start.
Succession planning doesn’t just help ensure a more stable leadership transition when the time comes. It also helps you retain talent and boost morale in the present.
But conversations around a succession can be uncomfortable for all involved. It can’t happen overnight either — in real estate, the tax planning elements alone are often complex — so it’s important to give your firm time to learn more about how to do it right and then implement a planning process.
Key updates to individual tax rules that may affect investors
Tax law changed in 2025 after Congress passed the One Big Beautiful Bill (OBBB) Act. And new rules for individual taxes like the gift tax exemption, the generation-skipping transfer (GST) tax exemption, and state and local tax (SALT) deductions may be of particular relevance to real estate investors.
- Higher federal estate and gift tax exemption: The federal estate and gift tax exemption was permanently raised to $15 million per individual or $30 million for married couples and also indexed to inflation.
- Increased GST tax exemption: The GST tax exemption was also changed to align with the new higher estate and gift tax exemption limit.
- SALT deduction raised: The SALT deduction has been raised from $10,000 to $40,000 until 2030 (although with an income cap for high earners), before reverting back to $10,000. The deduction will also grow by 1% annually through 2029.
Business tax changes like the return of bonus depreciation reduce uncertainty
Business tax rules also changed in 2025, with several previously temporary provisions made permanent. Significant updates that will directly affect real estate firms include restored 100% bonus depreciation, new requirements for the opportunity zone program and a permanent 20% deduction for qualified business income (QBI) for passthrough entities.
100% bonus depreciation is back
100% bonus depreciation allows you to deduct the entire cost of a qualified business property upfront rather than over the course of a standard depreciation schedule. This was a temporary provision of the 2017 Tax Cuts and Jobs Act (TCJA) that has now been restored and made permanent.
The new rules apply to assets acquired after January 19, 2025. Relatedly, there is also a new 100% depreciation election for qualified production property (QPP) placed in service after July 4, 2025, but before January 1, 2031.
The opportunity zone program is now permanent
Another TCJA holdover originally slated to expire, opportunity zones are now permanent. Under the new rules, there is now a rolling deferral every five years for investments after December 31, 2026, with a permanent 10% basis step-up.
Eligibility requirements for opportunity zone tract designation have become stricter, with the eligibility threshold decreasing from 80% to 70%. IRS reporting requirements have also been enhanced to include details like asset values, business locations and employee counts.
The opportunity zone provision being made permanent will likely increase investment interest, especially in light of the new five-year rolling deferral.
Section 199A is also now permanent
Section 199A has been permanently extended so that owners of pass-through entities can continue to deduct 20% of their qualified business income on their individual taxes based on certain limitations. The new minimum deduction for active QBI has been set at $400. The rules now also state that an applicable taxpayer must have a minimum of $1,000 aggregate QBI.
The highlight here is greater predictability
Key tax rules have not changed all that dramatically in substance, but the level of uncertainty has decreased. Because formerly temporary or expiring provisions have now been made permanent, firms and investors can now plan deals and tax strategies with a higher sense of predictability than before.
Popular energy tax incentives like 179D are now sunsetting
The OBBB is ending several of the most popular energy tax incentives. Tax incentives aimed at making commercial buildings more energy efficient and boosting clean energy like wind and solar are now scheduled to begin sunsetting in 2026.
- Energy efficient commercial buildings deduction (Section 179D): This incentive allowed taxpayers to deduct the cost of energy-efficient commercial building property like interior lighting, HVAC and hot water systems. However, it is now terminated for all construction that begins after June 30, 2026.
- Clean energy production credit (Section 45Y) and clean electricity investment credit (Section 48E): Designed to help generate more clean energy production, these credits will now end for any wind or solar facilities that begin construction after July 4, 2026, and are not placed into service by December 31, 2027.
In some cases, you may still be able to qualify before time runs out, but you will need to carefully analyze tax rules and assess your project timelines to determine what’s possible. You should also look for anticipated IRS guidance that defines what it means to begin construction.
And if the phaseout of federal incentives has disrupted your plans, consider exploring state-level energy tax incentives, which are unaffected by changes to federal tax law.
How Wipfli can help
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