Major developments for REITs after the July 3 ruling.
On July 3, 2025, the U.S. House of Representatives narrowly approved H.R. 1, the “One Big Beautiful Bill Act”, by a vote of 218–214, advancing a landmark tax and spending reconciliation package. After Senate approval, President Trump signed it into law on July 4.
Although the Senate version differs in some respects from the House draft passed on July 1, the enacted legislation retains several provisions of major relevance to REITs. Below, we’ll break down how these changes could impact your investment strategy in 2025 and beyond.
Section 199A: 23% Deduction Proposed, but 20% Remains
One of the most closely watched provisions in the House’s original draft was an increase in the Section 199A deduction from 20% to 23%, with language to make the deduction permanent. This would have been a material boost for investors in REITs, who benefit from the ability to deduct a portion of REIT ordinary dividends.
However, the final version of the bill did not include this increase. The deduction remains capped at 20%.
What this means for REITs:
Sponsors and investors must continue to model returns based on the existing 20% deduction. The proposed increase to 23% may resurface in future tax policy discussions, but for now, it is off the table.
TRS Asset Threshold: Back to 25%
The quarterly asset test for taxable REIT subsidiary (TRS) investments is restored to 25% (from 20%), effective for taxable years beginning after December 31, 2025.
This expanded asset ceiling provides greater structuring flexibility for REITs with significant operating businesses or vertical integration in their TRS platforms.
Section 163(j): EBITDA-Based Cap Extended
From 2025 through 2029, the limit on how much business interest expense real estate investors and lenders can deduct under Section 163(j) will be calculated based on EBITDA, a more generous measure, rather than the stricter EBIT standard currently in place.
This change allows investors and lenders with leveraged real estate holdings to deduct a larger portion of their interest expenses for tax purposes during this period.
The existing “electing real property trade or business” exception remains available, letting many real estate businesses avoid these limits altogether if they make the election.
Energy Tax Credits: An Accelerated Phase-Out
The act phases out renewable energy tax incentives, including Section 48E energy investment tax credits (ITC):
- Projects beginning construction more than 60 days post-enactment or placed in service after December 31, 2028, lose eligibility.
- Transferability of energy ITCs is repealed for projects that begin after two years from enactment.
REITs pursuing solar, battery storage, or similar green-capital projects must accelerate development or consider alternative structures before incentives expire.
Section 899: Foreign Investor Withholding
Though Section 899 (retaliatory withholding on foreign persons) was in the House draft, it was removed by the Senate and not included in the final enactment
The uncertainty around foreign withholding has been resolved, and no additional surcharges beyond existing statutory or treaty rates will apply to foreign investors in REIT distributions or U.S. real property interests.
Your Team for REIT Investment Strategy
These legislative shifts are finalized, but complex. As a national leader in REIT structuring, Fortra Law’s Corporate & Securities team stands ready to advise on:
- Setting up new REITs and subsidiary REITs for your real estate or mortgage funds.
- Advising on structures to maximize the 199A deduction and how it can benefit your lending business or real estate investments.
- Advising existing REITs on what to do going forward.
Contact the Fortra Law Corporate & Securities team today to discuss how your fund or REIT can maximize benefits under the One Big Beautiful Bill Act.
Let us arm your syndication or joint venture with smart structuring aligned with the 2025 landscape.
