How REITs are Impacted by the “One Big Beautiful Bill Act”

The U.S. House of Representatives, by a one-vote margin, passed the “One Big Beautiful Bill Act”[1] (the “House Bill”) early in the morning on May 22, 2025. The House Bill has yet to be considered by the U.S. Senate and will likely change as the legislative process moves forward.  The House Bill includes several tax provisions impacting real estate investment trusts (“REITs”) and their shareholders. This alert briefly summarizes the most significant of those provisions.

Section 199A Deduction[2]

The House Bill would preserve the eligibility of REIT ordinary dividends for the qualified business income deduction in Section 199A.[3] The House Bill would increase the Section 199A deduction from 20% to 23%, effective for taxable years beginning after December 31, 2025. Finally, the House Bill would make the Section 199A deduction permanent.

TRS Asset Test[4]

Effective for taxable years after December 31, 2025, the House Bill would increase the 20% quarterly asset test limit on securities of taxable REIT subsidiaries (“TRSs”) to 25%. Over time, the TRS asset test percentage has bounced between 20% and 25%.

Limitation on Business Interest Deduction[5]

The limitation on business interest deductions in Section 163(j) was more favorable to taxpayers for the period through December 31, 2021 than it is currently. Through December 31, 2021, the Section 163(j) limitation was calculated as the product of 30% multiplied by an adjusted taxable income amount which was roughly equivalent to earnings before interest, taxes, depreciation and amortization (“EBITDA”). For periods beginning after December 31, 2021, Section 163(j) calculates the 30% limitation based on an amount which is roughly equivalent to earnings before interest and taxes (or “EBIT,” i.e., an amount after depreciation and amortization). The House Bill would apply the more favorable EBITDA calculation for 5 years starting in 2025, and after the 5-year period the computation would revert back to EBIT. As before, the exception for “electing real property trades or businesses,” an irrevocable election that many REITs make once the Section 163(j) cap (whether based on EBITDA or EBIT) starts to pinch, would continue to be available.

Energy Tax Credits and Transferability[6]

The energy tax credit used by many REITs is the energy investment credit under Section 48E (the “Energy ITC”). The House Bill would terminate the availability of the Energy ITC for facilities (i) the construction of which begins after the date which is 60 days after the date of enactment of the House Bill or (ii) which are placed in service after December 31, 2028. The House Bill also would repeal the transferability of Energy ITCs for facilities for which construction begins after the date that is 2 years after the date of enactment of the House Bill.

Increased Rates of Tax on Certain Foreign Persons[7]

The House Bill would increase the rate of tax for an “applicable person” (i.e., a government of or citizen or resident of a foreign country determined to impose “unfair foreign taxes,” which includes digital services taxes and undertaxed profits taxes), including for withholding taxes on dividends and dispositions of U.S. real property interests. The rate of tax will increase over the specified rate, whether by statute or treaty, by 5% annually up to an increase of 20% over the statutory rate (without regard to the treaty rate) beginning at the later of three dates: (i) 90 days after enactment of the House Bill, (ii) 180 days after enactment of the discriminatory tax, and (iii) the date that the discriminatory tax begins to apply.