Potential Tax Impacts We’re Monitoring
We’re constantly monitoring activity in Congress and at the IRS to understand how potential policy changes could impact Cost Segregation Studies and other valuable tax-saving strategies.
As your trusted partner, it’s important to keep you informed and there are three things we want to bring to your attention. At this time, no decisions have been finalized—the updates below reflect developments we are actively watching and evaluating for potential impact. As things progress, we will continue to provide updates and our insights. In the meantime, if you have any questions, please do not hesitate to ask: 877.410.5040 or info@scarpelloconsulting.com
If you want to get your team up-to-date on the current tax codes as they relate to real estate investments and cost segregation, schedule time with our experts. We would love to share our knowledge with you.
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1. IRS Guidance on Qualified Production Property (QPP)
IRS Notice 2026-16 (Issued 2/20/26)
The IRS recently released interim guidance related to the special depreciation allowance for Qualified Production Property (QPP). Taxpayers may rely on this notice until proposed regulations are issued.
Key highlights include:
- The “integral part” requirement is met when qualified production activities occur within the physical space of a property. However, only the portions used directly for production qualify—areas like offices, parking, or administrative space are generally excluded.
- A favorable exception allows properties with 95% or more qualifying use to be treated as entirely eligible.
- Multiple buildings operating together on contiguous land may be treated as a single integrated facility.
- Activities must involve a substantial transformation of a product, though essential supporting activities (like raw material storage) may still qualify. Notably, finished goods storage is currently excluded, though this has received pushback and may evolve in future guidance.
- A 2025 safe harbor allows certain businesses (based on NAICS codes) to qualify more easily if placed in service within a specific timeframe.
- Certain leasing structures—including common OpCo/PropCo models with shared ownership—may still qualify.
- Importantly, improvements to existing property may now be eligible, expanding planning opportunities.
2. Housing Legislation Impacting SFR/BTR Markets
“21st Century ROAD to Housing Act” (Passed Senate 3/12/26)
This proposed legislation could significantly impact the single-family rental (SFR) and build-to-rent (BTR) sectors.
- Large institutional investors (owning 350+ single-family homes) may be required to sell properties within 7 years of acquisition to individual buyers.
- This could create market disruption, but also introduce planning opportunities:
- Potential for tax-rate arbitrage, leveraging depreciation and ordinary income deductions.
- Shifting value allocations between land, personal property, and real property over shorter hold periods.
- Continued opportunity to utilize 1031 exchanges (if properties are not treated as inventory) to defer gains.
3. Proposed Rental Housing Investment Act
Introduced 3/12/26
This bill proposes a new depreciation incentive for long-term residential rental properties.
- A potential deduction of up to $150,000 per unit (or $250,000 for affordable housing)
- Applies to properties with 2+ dwelling units (open question: whether units must be attached or simply co-located)
- Includes a 10-year recapture period (15 years for affordable housing), with full recapture at ordinary income tax rates if the property use changes
- Could significantly impact exit strategies—particularly for SFR/BTR developments selling homes to individuals
- Taxpayers would need to carefully weigh upfront benefits against recapture risk and loss of favorable capital gain treatment
What This Means for You
While none of these developments are final, they signal meaningful shifts that could impact investment strategies, depreciation planning, and long-term tax outcomes.
Our team is actively analyzing these changes and will continue to provide guidance as more clarity emerges. If you have questions about how these developments could affect your current or future projects, we’re here to help.
