How the "Big Beautiful Bill" Impacts Real Estate
On July 4, 2025, the federal government signed the "One Big Beautiful Bill" into law — a sweeping piece of legislation focused on tax relief, economic stimulus, and business incentives. While political opinions vary, real estate professionals and clients should understand the specific changes this bill brings to the housing market.
This post covers key real estate-related provisions and explains how the bill could indirectly influence mortgage interest rates — a crucial factor in today’s housing activity.
Real Estate Highlights from the Bill
1. $750K Mortgage Interest Deduction (Now Permanent)
The deduction for mortgage interest on acquisition debt up to $750,000 is now permanent. While it doesn’t return to the pre-2018 $1 million limit, it provides clarity for buyers planning long-term.
2. SALT Deduction Cap Increased
The State and Local Tax (SALT) deduction cap is raised from $10,000 to $40,000 per household through 2029 (for households earning under $500,000). This significantly benefits buyers in high-tax states like California, New York, and New Jersey.
3. 1031 Like-Kind Exchanges Preserved
No changes were made to 1031 exchanges for real estate. Investors can continue deferring capital gains by swapping one property for another of like kind.
4. 100% Bonus Depreciation Restored
The bill reinstates and makes permanent 100% bonus depreciation for qualified real estate assets. This is a powerful tax strategy for investors who use cost segregation to front-load deductions and improve cash flow.
5. Mortgage Insurance Premium Deduction
The deduction for mortgage insurance premiums is back — offering savings for first-time buyers using low-down-payment financing such as FHA loans.
6. Low-Income Housing Tax Credit (LIHTC) Expanded
The bill increases allocations for the 9% credit and adjusts requirements for the 4% bond-financed credit, supporting more affordable housing development nationwide.
How the Bill Could Impact Interest Rates
While the bill doesn’t directly change interest rates, its economic consequences could lead to higher borrowing costs.
Here’s how:
-
Increased Government Borrowing
Tax cuts and spending expansions mean the government must borrow more, primarily by issuing Treasury bonds. -
Higher Treasury Yields
As borrowing increases, investors may demand higher returns (yields) on bonds. Higher yields typically lead to higher mortgage rates. -
Mortgage Rates Track Bond Yields
Mortgage rates closely follow the 10-year Treasury yield. If bond yields rise, mortgage rates often go up. -
Inflation Risk and Fed Response
If the bill stimulates economic growth and fuels inflation, the Federal Reserve may raise interest rates to control it — another factor that could push mortgage rates higher.
What This Means for the Market
At this point, the real estate market is relying heavily on the direction of mortgage rates.
While the bill introduces meaningful long-term benefits for homeowners, investors, and developers, the near-term market outlook — especially for affordability and buyer demand — will depend on how rates respond in the coming months.
Have questions about how this applies to your real estate plans?
I’m always happy to connect and discuss your goals, whether you’re buying, selling, or investing.
– Hamid Koochak
Broker Associate | Compass
Serving Los Angeles & Orange County
📩 [email protected]
