The 2026 Tax Sunset Countdown: What Real Estate Investors Must Do Before the Clock Runs Out

The clock is officially ticking. Unless Congress intervenes, many of the most favorable real estate tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) will expire on December 31, 2025. For property owners, landlords, and high-net-worth investors, the impact could be significant: higher tax brackets, reduced deductions, and fewer avenues for shielding income.

But while many investors are nervously watching the calendar, the most proactive ones are using this moment to restructure their portfolios, accelerate deductions, and position themselves to avoid higher taxes in 2026 and beyond.

This guide breaks down what’s scheduled to change, what those changes mean for real estate investors, and what steps you should be taking now—before the clock runs out.

What Exactly Happens in 2026?

When the TCJA sunsets, several tax provisions revert back to pre-2018 rules. This shift primarily affects individuals, pass-through entities, and estate planning strategies.

Key changes that matter to real estate investors

• Higher individual tax brackets
• Expiration of the 20 percent Qualified Business Income (QBI) deduction
• Lower estate and gift tax exemption
• Continued phase-down of bonus depreciation
• Tighter restrictions on interest expense deductions

Each of these changes impacts your after-tax income, portfolio performance, and long-term wealth strategy.

Higher Tax Brackets Mean Your Real Estate Income Will Be Taxed More

Under current law, the top federal income tax rate is 37 percent. In 2026, it is scheduled to return to 39.6 percent, and the brackets below it will also widen.

For active and passive real estate investors, this means:
• higher taxes on rental income
• higher taxes on REIT dividends
• higher taxes on capital gains if you sell properties outright
• higher taxes on management, brokerage, and sponsor income

The simplest way to prepare is to shift income away from taxable events and into structures that defer, reduce, or eliminate taxation.

The QBI Deduction Disappears: A Hidden 20 Percent Tax Increase

Real estate investors who qualify for the 20 percent QBI deduction currently enjoy reduced taxation on:
• rental income through pass-through entities
• REIT dividends
• certain management and sponsor income

When this deduction expires, your taxable income increases overnight—even if your properties perform exactly the same.

This makes 2024–2025 a prime window to restructure holdings, especially for:
• landlords considering retirement
• investors with multiple LLCs or pass-throughs
• owners evaluating DST or UPREIT transitions

Estate Tax Exemptions Will Be Cut in Half

Right now, the federal estate and gift tax exemption is historically high at $13.61 million per person. In 2026, that number is projected to drop to about $6–7 million.

This change has massive implications for real estate families.

Property owners with significant equity may unintentionally push their heirs into estate tax territory, forcing:
• liquidation of properties
• fire-sale pricing
• unnecessary debt
• complicated disputes among beneficiaries

Investors who use DSTs or UPREIT units—both of which simplify division among heirs—can dramatically reduce this risk.

Bonus Depreciation Continues to Decline

Bonus depreciation allowed 100 percent expensing of qualifying property through 2022. By 2024 it fell to 60 percent. In 2026, it drops again.

For investors planning improvements, acquisitions, or 1031/DST transitions, timing is crucial.

What to do now

• complete improvements before year-end to capture remaining bonus
• run cost segregation studies sooner, not later
• reconsider acquisition timing if depreciation matters to your tax profile

Waiting may significantly reduce after-tax returns.

Interest Deduction Rules May Tighten

Under TCJA, interest expense deductions were already limited—but potential 2026 changes may tighten the formula further, especially for leveraged portfolios.

This impacts:
• value-add investors
• developers
• syndicators
• owners with floating-rate debt or refinance risk

Transitioning into debt-free DSTs or lower-leverage portfolios through UPREIT contributions can reduce exposure.

What Smart Investors Are Doing Now

The biggest mistake investors make is waiting for certainty. The best approach is to assume the provisions sunset and act accordingly.

Here are the strategies top investors are using.

1. Using 1031 Exchanges to Defer 2024–2025 Gains Before Rates Rise

Selling now and deferring gains through a 1031 exchange allows investors to sidestep the potential for higher capital gains rates later.

DSTs have become the preferred replacement property because they:
• are turnkey, passive, and quick to close
• satisfy strict 1031 deadlines
• diversify risk
• eliminate management headaches

With tax brackets rising, every deferred dollar matters more.

2. Transitioning from Direct Ownership to UPREIT Structures

A 721 UPREIT exchange allows investors to contribute appreciated real estate in exchange for operating partnership (OP) units, avoiding a taxable sale.

This strategy is gaining momentum because it offers:
• continued tax deferral
• passive income
• diversification
• optional liquidity through REIT share conversion
• simplified estate transfer

For investors who feel “stuck” with highly appreciated assets, the UPREIT pathway is a powerful exit without triggering taxes.

3. Consolidating Assets Into Estate-Friendly Structures

As the estate exemption drops, the goal is to reduce administrative burden and create clean, transferable assets for heirs.

Many investors are moving into:
• DSTs for fractional, easy-to-divide ownership
• REIT OP units for simplified gifting
• trusts paired with UPREIT contributions
• tax-efficient family wealth platforms

A simplified estate is far easier—and far less costly—to transfer.

4. Accelerating Depreciation While Bonus Still Exists

Cost segregation studies completed in 2024–2025 capture more value than those done after the sunset.

Investors are:
• acquiring replacement properties sooner
• front-loading improvements
• using DSTs with strong depreciation profiles
• using REIT-managed portfolios for depreciation allocation

This window won’t last.

5. Creating a Two-Year Tax Plan Instead of a Yearly Plan

Given the scale of upcoming tax changes, sophisticated investors are creating 2024–2026 roadmaps that include:
• when to sell
• whether to 1031 or UPREIT
• how to structure depreciation
• which properties to keep or consolidate
• how to prepare heirs now, not later

Real estate wealth is built on long timelines—tax strategy should match.

The Bottom Line: Waiting Will Cost You

Whether Congress modifies the TCJA sunset or lets it expire, the period between now and December 2025 may be the most important tax-planning window of the decade for real estate owners.

Investors who act now can:
• defer huge tax liabilities
• simplify estate plans
• maximize income
• reduce risk
• position assets for long-term growth

Those who wait may face higher taxes, forced decisions, and reduced flexibility.