Tax Law Changes Loom for Investors in 2026

- The phase-out of bonus depreciation is a critical change; the deduction drops from 60% in 2024 to 40% in 2025, and then to 20% in 2026 before being eliminated. However, legislation signed in July 2025, known as the One Big Beautiful Bill Act (OBBBA), permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. This allows investors to deduct the full cost of eligible property improvements upfront, significantly impacting cash flow and tax planning. - In Chicago's multifamily market, new apartment deliveries are projected to fall below 4,000 units in 2026, the lowest level since 2012. This supply constraint is expected to keep vacancy rates low, around 3.8%, and support modest rent growth, with average effective rents potentially reaching $2,300 per month. Neighborhoods like Avondale, Pilsen, and the Northwest Side showed strong rent performance heading into 2026. - For those transitioning into the industry, real estate investment firms prioritize candidates with strong financial modeling and analytical skills, specifically proficiency in Excel and software like Argus and CoStar. Networking and building relationships with industry professionals are considered crucial for uncovering opportunities and gaining credibility. - Institutional investors are increasingly using Real Estate Investment Trusts (REITs) to diversify their portfolios and gain exposure to non-traditional sectors like data centers and healthcare, which now constitute 67% of the US REIT index. While REITs offer liquidity, institutional investors still balance their portfolios with private real estate, with some large funds targeting a 25% allocation to REITs. - The Section 199A Qualified Business Income (QBI) deduction, which allows owners of pass-through businesses to deduct up to 20% of their qualified business income, was scheduled to expire after 2025. However, the OBBBA of 2025 made this deduction permanent and expanded the income thresholds, providing continued tax relief for many real estate investors. - Heading into 2026, the Chicago multifamily market remains resilient, with cap rates hovering near 6% and steady rent growth between 2.5% and 4%. Limited new construction has prevented the oversupply issues seen in other major markets, keeping Chicago's vacancy rates, which average around 5%, below national norms. - To build capital for a first investment, aspiring investors often start by saving, but other common strategies include partnering in a joint venture with someone who has the necessary funds, or refinancing an existing property to pull out equity. For those over 55, it's also possible to withdraw a portion of a pension pot to fund a property purchase. - After a difficult 2025, the REIT sector showed signs of recovery in early 2026, with Land and Data Center REITs performing strongly in January. Analysts project that REIT earnings growth could accelerate to nearly 6% in 2026 as investment activity improves.