Sept. 15, 2025

This piece is sponsored by Ernst Capital.

The recently passed One Big Beautiful Bill brings changes that positively impact commercial real estate investment, according to Sioux Falls-based Ernst Capital Group.

“There are a number of strategic reasons to consider real estate investment in your portfolio — and this new legislation adds to them,” said Chris Daugaard, a partner in Ernst Capital. “It’s important for investors to realize the additional benefits now available.”

Bonus depreciation made permanent

One of the most impactful changes for real estate investors is the permanent extension of the first-year bonus depreciation deduction. This allows for 100 percent bonus depreciation on most tangible personal property with a recovery period of 20 years or less, along with other qualified property.

“We work with our local accounting firms to segregate the components of our real estate that qualify for accelerated depreciation, allowing our investors to potentially benefit from greater up-front tax deductions,” Daugaard said. “Oftentimes, commercial real estate investors can use these deductions to offset all taxable income from the partnership for the first few years of their investment.”

Qualified Opportunity Zones extended and expanded

The new federal legislation now makes the Qualified Opportunity Zone program permanent. QOZs are considered economically distressed communities or areas of communities. The program aims to generate job creation and economic growth by allowing investors to deploy their capital gains into these areas with multiple tax benefits if they hold the investment for 10 years.

On July 1, 2026, governors will designate a new round of QOZs, which will become effective Jan. 1, 2027. Each designation will last for 10 years, with new zones to be named every 10 years thereafter.

Ernst Capital has participated in three projects located in qualified opportunity zones: Aspen Commons and The Yukon at Benson in northwest Sioux Falls and The Union in Box Elder next to Ellsworth Air Force Base.

“Opportunity Zone projects are long-term investments, so we’re still pretty early on with those projects,” Daugaard said.

“It’s encouraging to see successful bipartisan policy take shape in Washington, D.C., and allow this program to become permanent. The new legislation also enhances data reporting and adds additional benefits for investing in rural areas, so we remain committed to pursuing attractive investment opportunities within QOZs, enabling our investors to take advantage of the program’s tax incentives.”

Business interest limitation to become more favorable

The new federal bill has permanently restored the more favorable calculation of adjusted taxable income used to determine the business interest expense limitation for tax years starting after Dec. 31, 2024. This no longer restricts the amount of deductible interest as it did in recent tax years, effectively increasing the interest deduction capacity for real estate businesses.

Qualified business income deduction permanently extended

The 20 percent qualified business income deduction has been made permanent. This deduction effectively reduces the top tax rate on income from pass-through entities from 37 percent to 29.6 percent.

At Ernst Capital, all investments are structured as LLCs, meaning investors receive the pass-through taxable income or loss from the partnership.

“So new deductions have the opportunity to benefit our investors directly,” Daugaard said. “Clearly, every investor’s situation is different, and one type of benefit may not be applicable to everyone, but many investors will find this a favorable change.”

Local outlook

In Sioux Falls, Ernst Capital continues to invest largely in new multifamily projects.

“The Sioux Falls market has continued to be very strong, with occupancy around 95 percent this year,” Daugaard said.

“Even though we built a lot of apartments over the last few years, that number shows that Sioux Falls has needed them!”

As construction costs moderate and interest rates have stabilized and even come down a bit, “it seems like new projects have returned somewhat to ‘business as usual,’ as opposed to the wild west of the post-COVID-19 era,” he added.

“We like stable, predictable planning. And we think there’s pretty significant opportunity with a healthy current market, Sioux Falls’ continued growth and the lack of new projects being permitted this year and last.”

To connect with Ernst Capital about future opportunities, visit here.