Most people think housing is being “cracked down on.”
But when you look at what is actually happening in tax law and housing policy from 2025 through 2027, a very different picture appears.
Across the board, government policy is now encouraging people to:
• Own housing
• Build housing
• Provide rental housing
• Invest long term
Here are the changes every Bay Area homeowner and investor should understand.
1. The most powerful tax combination is back
The federal government has restored 100 percent bonus depreciation for qualifying real estate investments.
What this means in simple terms:
When you buy an investment property, much of the building such as electrical, plumbing, HVAC, flooring, and site improvements can be written off immediately using a cost segregation study. Instead of spreading deductions over decades, you can take a large portion in the first year.
When this is combined with a 1031 exchange, the result is extremely powerful.
You can sell an older rental
Defer the capital gains tax
Buy a newer property
Then immediately generate large new tax deductions
In practical terms, investors can upgrade their portfolios while dramatically reducing taxable income.
2. Rental income gets a permanent 20 percent tax discount
Rental real estate receives a special deduction called the Qualified Business Income (QBI) deduction.
This allows rental owners to deduct 20 percent of their rental profit before paying tax.
If a property earns $200,000, the IRS only taxes $160,000.
This benefit is now permanent.
Unlike professional income (lawyers, doctors, agents, consultants), there is no income limit that removes this benefit for rental owners.
This is one of the biggest reasons long term real estate ownership is so attractive in high tax states like California.
3. ADUs are quietly becoming sellable homes
A new California law (AB 1033) allows cities to permit Accessory Dwelling Units to be sold separately from the main home as condominium units.
Some cities have already adopted this. Others are expected to follow.
In high value areas, this could allow backyard cottages or garage conversions to become separately owned and sold homes rather than just rental units.
This adds a completely new layer of long term property value.
4. Opportunity Zones are entering a new phase
Opportunity Zones were created to encourage investment in certain areas by allowing investors to defer capital gains.
Here is the key timeline:
• In 2026, investors must pay tax on the original gain they deferred when they entered an Opportunity Zone
• However, if the Opportunity Zone investment is held for 10 years, any growth inside that investment becomes tax free
Starting in 2027, Opportunity Zones become a permanent part of the tax code with new structures designed for long term investing rather than one time deadlines.
This means Opportunity Zones are shifting from a short term tax strategy into a permanent investment category.
5. New rental rules standardize housing
California now requires landlords to provide refrigerators and stoves in rental units.
This increases compliance but also professionalizes the rental housing market, favoring long term ownership and higher quality housing.
The bigger picture
Taken together, these policies point in the same direction.
The tax system now rewards:
• Owning rental property
• Adding housing supply
• Building ADUs
• Reinvesting and upgrading properties
• Holding real estate long term
Zoning and housing laws now make it easier to build and densify near transit and in existing neighborhoods.
In other words, the system is quietly aligning itself to support people who provide housing, not just people who trade it. Let us know if you are planning to exit, invest, or anything related to real estate? We are here to help!