UpTrajectory Review

The Tax Foundation's Richard DiSalvo highlights the Rental Housing Investment Act (RHIA), a federal proposal that would let developers of new rental housing immediately deduct up to $150,000 per unit in construction costs. To understand why this matters, you need to know that under current law, residential rental property must be depreciated over 27.5 years, while commercial structures depreciate over 39 years. This creates a significant tax penalty for rental housing development compared to other investments, effectively raising the after-tax cost of building apartments and discouraging new supply. The RHIA doesn't eliminate depreciation entirely, but it front-loads a substantial portion of the deduction, giving developers immediate cash-flow relief during the critical construction and lease-up phases.

For small-business operators in construction, real estate development, or property management, this proposal could shift project economics meaningfully. If you're a small developer used to juggling bridge loans and construction financing while waiting years for tax benefits to materialize, an immediate $150,000 deduction per unit changes your internal rate of return and could make marginal projects pencil out. It also levels the playing field slightly between large institutional developers with deep tax-planning departments and smaller operators who can't afford sophisticated cost-segregation studies. Even if you're not in real estate directly, more rental supply in your market could ease pressure on commercial rents and labor housing costs, both of which affect your bottom line.

What's genuinely new here is the specific dollar threshold and its targeted application to new construction only. The $150,000 cap is high enough to matter in most markets but low enough to avoid being a pure windfall for luxury high-rises in Manhattan or San Francisco, where per-unit costs often exceed $500,000. We're somewhat skeptical, however, that this alone will unleash a construction boom. The Tax Foundation piece likely acknowledges that zoning restrictions, labor costs, and interest rates remain binding constraints. Tax policy can nudge behavior at the margin, but it can't override local land-use politics or fix a broken permitting process. The proposal is best understood as removing one friction point, not solving the housing crisis.

The second-order effects deserve attention. If passed, this could accelerate the bifurcation between markets where development is already feasible and those where it isn't, potentially worsening regional inequality in housing supply. Smaller landlords and 'mom-and-pop' operators might benefit disproportionately because they typically hold properties longer and lack access to 1031 exchange strategies or opportunity zone funds that larger players use to defer taxes. On the cost side, there's a risk that immediate deductions could inflate land prices or construction bids if developers bid up scarce resources, capturing some of the tax benefit for themselves rather than passing it to renters. Watch how the Joint Committee on Taxation scores this; the revenue loss will matter for deficit hawks.

Practically, operators should monitor whether RHIA gains traction in the current Congress and consider how to position themselves if it does. If you're planning a ground-up rental project in the next 24 months, model scenarios with and without the immediate deduction to understand how it affects your go/no-go threshold. Real estate accountants and CPAs should flag this for clients now, since early-stage site selection and financing decisions made today will determine eligibility. Even if the bill stalls, the underlying argument—that depreciation schedules distort investment decisions—is likely to resurface in future tax reform debates, so understanding the mechanics now prepares you for whatever version eventually passes.

“The Rental Housing Investment Act (RHIA) would remove much of that tax penalty by allowing developers of new rental housing to immediately deduct up to $150,000 of cost per unit.” — Tax Foundation

Takeaway: Model your next rental project with and without the proposed $150,000 per-unit immediate deduction to see if it changes your go/no-go decision.