For real estate owners and investors with debt maturing in 2027, refinancing may feel like a conversation for next year. But waiting until a maturity date is approaching can limit the time available to evaluate financing alternatives, address lender requirements, and understand the tax consequences of a new debt structure.
Starting the conversation early gives your tax team an opportunity to coordinate with you and your lender before key financing decisions are finalized. That can be especially valuable when refinancing involves significant changes in interest expense, property improvements, ownership structure, or cash flow.
Why 2027 Refinancing Deserves Attention Now
A refinancing is about more than securing an interest rate. Loan terms can affect cash flow, distributions, capital plans, and ultimately the economics of a real estate investment.
For owners with maturities approaching in 2027, early planning creates time to evaluate questions such as:
- How will the proposed debt structure affect projected taxable income and cash flow?
- Could the refinancing change the amount or timing of deductible interest?
- Are significant capital expenditures or property improvements planned around the same time?
- Do existing tax elections affect how interest expense or depreciation will be treated?
- Is information needed from your CPA that can be prepared before the lender’s underwriting process is underway?
These questions are easier to address before financing terms are finalized rather than after closing.
Where Section 163(j) Fits In
Section 163(j), the business interest expense limitation, is still part of the analysis, but for many real estate businesses it may not be the central issue it once appeared to be.
Generally, Section 163(j) limits deductible business interest expense based in part on 30% of adjusted taxable income. However, Section 163(j)(7)(B) provides an important exception for electing real property trade or business. Qualifying real estate activities can include development, redevelopment, construction, acquisition, rental, operation, management, leasing, and brokerage.
Making the real property trade or business election can remove the business from the Section 163(j) limitation, but the decision comes with depreciation consequences. Certain real property must be depreciated under the Alternative Depreciation System, or ADS, and affected ADS property is not eligible for bonus depreciation. For example, residential rental property generally moves from 27.5 years to 30 years and nonresidential real property from 39 years to 40 years.
That means the question is not simply whether Section 163(j) applies. The better question is which tax treatment produces the best overall result for the property and ownership group given the new financing structure.
The Tax Landscape Has Changed
Recent tax law changes make that analysis particularly important.
For tax years beginning after December 31, 2024, depreciation, amortization, and depletion are again added back when calculating adjusted taxable income for purposes of Section 163(j). This can increase ATI and give some taxpayers greater capacity to deduct interest even without making a real property trade or business election. The law also restored permanent 100% bonus depreciation for qualifying property, generally for property acquired after January 19, 2025.
These changes alter the economics of the Section 163(j)(7) election for some real estate businesses. In fact, IRS Revenue Procedure 2026-17 created a limited opportunity for certain taxpayers that made Section 163(j)(7) elections in 2022, 2023, or 2024 to withdraw those elections, reflecting how materially the tax landscape has changed.
For a property facing a 2027 refinancing, the right answer therefore depends on the specific facts, including expected interest expense, depreciation, planned improvements, existing elections, and the terms of the new financing.
What this means for you
Some of the most effective planning happens when the property owner, lender, and tax team are communicating before the transaction is complete.
For more information, please reach out to a Saville team member