The reinstatement of 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, offers significant tax-saving opportunities for real estate investors and business owners. Effective for qualified property placed in service after January 19, 2025, this permanent provision allows immediate full expensing of eligible assets, reversing the prior phase-down schedule (40% in 2025 under the 2017 Tax Cuts and Jobs Act). Here’s how it can transform your property upgrade strategy.
What Qualifies for 100% Bonus Depreciation? Bonus depreciation applies to assets with a MACRS recovery period of 20 years or less, including:
Tangible personal property: Equipment, furniture, and fixtures.
Qualified Improvement Property (QIP): Interior upgrades to nonresidential buildings, like lighting, flooring, or electrical systems (excluding structural components or building expansions).
Land improvements: Parking lots, landscaping, and fencing.
Certain production property: Manufacturing facilities built after January 19, 2025, and used for production before 2031.
Used property qualifies if not previously used by the taxpayer, making renovations and acquisitions equally viable.
Maximizing Benefits with Cost Segregation Cost segregation studies are now more valuable than ever. These studies identify short-life components (5, 7, or 15-year property) within a property, allowing investors to accelerate deductions. For example, a $5 million commercial property with $2 million in qualifying components could yield $2 million in first-year deductions at 100% bonus, compared to $800,000 at the old 40% rate saving an additional $444,000 at a 37% tax rate.
Strategic Timing and Planning Timing is critical. Assets must be acquired and placed in service after January 19, 2025, to qualify for 100% bonus depreciation. Investors should:
Schedule property upgrades or purchases to align with this date.
Conduct cost segregation studies early to maximize deductions.
Consult tax professionals to navigate state-specific rules, as some states don’t conform to federal bonus depreciation.
Impact on Cash Flow By front-loading deductions, bonus depreciation boosts cash flow, freeing up capital for reinvestment, debt reduction, or further upgrades. For real estate investors, this can enhance returns on properties like hotels, retail spaces, or multifamily units with high percentages of qualifying components.
Act Now The permanent 100% bonus depreciation reshapes investment strategies, offering stability and predictability. Coordinate with your CPA to review acquisition timelines, optimize depreciation schedules, and leverage cost segregation for maximum savings. Don’t miss this opportunity to transform your 2025 tax strategy.
