Bonus depreciation is a powerful tax tool for real estate investors, allowing substantial deductions on qualifying property improvements in the year they’re placed in service. While it cannot be applied to the purchase price of a building, it is available for specific fixtures and equipment, as well as land improvements. The One Big Beautiful Bill (OBBBA) has permanently restored 100% bonus depreciation, creating significant opportunities for investors.

What Is 100% Bonus Depreciation?

Bonus depreciation allows you to deduct a large portion of the cost for qualifying improvements, helping you recover expenses more quickly. Instead of spreading deductions over several years as with traditional depreciation, investors can now write off up to 100% of eligible costs in the first year, providing significant tax advantages. 100% depreciation reduces taxable income and lowers the overall tax burden for real estate investors. Eligible categories include:

• Qualified Improvement Property (QIP) – interior improvements to nonresidential property.
• Certain Fixtures & Equipment – appliances, carpeting, lighting, and other personal property identified via cost segregation.
• Land Improvements – parking lots, landscaping, and fencing.

How Does It Work?

Under the Tax Cuts and Jobs Act (TCJA), bonus depreciation was 100% through 2022, with a planned phase-out by 2027. The OBBBA changes this by restoring 100% bonus depreciation permanently for assets acquired after January 19, 2025. A transitional rule allows assets acquired before January 20, 2025 but placed in service later that year to use the old phased rates if more beneficial. For real estate investors, this means cost segregation studies are now even more valuable for accelerating deductions.

Who Benefits Most in Real Estate?

• Multifamily & Commercial Property Owners – accelerate deductions on renovations, furniture, and appliances.
• Triple Net Lease (NNN) Investors – offset income from long-term properties with tenant improvements or site enhancements.
• Value-Add Investors – expense renovation costs to boost early-year after-tax cash flow.
• DST & 1031 Investors – leverage bonus depreciation from new fractional DST interests.
• Developers – immediately deduct eligible site work and landscaping costs.

Why It Matters for Investment Real Estate

With permanent 100% bonus depreciation, investors can plan improvements without worrying about phase-out deadlines. This means higher first-year tax deductions, improved after-tax cash flow, and more flexibility in timing improvements for tax efficiency. When combined with cost segregation, bonus depreciation can significantly reduce taxable income and potentially shelter other passive income.

Contact me to determine if using bonus depreciation in your investment plan can help you keep a greater portion of your income.