With 100% bonus depreciation reinstated, property owners can fully expense eligible assets in 2025, unlocking significant upfront deductions that directly improve investment returns. Understanding how this provision under the One Big Beautiful Bill Act (OBBBA) applies to rental properties and property improvements can help real estate professionals better plan acquisitions and make smarter decisions for their portfolios.
What Is Bonus Depreciation?
Bonus depreciation is governed by IRC §168(k) and allows businesses to deduct all or a substantial portion of the cost of qualifying assets in the year they are placed in service. Unlike standard depreciation, which spreads deductions over the asset’s useful life, bonus depreciation accelerates tax benefits and improves cash flow.
Under the Tax Cuts and Jobs Act (TCJA), 100% bonus depreciation was allowed for property acquired and placed in service after September 27, 2017, through 2022. The deduction then began phasing down: 80% in 2023, 60% in 2024, and 40% in 2025. The OBBBA reinstates 100% bonus depreciation for qualifying property placed in service in 2025, creating a critical opportunity for real estate investors.
OBBBA Restores 100% Bonus Depreciation
100% bonus depreciation is a recently reinstated provision of the tax code that allows property owners and real estate investors to claim a deduction equal to the full cost of qualified business property in the year it is placed in service. The goal of reinstating bonus depreciation is to incentivize investment in real estate, equipment, and other assets, with the intent of boosting economic growth.
Under the OBBBA, this provision applies to assets placed in service after January 19, 2025, and makes it permanent, offering a predictable framework for upfront deductions. The specifics of how bonus depreciation applies can be summarized as follows:
- Eligibility: Rental property improvements, land enhancements, personal property, equipment, machinery, technology, and certain vehicles
- Full expensing: Investors can deduct 100% of the cost of qualifying assets in the year they are placed in service, immediately reducing taxable income
- Timing: Applies only to property placed in service after January 19, 2025
- Permanence: Codified in the tax code, providing long-term certainty for planning
By enabling upfront deductions, the reinstated provision allows investors to accelerate cash flow, reduce current-year tax liability, and reinvest in portfolio growth.
Planning and Considerations for Real Estate Professionals
With the return of 100% bonus depreciation in 2025, real estate investors have a prime opportunity to maximize upfront deductions and reduce current-year taxable income. To fully leverage this provision, consider the following:
- Eligibility assessment: Ensure property acquired for business or income-generating purposes qualifies, including improvements, equipment, and certain personal property
- Cost segregation studies: Break down a property into shorter-lived components to accelerate depreciation, reclassifying portions from the 27.5- or 39-year schedule to five-, seven-, or 15-year categories eligible for 100% bonus depreciation
- Strategic elections: Evaluate whether full 100% expensing is optimal or if electing partial depreciation better aligns with future income projections
- Timing of acquisitions: Plan property placements to maximize deductions within the 2025 tax year
Proper analysis and planning can align tax strategies with investment goals and ensure compliance with IRS regulations.
Maximize Bonus Depreciation with Expert Guidance
Understanding and applying the reinstated bonus depreciation rules can have a significant impact on your taxable income and investment strategy. The Hechtman Group’s real estate accounting expertise helps investors and property owners navigate these rules, identify qualifying assets, and ensure deductions are maximized in compliance with IRS requirements. With our expertise, you can make informed decisions for your portfolio and strategically plan acquisitions and improvements.
Contact The Hechtman Group today to schedule a consultation and ensure your real estate investments are structured to take full advantage of bonus depreciation provisions.