Have you heard the news? 100% bonus depreciation is back! 🎉
This change, which was recently signed into law as part of the Trump administration’s broader tax package, restores one of the most powerful tax advantages in any real estate investor’s toolkit.
What is Depreciation?
Depreciation is the IRS’s way of recognizing that the physical components of a building gradually wear out, so it lets you deduct a slice of the property’s purchase price from your rental income each year—even though no cash actually leaves your pocket. Those paper “losses” can offset most or all of your positive cash flow and other passive income, often pushing your taxable income for the property close to zero (or even negative) while you still collect real dollars from rent. In other words, depreciation turns the natural aging of your asset into a built-in, legally sanctioned tax shield—one of the most powerful advantages in real-estate investing.
What’s even better is that while a building depreciates over time in the eyes of the IRS, real estate generally appreciates in value over time. Double win.
For residential properties, regular depreciation is measured by 27.5 years. For example, a building worth $350,000 loses $12,727 worth of value each year. When it comes time to do your taxes, you can count the $12,727 as an expense, which offsets rental income and shows a loss on paper.
What is Bonus Depreciation?
Instead of broadly depreciating an asset over 27.5 years, you can depreciate different components of the asset after performing a cost segregation study. In a cost seg study, which is done by an engineer, different components of the building (think appliances, cabinets, flooring) are evaluated and assigned a “tax life.”
With bonus depreciation, you can expense anything with a lifespan of 20 years or less all in one year. This is extremely advantageous from a tax perspective.
Why does this Matter?
Bonus depreciation adds rocket fuel to the equation.
When you complete a cost segregation study, you can now once again accelerate depreciation on qualifying assets and take tax deductions in the first year.
That means:
Large paper losses on your K-1—even while you’re receiving positive cash flow
The ability to offset passive income from other real estate investments
A boost in after-tax returns for both growth and income-focused investors
Even greater strategic impact for those using cost segregation + refinance + scale
This change is retroactive to Inauguration Day 2025 — which is a huge win for investors who will, or have, purchased in 2025 and now will be eligible for full bonus depreciation!
As always, we encourage our clients to consult their CPA about how this may benefit their individual tax situation, especially if they’re actively investing in syndications or passive deals.
No matter how you invest, this is a big win for real estate investors everywhere. Do you have more questions about how to discuss 100% depreciation with your clients? Or do you need trusted, vetted CPAs, Cost Seg companies, etc? Contact us to schedule a call!
