What the OBBBA Means for Real Estate Investors
For the last three years, bonus depreciation has been on a glide path to zero. Under the Tax Cuts and Jobs Act phase-down schedule, the rate dropped from 80 percent in 2023 to 60 percent in 2024, was scheduled to fall to 40 percent in 2025, and would have hit zero in 2027. Real estate investors and business owners who relied on accelerated first-year deductions were watching one of the most powerful tax tools in the code disappear.
That changed on July 4, 2025. The One Big Beautiful Bill Act, signed into law that day, permanently restored 100 percent bonus depreciation for qualifying property acquired after January 19, 2025. This is not a temporary extension. It is a permanent rewrite of the bonus depreciation schedule.
For real estate investors, this is one of the most consequential tax changes in years. Here is what changed, what it means for your investing, and how to make sure you actually capture the benefit.
What Changed Under the OBBBA
The OBBBA did three significant things to bonus depreciation:
Restored the 100 Percent Rate
For property acquired and placed in service after January 19, 2025, the bonus depreciation rate is back to 100 percent. The full cost of qualifying property can be deducted in the year it is placed in service, rather than spread across the property’s recovery period.
Made the Change Permanent
This is not a temporary extension subject to sunset in a few years. The 100 percent rate is now permanent law. Future legislation could change it, of course, but it is no longer scheduled to phase down or expire under current law.
Eliminated the Phase-Down Schedule for New Acquisitions
The old phase-down (40 percent in 2025, 20 percent in 2026, 0 percent thereafter) no longer applies to property acquired after January 19, 2025. The IRS issued interim guidance in Notice 2026-11 confirming the framework and providing the technical rules.
For property acquired on or before January 19, 2025 (the key cutoff date), the old phase-down rates still apply. This distinction matters more than most real estate investors realize, and we will come back to it.
The Acquisition Date Rule You Cannot Afford to Miss
The single most important detail in the new law is what counts as the “acquisition date.” Under both the prior rules and the new OBBBA framework, property is treated as acquired on the date a written binding contract is entered into, not the date the property is placed in service or the date of closing.
Why this matters for real estate investors:
If you signed a binding purchase contract for a commercial property on January 15, 2025 and closed in May 2025, that property is treated as acquired on January 15. Under the old phase-down schedule, your bonus depreciation rate is 40 percent, not 100 percent.
If you signed the same contract on January 21, 2025 and closed in May 2025, the property qualifies for the full 100 percent rate.
A six-day difference in contract execution date can mean the difference between a $200,000 first-year deduction and a $500,000 first-year deduction on the same property. This is one of the most important transitional rules in the entire OBBBA framework.
What If You Have Property Already Under Contract?
If you have property that was under binding contract on or before January 19, 2025 but is not yet placed in service, you are stuck with the old phase-down rates. There is no way to retroactively requalify for the higher rate.
If you are considering acquisitions now (or have flexibility on contract timing for a property you have been evaluating), make sure any binding contract is signed after January 19, 2025 to capture the full benefit.
What Qualifies for 100 Percent Bonus Depreciation
The asset categories that qualify under the restored 100 percent rate are the same categories that qualified under the prior rules:
Property with a Recovery Period of 20 Years or Less
This includes most of the assets real estate investors care about:
- Personal property used in business (machinery, equipment, computers, furniture, vehicles)
- Qualified improvement property (QIP) for nonresidential buildings, with a 15-year recovery period
- Land improvements like parking lots, fencing, sidewalks, and landscaping (15-year recovery)
New and Used Property Both Qualify
Used property qualifies as long as it has not been previously used by the taxpayer (or a related party) and meets the other acquisition requirements. This is unchanged from the prior rules but is worth restating because some investors still believe bonus depreciation applies only to new property.
What Does NOT Qualify
The building structure itself for residential rental (27.5-year recovery) and commercial real estate (39-year recovery) does NOT qualify for bonus depreciation. The recovery period is too long.
This is why cost segregation studies remain so important. A cost segregation study reclassifies portions of a real estate purchase from long-life building basis into shorter-life categories that DO qualify for bonus depreciation. For a typical commercial property, 20 to 35 percent of the purchase price can often be reclassified into bonus-eligible categories.
The full math on how cost segregation and 100 percent bonus depreciation stack together is the difference between a routine deduction and a transformational one. Our deeper coverage of bonus depreciation strategies walks through the specific scenarios where the combination produces the largest results.
What This Means for Real Estate Investors in Practical Terms
The restored 100 percent rate changes the math on several common real estate investment scenarios:
Commercial Property Acquisitions
For a $3,000,000 commercial property with a cost segregation study reclassifying 30 percent of basis ($900,000) into short-life categories, the first-year deduction goes from approximately $360,000 under the 40 percent rate to the full $900,000 under 100 percent. For a high-income investor in the 37 percent federal bracket plus 5 percent state tax, this is the difference between roughly $150,000 in first-year tax savings and roughly $375,000.
Multifamily Acquisitions with Significant Improvements
Multifamily properties typically have less personal property than commercial buildings but still benefit substantially from cost segregation. The interior improvements, appliances, flooring, fixtures, and land improvements all qualify for the restored 100 percent rate.
Real Estate Professional Status Strategies
The math gets dramatically more interesting for investors who qualify as a Real Estate Professional under IRC Section 469(c)(7). Once your rental activity is non-passive, those large first-year deductions can offset W-2 wages, business profits, or other ordinary income, not just passive rental income. The combination of REPS plus cost segregation plus restored 100 percent bonus depreciation produces some of the largest legitimate tax savings available to high-income earners. We walk through exactly how the stack works, including the qualification tests, in our guide on tax strategies for high-income real estate investors.
Short-Term Rental Investments
Investors using the short-term rental loophole (where average rental periods of seven days or less can qualify the activity as non-passive) gain the same benefit. The larger first-year deductions offset W-2 or business income when the material participation tests are met.
The Elections You Should Know About
The restored framework includes two important election options:
The Elect-Out
Taxpayers can elect out of bonus depreciation entirely for any class of property. This is useful in situations where:
- You have an existing Net Operating Loss carryforward and additional deductions would not produce immediate benefit
- Your state does not conform to federal bonus depreciation rules and the federal-state mismatch creates complications
- You want to preserve deductions for future years when income is expected to be higher
The elect-out is made on a class-by-class basis, which gives you flexibility to apply 100 percent bonus to some assets while electing out on others.
The 40 Percent Reduced-Rate Election
For the first tax year ending after January 19, 2025, the OBBBA introduced a transition election that allows taxpayers to claim 40 percent bonus depreciation (instead of 100 percent) on most qualifying property. The reduced rate is 60 percent for long-production-period property and certain aircraft.
This election lets taxpayers smooth their deductions across multiple years rather than front-loading everything into the transition year. It is most useful for taxpayers who would otherwise create unnecessarily large NOLs or who expect higher income in future years where the deductions would be more valuable.
Five Things to Get Right
If you are planning to capture the restored 100 percent bonus depreciation on a real estate acquisition, here are the five things that matter most:
1. Verify Your Contract Date
The contract date (not the closing date) determines whether you qualify for 100 percent or fall under the old phase-down. For acquisitions in early 2025, check the date the binding contract was signed.
2. Plan the Cost Segregation Study Before Closing
Cost segregation studies can be commissioned after closing, but the planning works best when the study is anticipated during the acquisition process. This lets you align the purchase structure, allocation, and study scope with the tax outcome you want.
3. Confirm You Have Enough Income to Use the Deductions
For real estate investors who do not qualify for Real Estate Professional Status or the short-term rental loophole, bonus depreciation deductions are passive and can only offset passive income. Without sufficient passive income, large bonus depreciation deductions become suspended losses that carry forward but provide no current-year benefit.
If your W-2 or business income is what you actually want to reduce, qualification matters more than the deduction itself. The two main paths to non-passive treatment, along with the documentation that holds up under audit, are spelled out in our breakdown of tax strategies for high-income real estate investors.
4. Check Your State’s Conformity Rules
Not all states conform to federal bonus depreciation. California, Florida, and several other states historically decouple from federal accelerated depreciation rules, which can create state-level add-backs even when the federal deduction is generous. The federal tax savings still apply, but state tax planning needs separate consideration.
5. Plan for the Eventual Recapture
Accelerated depreciation creates correspondingly larger recapture exposure when the property is sold. The 5, 7, and 15-year property reclassified through cost segregation recaptures as Section 1245 property at ordinary income rates (up to 37 percent federally) at sale.
For long-term holders, this trade-off is almost always worth it. For investors who plan to sell within a few years, the recapture math can erode much of the front-loaded benefit unless the gain is rolled forward through a 1031 exchange, which defers both the capital gain and the recapture indefinitely. Building the eventual exit into the acquisition plan is what separates investors who keep the savings from investors who hand them back at closing.
The Bottom Line
The restored 100 percent bonus depreciation is one of the most consequential tax changes for real estate investors in the last decade. Combined with cost segregation studies and Real Estate Professional Status (or the short-term rental loophole), it can produce hundreds of thousands of dollars in first-year tax savings on a single property acquisition.
The execution details matter more than most online content acknowledges. Contract dates, cost segregation timing, state conformity, recapture planning, and the choice between full 100 percent or the 40 percent reduced-rate election all affect the final outcome. Getting any of these wrong can significantly reduce the benefit.
If you are evaluating a real estate acquisition or planning to acquire equipment or improvements that would qualify for bonus depreciation, contact our team to discuss how the restored framework fits into your broader tax plan. The math is straightforward once the strategy is clear, but the strategy depends on details that vary considerably from investor to investor.
