Tax Cuts &

Jobs Act

Cost Segregation and Bonus Depreciation: The Opportunity Is Real and It Is Permanent

Of all the provisions in the One Big Beautiful Bill, the restoration of 100% bonus depreciation may be the one that gets the most attention from commercial real estate professionals, and for good reason. Prior to the bill’s passage, bonus depreciation had been phasing out under the Tax Cuts and Jobs Act. Property owners were looking at 40% in 2025, 20% in 2026, and nothing after that. The bill reversed that trajectory entirely.

For qualified property acquired or newly constructed after January 19, 2025, 100% bonus depreciation is now back and, more importantly, it is now permanent. That is not a temporary extension or a multi-year patch. Barring future legislative change, full first-year expensing is the new baseline going forward.

There is one transitional nuance worth noting. Property placed in service between January 1 and January 19, 2025, as well as property acquired on or before January 19, 2025 and placed in service after that date, is still subject to the old phase-down schedule. If that applies to any of your assets, a qualified advisor can help you understand exactly where you stand.

What this means practically is that cost segregation studies have never been more powerful as a planning tool. A well-executed study identifies personal property components within a commercial building that can be reclassified to shorter depreciable lives, typically five, seven, or fifteen years instead of the standard 27.5 or 39. When those reclassified assets are placed in service and eligible for 100% bonus depreciation, the first-year deduction can be substantial. For property owners who have recently acquired, constructed, or renovated commercial real estate, completing a cost segregation study before year-end is one of the clearest tax planning moves available right now.

The bill also raised the Section 179 expensing cap to $2.5 million, with a phase-out beginning at $4 million, which creates additional planning flexibility for eligible businesses investing in depreciable property.

100% Bonus Depreciation

Under the newly passed bill, 100% bonus depreciation is reinstated starting in tax year 2025. Now, businesses can confidently plan around full expensing of qualifying property if it was acquired or placed in-service after January 19th, 2025.

Bonus depreciation now applicable to new or used property.

This means that nearly every component identified as accelerated in a cost segregation study for a building acquired after 1/20/2025 can be fully depreciated in the first year of service.

Increased Section 179 Expensing

Limitation increased from $500,000 to $1,000,000, phase-out limitation increased to $2,500,000.

Now includes the following items: roof, HVAC, fire protection & alarm systems, and security systems included in improvements made to non-residential commercial buildings.

Still includes personal property – expanded to include tangible personal property in residential rentals.

Qualified Improvement Property

Qualified Leasehold Improvements, Qualified Retail Improvements, and Qualified Restaurant Property are all replaced with Qualified Improvement Property (QIP).

Structural items like interior supporting framing, escalators, and elevators are not included in QIP. The improvements must have begun at least one day after the building was placed in service for its intended use.

Intended to be classified as 15-year property and, therefore, eligible for bonus depreciation. This was not done due to a technical language error. The 2020 CARES Act has corrected this.

1031 Exchanges - Only Include Real Property

Personal property (as defined by state definition) can no longer be included in a 1031 Exchange.

A Cost Segregation Study can be applied to the newly acquired building’s depreciable basis to help offset the effects of recapture on the sale of personal property.

20% Pass-Through Income Deduction

Personal property (as defined by state definition) can no longer be included in a 1031 Exchange.

A Cost Segregation Study can be applied to the newly acquired building’s depreciable basis to help offset the effects of recapture on the sale of personal property.