Is Congress about to bring back 100% bonus depreciation?
Tucked deep into the One Big Beautiful Bill Act (OBBB), now facing consideration before the Senate, is a specific provision that would create a major change in how real estate investments are depreciated.
Property owners and investors should pay attention here. Should the bill pass in its current form, the IRS will reinstate 100% bonus depreciation for property acquired after January 19, 2025, and placed in service after January 19, 2025, but before 2030.
This could have big implications for your taxes or future investment plans. Here’s what you need to know.
What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act is the official name for the budget and tax bill recently passed by the House of Representatives and being debated by the Senate. The bill is the primary legislative priority of the Trump administration.
If the budget bill becomes law, it may create sweeping changes to the tax code and likely include bringing back 100% bonus depreciation.
What is 100% bonus depreciation?
The bonus depreciation provision of the budget bill brings back a sunsetting part of the tax code that allowed property owners to claim 100% depreciation upfront for qualified property. This could lead to significant changes in not just your taxes but also the returns for future deals or investments.
Some background: Under the Tax Cuts and Jobs Act (TCJA) of 2017, property owners could claim a tax deduction equal to 100% of the cost of an eligible business property bought and put into use by December 31, 2022. Because the deduction was upfront, it would reduce your tax burden for the year you became eligible for it.
This 100% bonus deduction was in contrast to typical depreciation schedules, which allow owners to deduct depreciation over the life of the asset.
The original TCJA 100% bonus depreciation started phasing out in 2023. Beginning on January 1 of that year, the 100% depreciation has dropped by 20% annually and is currently scheduled to hit 0% in 2027.
As the law is written today, qualified property would be eligible for 40% bonus depreciation on your 2025 taxes.
However, the new budget bill would change all of that. If the OBBB passes, property placed in service after January 19, 2025, and before January 1, 2030, would once again be eligible for 100% bonus depreciation.
Is 100% bonus depreciation coming back?
The budget bill itself still faces a long road to the president’s desk. It passed the House with only a handful of votes amid unanimous Democratic opposition over damage to the social safety net and defections from several Republicans who expressed concern over adding trillions to the national debt.
And while the bill is being shepherded through Congress via reconciliation, which would allow it to pass the Senate with 51 votes instead of the typical 60, it has already faced criticism from leading Republican senators.
This means that at minimum, the bill is unlikely to remain exactly in its current form. Before voting, senators will almost certainly make significant revisions to the text over the next few weeks.
Should the Senate ultimately approve the bill, it will also need to survive a second vote in the House before becoming law — where any changes meant to bring senators onboard could cost the bill support.
However, the 100% bonus depreciation provision will likely remain in any iteration of the bill that makes it through Congress. This was a popular and largely non-controversial part of the TCJA, which should hopefully protect it as other elements of the current bill are modified or renegotiated by the Senate.
What should commercial real estate investors consider here?
Real estate companies and investors should monitor the budget bill as it proceeds through the Senate. Keep an eye on what provisions may change and whether it looks like the bill is headed toward becoming law.
You should also consider conducting a cost segregation study regardless of whether or not the bill moves forward. A cost segregation study will help you group assets into shorter useful lives. This means that instead of depreciating your whole building as either a 27.5- or 39-year property, it will be broken into five-, seven- and 15-year depreciating assets.
If the 100% bonus depreciation is extended, it will only magnify the benefits of a cost segregation study.
How Wipfli can help
You don’t have to tackle tax benefits on your own. Our team can help you lower your tax burden on your next project, discover your eligibility for accelerated deductions by conducting cost segregation studies and guide you through the implications of new legislation. Learn more about how Wipfli serves construction and real estate businesses.
