What are the new rules for 100% bonus depreciation in 2025?
Tucked deep into the One Big Beautiful Bill (OBBB) Act, which was signed into law in July, is a specific provision that creates a major change in how real estate investments are depreciated.
Property owners and investors should pay attention here. The OBBB — which was the Trump administration’s signature tax and domestic policy bill — officially reinstated 100% bonus depreciation for property acquired after January 19, 2025, and placed in service after that same date.
What do the 2025 changes around 100% bonus depreciation mean for you? Depending on your specific circumstances, the new rules could have major implications for your taxes or future investment plans. Here’s what you need to know.
What is 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 tax deduction equal to 100% of the cost of a qualified business property. This can be a useful tool for lowering your business tax obligations in certain situations.
- The tax deduction is upfront, which means it will reduce your tax burden for the year you become eligible for it if you qualify and choose to use it.
- Being able to take 100% of depreciation as an upfront deduction can be a significant tax opportunity because it stands in contrast to typical depreciation schedules, which require owners to slowly deduct depreciation over the service life of the asset.
- 100% bonus depreciation was first introduced under the Tax Cuts and Jobs Act (TCJA) of 2017 and originally applied only to eligible property bought and put into use by December 31, 2022.
- In 2023 and 2024, bonus depreciation decreased by 20% annually. Pre-OBBB, it had been scheduled to continue doing so until it ended completely in 2027.
How did the OBBB change the 100% bonus depreciation rules?
The OBBB brought back 100% bonus depreciation, starting in tax year 2025. It also made the provision a permanent part of the tax code.
- Qualified property acquired and placed into service after January 19, 2025, may now be eligible for 100% bonus depreciation.
- The goal of reinstating bonus depreciation is to incentivize investment in real estate, equipment and other assets, with the intent of boosting the economy and driving growth.
- Because the provision is now permanent, it provides long-term tax planning opportunities and greater certainty for businesses around that tax planning.
What qualifies for 100% bonus depreciation?
If you’re acquiring (or have recently acquired) property for business or income-generating purposes, you may qualify for 100% bonus depreciation. To determine what’s eligible and how to best reduce your tax burden, consider conducting a cost segregation study.
- With the return of 100% bonus depreciation in 2025, you have a valuable opportunity to significantly reduce your taxable income by fully expensing the cost of eligible assets in the year they’re placed in service.
- The reinstated provision allows you to make immediate write-offs of investments, such as equipment, machinery, technology and certain vehicles, which can dramatically improve cash flow and reduce tax liability.
- You should strongly consider performing a cost segregation study to help take better advantage of bonus depreciation. A cost segregation study breaks down the components of a building into shorter-lived assets that can qualify for accelerated depreciation, including bonus depreciation.
- Cost segregation allows you to reclassify portions of the property from the standard 39-year (commercial) or 27.5-year (residential) depreciation schedule to five-, seven-, or 15-year categories, which are eligible for 100% bonus depreciation under the current rules.
- You may also want to analyze whether or not bonus depreciation makes sense or if you should elect to take 40% depreciation instead to offset higher income in future years.
How can you take advantage of 100% bonus depreciation?
If you invest in real estate or otherwise own other qualified property, you may be eligible for significant tax benefits that stem from 100% bonus depreciation. Here are three essential next steps to take:
- To understand your options, consult your tax advisor on the full implications of bonus depreciation and the rest of the tax changes under the OBBB.
- Get help conducting a cost segregation study so you can more effectively maximize your tax advantages by determining the full extent to which your assets may qualify for bonus depreciation.
- Consider how bonus depreciation fits into your overall business and tax strategy. In some cases, being able to take 100% depreciation upfront may incentivize you to prioritize investments that qualify for a bigger deduction.
How Wipfli can help
You don’t have to come up with a plan to reduce your tax burden on your own. Our team works with mid-market businesses in real estate, construction and other industries to evaluate tax strategies, perform cost segregation studies and plan for the long-term impact of 100% bonus depreciation. Start with a no-cost consultation to see how your business can benefit from the latest changes to the tax code.
