How Bonus Depreciation Under Trump’s Big Beautiful Bill Benefits Real Estate Investors
With the signing of Trump’s Big Beautiful Bill, 100% bonus depreciation has been reinstated, offering real estate investors a powerful tool to maximize their tax efficiency, increase cash flow, and accelerate portfolio growth. Understanding how to use this provision can significantly impact your investment outcomes in 2025 and beyond.
What is Bonus Depreciation?
Bonus depreciation allows real estate investors to deduct 100% of the cost of qualifying assets in the year they are placed in service, rather than depreciating them over their usual recovery periods. This can apply to both new and used assets with a useful life of 20 years or less, including certain property improvements, appliances, and more.
What Assets Qualify for Bonus Depreciation?
- Appliances, furniture, and fixtures for rental properties
- Qualified Improvement Property (QIP) such as interior renovations to commercial properties
- HVAC systems, roofing, and security systems if part of improvements
- Site improvements like landscaping and parking lots (via cost segregation)
Key Benefits for Real Estate Investors
✅ Enhanced Cash Flow
By taking immediate deductions, investors can significantly reduce taxable income, keeping more cash available for reinvestment, debt reduction, or reserves.
✅ Increased ROI on Renovation Projects
Value-add projects become more attractive as renovation costs can be recouped through immediate tax deductions, improving ROI and reducing the breakeven period for projects.
✅ Strategic Tax Planning
Bonus depreciation allows flexibility in managing your tax liabilities, potentially offsetting gains from property sales or high rental income, and aligning with long-term tax strategies.
Detailed Example: Using Bonus Depreciation in a Real Estate Deal
Scenario: An investor acquires a $1,000,000 small apartment complex and invests $150,000 in renovations, including appliances, HVAC upgrades, and interior improvements.
- A cost segregation study identifies $200,000 of the property’s purchase price in 5-, 7-, and 15-year property categories, all eligible for 100% bonus depreciation.
- The $150,000 renovation, largely qualified improvement property, is also fully deductible in year one.
- Total first-year bonus depreciation: $350,000.
If the property generates $100,000 in net rental income, the investor can show a $250,000 paper loss ($100,000 – $350,000), which can be used to offset other passive income or, depending on active participation and income limits, active income, dramatically reducing their tax liability.
Bonus Depreciation vs. Section 179 Expensing
- Bonus Depreciation: No dollar limits and applicable to new and used property, making it ideal for larger portfolios.
- Section 179: Has annual caps and is limited to taxable income, often better suited for smaller-scale investments and purchases.
Important Considerations
- Depreciation recapture applies upon sale, but with potential lower tax rates than ordinary income rates.
- Bonus depreciation is optional and can be waived if desired for long-term planning.
- Combining bonus depreciation with cost segregation studies can maximize deductions by properly categorizing building components.
- Consider aligning this strategy with a 1031 exchange to defer taxes when exiting the property.
- Consult your CPA to tailor bonus depreciation strategies to your income structure and long-term plans.
Conclusion: Supercharge Your Real Estate Strategy
Trump’s Big Beautiful Bill’s reinstatement of 100% bonus depreciation represents a golden opportunity for real estate investors to enhance after-tax returns, boost cash flow, and expand their portfolios strategically. By leveraging this provision, you can execute renovations confidently, offset high-income years, and reinvest in growth opportunities while maintaining tax efficiency.