As lawmakers debate the budget reconciliation bill—also referred to by some as the “One Big Beautiful Bill Act”—one provision drawing attention in the commercial real estate sector is the proposal to reinstate 100% first-year bonus depreciation, most recently introduced under the 2017 Tax Cuts and Jobs Act (TCJA).
“This change, along with a cost segregation study, can identify massive first-year deductions against taxable income for anyone buying or building commercial or residential rental real estate,” says Ryan Begley, EVP and Cost Segregation Manager, Valuation Advisory Services, at Kidder Mathews.
Bonus Benefits Abound
All qualified property placed into service after January 19, 2025, through December 31, 2029, would be eligible for 100% first-year bonus depreciation—the same full deduction allowed under the TCJA through 2022. With the current phase-out schedule reducing bonus depreciation to 40% in 2025, the proposed legislation would reverse that trend and extend most of these major tax benefits. For owner-users, this means the ability to significantly reduce their tax liability in the year they acquire assets, freeing up more cash to buy additional equipment and improve property.
The benefits don’t stop with owners. Under the “qualified improvement property” specification, tenants can also take advantage of bonus depreciation. By utilizing a cost segregation study, they can identify non-structural interior components within a tenant improvement project and deduct a significant portion of the build-out cost, according to Begley.
Real estate investors also stand to benefit. Bonus depreciation allows them to offset taxable income across their portfolio—or even ordinary income—helping reduce tax liability and increase cash on hand for portfolio expansion.
Big Picture Savings
The proposed legislation could help property owners and tenants get more value from cost segregation studies. This process breaks down a property into parts that can be depreciated faster, allowing taxpayers to take larger deductions sooner and improve near-term cash flow. It works by identifying specific improvements to a building or land that qualify as quicker write-offs. However, as Begley explains, not all parts of a property depreciate on the same schedule. Timing depends on how each element is used.
“By segregating and valuing these components, the taxpayer can take more depreciation deductions now, as opposed to over the typical depreciation schedule of the property,” Begley says. “Bonus depreciation, and specifically 100% first-year bonus depreciation, amplifies the depreciation acceleration in the first tax year, accomplishing near-term tax savings versus depreciating a property over a longer period of time.”
Real estate professionals should also know that cost segregation is not a tax “loophole,” and it doesn’t increase the risk of an audit. While a qualified accountant can help, it’s often worth bringing in a cost segregation specialist—someone with engineering expertise who can break down a property into detailed components. This level of detail allows taxpayers to maximize depreciation deductions while also creating a clear audit trail and a more thorough breakdown of assets.
Regardless of what makes it into the final bill, keeping more of your business income—and expanding your options as a result—is a big, beautiful thing. Smart tax planning, including a cost segregation study to maximize depreciation benefits, can make that a reality.
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