Planning for the Expansion of Depreciation Deductions and Other Real Estate Planning Incentives Contained in the New Tax Law by Joshua P. Heberling, CPA
The U.S. government’s One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, contains a permanent reinstatement of 100 percent bonus depreciation and other tax-savings provisions that encourage businesses to invest in new assets. These tools enable businesses, including real estate owners and developers, to write off a greater portion of their operational costs upfront and free up more capital to invest in new assets that can enhance their future earnings potential.
Bonus Depreciation
The OBBBA reinstates 100 percent, first-year bonus depreciation and makes it a permanent provision of the tax code. Consequently, taxpayers may immediately write off and recover all the costs incurred for purchasing and financing qualifying new and used property in the year it is placed in service. The new law is effective for qualifying property placed in service after January 19, 2025. For property placed in service between Jan. 1 and Jan. 19, 2025, the prior law applies, which limited the rate of the deduction to 40 percent.
Property qualifying for bonus depreciation includes business equipment, machinery, furniture, fixtures, certain software, vehicles, land improvements and qualified improvement property (QIP), which refers to certain non-structural improvements to the interiors of non-residential buildings. Beginning on Jan. 19. 2025, through tax year 2030, it also applies to qualified production property (QPP), which includes factories and other types of manufacturing or refining buildings.
The property’s original use must begin with the taxpayer (i.e., new property), or the property may be previously used, provided the taxpayer did not purchase it from a related party and the taxpayer’s basis is not determined by the seller’s adjusted basis in the property. Moreover, taxpayers must recognize that the deduction applies only in the year the property is placed in service, rather than the year of acquisition. For example, a taxpayer who purchased qualifying equipment on Feb. 1, 2025, and has it available for business use in the same year can claim a 100 percent bonus depreciation deduction on their 2025 tax returns, which they will file in 2026. However, if the taxpayer does not put the property into service until next year, they will have to wait to claim the deduction on their 2026 tax returns that they will file in 2027.
Section 179 Deduction
The OBBBA also increases the cap on taxpayers’ first-year expense deductions for new and used Section 179 property placed in service after Dec. 31, 2024, from $1 million to $2.5 million, indexed for inflation. These valuable deductions apply to the same tangible business assets, software, and QIP that qualify for bonus depreciation, as well as certain improvements to nonresidential property, such as roofing, HVAC systems, alarms and security and fire protection systems costing less than $4 million. When a business’s total investment in qualifying property for the year exceeds this amount, the allowable deduction is reduced dollar-for-dollar
While taxpayers can take advantage of both first-year depreciation deductions and expensing of Section 179 property, they must plan appropriately when purchasing qualifying equipment to maximize the intended tax savings of each. With the reinstatement of 100 percent bonus depreciation, it remains to be seen how much of a benefit taxpayers can eke out of the Section 179 deduction. This is especially true when considering that Section 179 expenses may not exceed taxpayers’ taxable income, nor may the deduction be used to create a loss. The best way to maximize the benefits of both deductions is to conduct a cost segregation study that separates a commercial property’s depreciable assets into smaller components with different cost basis and shorter recovery periods of five, seven and 15 years rather than a building’s standard tax life of 27.5 or 39 years.
About the Author: Joshua P. Heberling, CPA, is a director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he focuses on tax planning and compliance services for high-net-worth individuals and businesses in the commercial real estate, land development and office-market industries. He can be reached at the firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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