Mariah Quish is the founder of Quish, a wealth management advisory in Boulder, Colorado.
Legislation passed in 2025 can provide significant additional tax savings for individuals who own rental properties or commercial real estate. A basic understanding of 100% bonus depreciation and Section 179 expensing could potentially help save a ton on taxes—this year and in the future.
These tax changes under the One Big Beautiful Bill Act (OBBBA) are meant to incentivize fresh investment. Here’s a look at what’s changed and considerations for rental or commercial real estate owners.
What is bonus depreciation?
Before getting your head around bonus depreciation, you first need to have a handle on unadorned old-fashioned straight-line depreciation.
Prior to bonus depreciation, there was just straight-line depreciation and accelerated depreciation. The IRS deems that a typical residential rental property has a “useful life” of 27.5 years, while commercial property has a 39-year “useful life.” Therefore, using straight-line rules, tax law allows the owner of non-personal use real estate to expense—that is reduce taxable income—by 1/27.5th or 1/39th of the property’s initial price (plus fees and certain improvements) each year.
Accelerated depreciation, an early hybrid of straight-line and bonus depreciation, was introduced in 1954. At the time, President Eisenhower hoped if investors and businesses could “accelerate” depreciation—that is, take greater deductions in the first years of an asset’s useful life—they might use the resulting tax savings for ever more investment creating a virtuous cycle of economic growth. Tax historians (yes, such folk exist although I can’t attest to the rollick of their office parties) have generally concluded there isn’t clear evidence accelerated depreciation results in higher levels of economic activity or investment. While their economic utility may be questionable for academics, promoting tax deductions has proven perennially politically popular.
Jumping forward to modern times, we find the next depreciation-related revolution. In 2017, as part of the Tax Cuts and Jobs Act (TCJA), Congress passed 100% bonus depreciation. Under this “bonanza” method, fully 100% of depreciation can provide an immediate tax cut. While the TCJA legislation was considered temporary at the time, the 2025 OBBBA made permanent the 100% bonus depreciation.
Moreover, the OBBBA supercharges 100% bonus depreciation by expanding Section 179 expensing—and by permitting net operating loss (NOL) carry forwards for 100% bonus depreciation deductions.
100% bonus depreciation and Section 179 expensing can put money in your pocket.
According to the Pew Research Center, in 2018 more than 14 million Americans owned at least one rental property. If you are not a rental property owner already, the OBBBA provision might prompt reconsideration. Also, many people already own a business—or businesses—that could benefit from the new legislation.
100% Bonus Depreciation
While straight-line depreciation still applies to the non-personal use structure itself, a qualified tax professional can provide a cost segregation study identifying the elements of rental property with 20-year or less depreciation. Typical components that can get 100% bonus depreciation treatment include: appliances, cabinetry, carpet and flooring, countertops, lighting, drainage, fencing, landscaping, paving and other site improvements.
Research has found that cost segregation can lead to a 20% to 40% reallocation of basis to 100% bonus depreciation for residential rentals.
Section 179 Expensing
If you need to improve an owned office or another commercial property, under OBBBA 100% bonus depreciation now also applies to: adding interior walls and cubicles, security and fire protection, new ceilings doors or floors, most mechanical or electrical systems except—somewhat quizzically—not elevators or exterior doors.
Be aware of the copious caveats.
As the economist Milton Friedman famously pointed out, “there’s no such thing as a free lunch.” This is likely especially true when feasting at the IRS smorgasbord.
For starters, depreciated assets have that tedious and potentially costly quality called “depreciation recapture.” When selling a property for which 100% bonus depreciation was used, taxes on capital gains will include not only the appreciation in value of the property. Capital gains tax will also apply to the depreciation claimed in prior years—that is depreciation recapture. That said, such capital gains, including depreciation recapture, can be deferred or eliminated by passing property to heirs and or using a 1031 exchange—an exhaustive topic deserving its own extended natter.
Also, while there is no annual cap on 100% bonus depreciation, the Section 179 max annual deduction is currently $2.5 million.
With the IRS’s Publication 946 “How to Depreciate Property” running over 100 pages—and that’s before the OBBBA regs—it is vital to work closely with your accountant or tax professional before embracing any new real estate ventures or even starting a major office remodel.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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