I’ve learned that the wealthiest people aren’t always the highest earners in their industries. Often, they’re the people who understand the rules and act before everyone else catches on.
The One Big Beautiful Bill (OBBB) permanently restored 100% bonus depreciation for eligible property acquired after January 19, 2025. In January 2026, the Treasury Department and IRS issued additional guidance on the provision.
When paired with a cost segregation study, this benefit may create substantial first-year tax deductions. As a result, real estate investors could improve cash flow, fund new acquisitions, or pay down debt.
If you own commercial or multifamily real estate, this change deserves your attention.
What Is the Opportunity?
The Tax Cuts and Jobs Act of 2017 introduced 100% bonus depreciation. However, the deduction began phasing down in 2023.
The rate fell to 80% in 2023 and 60% in 2024. It then dropped to 40% for qualifying property placed in service during early 2025.
As the percentage declined, first-year deductions also became smaller. Consequently, property owners retained less cash for reinvestment.
For example, consider a $5 million commercial property. The difference between 40% and 100% bonus depreciation on eligible components could total hundreds of thousands of dollars.
The OBBB reversed that phaseout. It permanently restored the 100% additional first-year depreciation deduction for eligible property acquired after January 19, 2025.
However, bonus depreciation generally applies only to property with a recovery period of 20 years or less. Commercial buildings typically have a 39-year recovery period. Residential rental buildings generally have a 27.5-year recovery period.
Therefore, buildings themselves usually do not qualify. That is where a cost segregation study becomes valuable.
How a Cost Segregation Study Makes Bonus Depreciation Work
Think of bonus depreciation as the engine and cost segregation as the transmission.
A cost segregation study identifies assets within a building that qualify for shorter recovery periods. These assets may include flooring, lighting, cabinets, specialized electrical systems, landscaping, and certain site improvements.
The study then reclassifies eligible assets into 5-, 7-, or 15-year depreciation categories. Once reclassified, those components may qualify for 100% bonus depreciation.
Here is a simplified example:
- Total purchase price, excluding land: $5,000,000
- Estimated reclassified amount: 20%, or $1,000,000
- Potential first-year bonus depreciation deduction: $1,000,000
- Estimated federal income tax savings at a 37% rate: $370,000
Instead of spreading the depreciation expense over many years, the owner may claim much of the benefit during the first year. This strategy can free up capital for new acquisitions, debt reduction, or partner distributions.
Actual results will depend on the property, ownership structure, tax position, and applicable limitations.
What If I Already Own the Property?
Property owners often ask whether they missed the opportunity because they bought their building several years ago.
Fortunately, many owners can still benefit.
If you never completed a cost segregation study, you may be able to conduct a look-back study. You can then file IRS Form 3115, Application for Change in Accounting Method.
This process may allow you to claim missed depreciation during the current tax year. In many cases, you can do so without amending previous returns.
However, the applicable bonus depreciation percentage generally depends on when you acquired and placed the property in service. For example, qualified property placed in service in 2023 may qualify for an 80% rate. Property placed in service in 2024 may qualify for a 60% rate.
The restored 100% rate generally applies to eligible property acquired after January 19, 2025. The property must also meet the applicable placed-in-service requirements.
Additionally, taxpayers may elect to use a 40% rate instead of 100% for certain property. This election applies to qualified property placed in service during the first tax year ending after January 19, 2025.
In some situations, taking a smaller deduction now may provide a better long-term tax result. Therefore, discuss the timing and available elections with your CPA.
How to Choose a Cost Segregation Provider
The IRS does not license or certify cost segregation providers. As a result, study quality can vary significantly between firms.
Before hiring a provider, look for a firm that:
- Uses an engineering-based approach and conducts on-site inspections
- Employs professionals with ASCSP credentials or comparable experience
- Provides detailed and defensible documentation
- Includes construction records, calculations, and photographs when appropriate
- Coordinates closely with your CPA
- Offers transparent, fixed-fee pricing
- Has experience with your specific property type
A thorough study can help identify available deductions. More importantly, it provides the documentation needed to support the tax treatment.
What Should You Do Next?
If you purchased commercial or multifamily property after January 19, 2025, consider taking the following steps:
- Ask your CPA whether accelerated depreciation fits your tax strategy.
- Contact a cost segregation firm early enough to finish the study before year-end.
- Review previous acquisitions to determine whether a look-back study makes sense.
- Explore other incentives, including Sections 179D and 45L, when applicable.
Smart investors do not reduce taxes by breaking the rules. Instead, they work with qualified professionals to use the tax code effectively.
Now that the OBBB has permanently restored 100% bonus depreciation, this may be the right time to review your properties.
Request a Free Benefit Analysis
Would you like to know how a cost segregation study could affect your property?
We offer a complimentary benefit analysis. Our team will review your property and estimate the potential reclassification and first-year depreciation amounts.
Then, you and your CPA can use those estimates to decide whether a full study makes financial sense.
Cost Segregation Study FAQs
What did the One Big Beautiful Bill change?
The OBBB permanently restored 100% bonus depreciation for eligible property acquired after January 19, 2025. The IRS issued updated guidance in January 2026. Review the IRS announcement.
Do I still need a cost segregation study?
In many cases, yes. Bonus depreciation generally applies only to property with a recovery period of 20 years or less.
A cost segregation study identifies building components that may qualify for shorter recovery periods. It then provides documentation supporting their reclassification.
What if I bought my property before January 19, 2025?
You may still benefit. A look-back study and Form 3115 may allow you to claim previously missed depreciation.
However, the applicable bonus depreciation rate will depend on factors such as the acquisition and placed-in-service dates.
Is 100% bonus depreciation permanent?
The OBBB made the restored 100% rate permanent, meaning the provision currently has no scheduled phaseout. However, Congress can change tax laws in the future.
Will claiming bonus depreciation increase my audit risk?
Claiming bonus depreciation does not automatically trigger an audit. However, every deduction must satisfy applicable tax rules.
A properly prepared, engineering-based cost segregation study can document the asset classifications and depreciation amounts. If the IRS reviews the claim, that documentation can help support your tax position.
