The State of Bonus Depreciation in 2025: What Real Estate Investors Need to Know
As we step into 2025, the U.S. tax landscape is once again in flux, particularly for real estate investors that leverage bonus depreciation as a cornerstone of their tax strategy. The new Trump administration, alongside the incoming Republican-controlled 119th Congress, has signaled its intent to revisit and potentially reshape the rules governing bonus depreciation. Here’s what you need to know about the current state of bonus depreciation, the potential changes ahead, and how cost segregation studies continue to play a pivotal role in maximizing your tax benefits for real estate investments.
Bonus Depreciation in 2025: The Current Landscape
Bonus depreciation, as introduced under the Tax Cuts and Jobs Act (TCJA) of 2017, allowed investors to deduct 100% of the cost of qualifying assets in the year they were placed in service. However, this 100% bonus depreciation provision began to phase out in 2023, dropping to 80%, with further 20% reductions scheduled each year until it completely sunsets in 2027.
Bonus Depreciation Phaseout Schedule
Year | Bonus Depreciation Rate
2022 | 100%
2023 | 80%
2024 | 60%
2025 | 40%
2026 | 20%
2027 | 0%
While this phase-out was planned, its impact is being felt across the real estate sector. Investors who have relied on bonus depreciation to shield significant portions of their income from taxation are now recalibrating their strategies. Cost segregation studies, which identify assets eligible for accelerated depreciation, remain a critical tool for investors in this environment.
How the New Trump Administration Could Change Bonus Depreciation
President Trump has indicated a strong commitment to stimulating economic growth through tax reform. During his campaign, he frequently referenced the success of the TCJA in spurring investment and job creation. Early signals from the administration suggest that a reinstatement of 100% bonus depreciation could be on the table as part of broader tax reform efforts.
Additionally, Congressional Republicans have voiced support for measures that encourage capital investment, particularly in the real estate sector. However, the extent and timing of any changes remain uncertain. Investors should prepare for potential adjustments while staying alert to the legislative process.
The Role of Cost Segregation in 2025
Cost segregation studies remain indispensable for real estate investors looking to maximize tax savings and improve their cash flow. By identifying components of a property that can be classified as personal property or land improvements, cost segregation allows investors to accelerate depreciation deductions. In 2025 and beyond, cost seg studies remain a powerful tool for investors.
For example, components such as appliances, equipment, carpeting, and outdoor landscaping often qualify for shorter depreciation lives and can benefit from the 40% bonus depreciation in the first year of service. Even with reduced rates, these upfront deductions can significantly improve cash flow and reduce taxable income.
Strategic Considerations for Real Estate Investors
- Stay Agile: While the legislative outlook is promising for bonus depreciation, the timing of potential changes is uncertain. Develop flexible tax strategies that can adapt to shifting rules.
- Leverage Cost Segregation: Conduct cost segregation studies as soon as possible after your property has been placed into service to ensure you’re maximizing depreciation benefits under current law.
- Consider Future-Proof Investments: Properties placed in service now may still benefit from potential retroactive changes to bonus depreciation rules. Keep this in mind as you evaluate acquisition and improvement opportunities.
- Engage with Tax Advisors: Regular consultations with a CPA or tax professional can help you navigate this complex landscape and take advantage of emerging opportunities.
Looking Ahead
The next few years will be pivotal for bonus depreciation and its role in real estate tax strategy. Whether through legislative action or regulatory updates, the direction set by the Trump administration and Congress will have a lasting impact on the industry. Real estate investors who stay informed, proactive, and strategically aligned with these changes will be best positioned to thrive in this evolving environment.
As always, the key to success lies in preparation. By staying ahead of the curve and leveraging tools like cost segregation studies, you can safeguard your investments and continue to build wealth, no matter how the tax laws evolve.
Take Action Today
Maximize your tax savings in 2025 by leveraging cost segregation studies. Request a free cost segregation study proposal from RE Cost Seg today and unlock the potential of accelerated depreciation for your properties.
Additionally, consult with your CPA to ensure your tax strategy is aligned with current laws and optimized for any upcoming changes. Together, these steps can help you secure the best financial outcomes for your real estate investments.
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