The passage of the so‑called “Big Beautiful Bill” has created one of the most significant tax shifts for real estate investors in years. With the return of 100% bonus depreciation, investors once again have the ability to dramatically reduce taxable income—legally—using proven strategies like cost segregation.
In this article, we break down what changed, why it matters, and how investors are already using these rules to offset large tax bills heading into 2025.
Why This Tax Law Is a Game Changer
For the past few years, bonus depreciation had been steadily declining. Investors could still use cost segregation, but the benefit was shrinking:
2023: 80% bonus depreciation
2024: 60%
2025: 40%
Many investors intentionally delayed purchases or filed tax extensions, waiting to see if full bonus depreciation would return. When the bill passed in July, it did exactly that—bringing bonus depreciation back to 100% for qualifying purchases after January 19.
That single change reopened the door for massive upfront deductions and has already reignited buying activity among investors with large tax liabilities.
How Cost Segregation Actually Works
Cost segregation is a tax strategy that accelerates depreciation by breaking a property into components with shorter depreciation lives.
Instead of depreciating an entire building over:
27.5 years (residential)
39 years (commercial)
A cost segregation study identifies components—such as flooring, cabinets, wiring, fixtures, and certain exterior improvements—that can be depreciated over 5, 7, or 15 years.
With 100% bonus depreciation back, investors can now deduct all of that accelerated depreciation in year one.
Real‑World Example: A $1M Property
Consider an investor who buys a $1 million property after January 19 and completes a cost segregation study.
Roughly 30% of the purchase price may qualify for accelerated depreciation
That’s $300,000 in depreciable components
With 100% bonus depreciation, the full $300,000 can be deducted immediately
Before this law passed, the same investor might have only been able to deduct 40%–60% of that amount in year one. The difference is substantial.
Why Condos and Multifamily Often Win
Not all properties are created equal when it comes to depreciation.
Single‑Family Homes
When you buy a single‑family home, you’re purchasing land + building. The land portion is not depreciable, which reduces the available tax benefit.
Condos
With many condos, there is little to no land allocation. In those cases, nearly the entire purchase price may be depreciable, significantly increasing the benefit of cost segregation.
Multifamily Properties
Multifamily buildings often produce the strongest results because they contain large amounts of:
Interior finishes
Fixtures
Appliances
Common‑area improvements
Turn an apartment building upside down, and plenty would “fall out”—which is exactly what a cost segregation study looks for.
Warehouses, by contrast, tend to yield fewer accelerated components unless they include specialized build‑outs.
Timing Matters: When to Do a Cost Segregation Study
The best time to complete a cost segregation study is immediately after purchase.
Doing it later is still possible, but it requires:
Filing IRS Form 3115 (change in accounting method)
Additional calculations and reporting
If you plan renovations, timing becomes even more important. In some cases, a two‑part study makes sense—one for the original building and another for the improvements.
An added benefit: the first study helps support partial asset dispositions, allowing investors to write off components they remove or replace during renovations (such as old roofs, flooring, or fixtures).
Large Tax Bills Are Driving Buying Decisions
Many investors are acting now because their CPAs have already projected large 2025 tax liabilities.
In one example discussed, an investor facing a $1 million tax bill began acquiring additional properties specifically to generate enough depreciation to offset that obligation.
The takeaway is simple: when depreciation increases, demand for real estate increases—especially among high‑income investors.
Manufacturers and an Even Bigger Advantage
The new law also provides major benefits for manufacturers.
Newly constructed or heavily renovated manufacturing buildings may qualify for 100% depreciation on the entire structure
In many cases, no cost segregation study is required
Additionally, changes to R&D tax credits allow qualifying businesses to:
Amend prior returns (2020–2024)
Immediately deduct R&D expenses in 2025 instead of amortizing them over five years
This combination creates enormous tax savings for companies involved in true research and development.
1031 Exchanges and Cost Segregation
Cost segregation can be used alongside a 1031 exchange, but it requires careful planning.
Key considerations include:
How much depreciation remains on the relinquished property
Whether personal property components are being separated
Proper basis tracking by your CPA
In some cases, it makes sense to complete cost segregation on both the old and new properties. In others, only the replacement property is the better option.
The critical factor is coordination between your cost segregation specialist and your tax advisor.
Final Thoughts
With 100% bonus depreciation officially back, cost segregation is once again one of the most powerful tools available to real estate investors.
If you’ve purchased property after January 19—or plan to before the end of 2025—and expect a large tax bill, this is not a strategy to ignore. The window to act is open, and the investors who understand these rules will keep more of their cash working for them.
Understanding the numbers before you buy can be the difference between writing a massive check to the IRS—or reinvesting that money into your next deal.
Get in touch with Jack Patel
Contact Geraldine Serrano
