Subscribe

Subscribe

Subscribe

Subscribe

Tax Advantages B+E Research and Insights

100% Bonus Depreciation Returns in 2025: What Real Estate Investors Need to Know

B+E > B+E INSIGHTS > Tax Advantages > 100% Bonus Depreciation Returns in 2025: What Real Estate Investors Need to Know
10/01/2025 By B+E

Real estate investors received welcome news with the enactment of the “One Big Beautiful Bill” in 2025, restoring 100% bonus depreciation permanently for qualifying properties placed in service after January 19, 2025. Here’s what net lease investors need to know about this significant tax change:

Context of the New Tax Law

Bonus depreciation has fluctuated since the Tax Cuts and Jobs Act (TCJA) of 2017:

  • 2017–2022: 100%
  • 2023: 80%
  • 2024: 60%
  • 2025: 40%
  • 2026: 20%
  • 2027 and beyond: Originally scheduled for 0%

The 2025 legislation reverses these reductions, permanently reinstating full bonus depreciation at 100%.

What Exactly is 100% Bonus Depreciation?

Bonus depreciation lets investors immediately expense 100% of the cost of qualified tangible property with recovery periods of 20 years or less. This powerful incentive applies to both new and used assets, provided they’re first utilized by the taxpayer. However, land and structural buildings themselves do not qualify.

Importance for Net-Lease Real Estate Investments

While buildings aren’t eligible for bonus depreciation, numerous installed components and site improvements are, significantly enhancing the financial attractiveness of certain asset types:

  • Car Washes: Conveyors, water recycling systems, dryers, vacuums, pumps, and control systems.
  • Gas Stations: Fuel dispensers, underground storage tanks, canopies, exterior lighting, air machines, and POS systems.

Example Scenario:

Imagine acquiring a $5 million property :

  • Total Acquisition Cost: $5,000,000
  • Bonus-Eligible Basis (80%, as determined by a cost seg study): $4,000,000
  • Financing Structure: 70% financed ($3.5 million loan), 30% equity ($1.5 million)
  • Year 1 Tax Write-Off: $4,000,000

This deduction equals 266.7% of your initial equity investment, substantially enhancing first-year cash flow and after-tax internal rate of return (IRR).

Maximize Benefits with Cost Segregation

To fully capitalize on bonus depreciation, investors commonly use cost segregation studies. These studies isolate assets into shorter recovery periods of 5, 7, or 15 years, often classifying 20–30% of the property’s value as bonus-eligible, including plumbing, electrical systems, signage, landscaping, and site improvements.

Caveats & Compliance

  • Effective Date: The restored 100% rate applies only to properties placed in service after January 19, 2025.
  • Documentation: Detailed allocation and proper documentation are critical to withstand IRS scrutiny.
  • Mandatory Election: Bonus depreciation elections are made using IRS Form 4562 and are generally mandatory unless formally declined.

Strategic Takeaways for Investors

To optimize this opportunity:

  • Include bonus depreciation benefits in your underwriting models, especially for equipment-heavy triple-net (NNN) lease properties.
  • Carefully coordinate acquisition timing and asset placement in service to ensure eligibility under the new rules.
  • Leverage these deductions to maximize upfront tax shields, improving your cash-on-cash returns and overall equity multiples.
  • Consult with your CPA and attorney to validate assumptions and compliance strategies.

The return of 100% bonus depreciation represents a significant opportunity for real estate investors to enhance returns, optimize tax strategy, and improve overall financial outcomes in the net lease market.

Disclaimer
This article is provided for informational purposes only and does not constitute legal, tax, or accounting advice. B+E is not a law firm or accounting firm. Federal and state tax laws are subject to change, and their application can vary based on your individual circumstances. Investors should always confirm details and strategies with their own CPA, attorney, or other qualified advisors before making financial decisions.

Additional Articles & Reports

Categories

LinkedIn Feed