Legislators' Proposal: 100% Bonus Depreciation Revival on the Horizon

Under current law, federal bonus depreciation is scheduled to decrease to 40% in 2025 under the Tax Cuts and Jobs Act. Legislators have proposed restoring 100% bonus depreciation through a new tax bill.

2025 proposed legislation – One, Big, Beautiful Bill

The proposed legislation reinstates and extends 100% federal bonus depreciation. Taxpayers will be allowed to once again claim full first-year depreciation on eligible property acquired and placed in service between January 20, 2025, and December 31, 2029. 

The proposed bill would also allow taxpayers to immediately deduct 100% of the cost of qualified production property that’s placed in service before 2033. To be eligible, the qualified property needs to be an integral part of a production activity, such as manufacturing or refining. It would exclude nonproduction areas, such as office or administrative spaces, research activities, lodging, and parking lots.

We’re still in the early stages. The proposed bill has moved from the House to the Senate and will likely go through several revisions before it’s finalized and signed into law by the President. Bipartisan support exists, though, for the return to bonus depreciation, providing hope that this provision in the proposed bill will become part of the final law.

Lawmakers are hoping to complete and pass the bill by July or August.

The power of cost segregation

Even at a 40% bonus depreciation rate, cost segregation studies remain important for real estate owners, operators, and investors looking to improve after-tax cash flow.

Cost segregation is a recognized tax strategy that accelerates depreciation deductions by identifying and reclassifying building components into shorter-life asset categories (5-, 7-, or 15-year property). This technique increases depreciation expenses in earlier years, thereby lowering taxable income and enhancing liquidity.

When combined with accelerated depreciation from cost segregation, bonus depreciation at any rate can lead to significant first-year deductions. For instance, a properly conducted cost segregation study on newly acquired or constructed property can produce six- or seven-figure deductions, improving return on investment and releasing capital for reinvestment.

Key tax planning opportunities

Cost segregation can be particularly beneficial in the following scenarios: 

• New acquisitions and developments 
• Major renovations or improvements 
• Inherited or previously placed-in-service properties (with a look-back study) 
• New construction expected to be held long-term

How CLA can help with tax strategy

Don't leave tax savings on the table. Even at reduced federal bonus depreciation rates, cost segregation remains a valuable tool in the real estate tax planning arsenal.

Our tax strategies team specializes in identifying and implementing cost segregation opportunities tailored to your asset type and investment strategy. We can help you evaluate the potential benefits and maintain compliance with applicable compliance standards.