As we touched on in our last newsletter, the One Big Beautiful Bill Act (OBBBA), signed into law in July, included the permanent reinstatement of 100% bonus depreciation for commercial real estate. This powerful tax tool encourages investment and growth by allowing companies to immediately recover qualifying asset costs in the year they are placed in service, rather than spreading deductions over many years. This month we’ll take a look into some key details that investors should keep in mind to get the most benefit from the provision.
Important Dates and Requirements
Under the Tax Cuts and Jobs Act of 2017 (TCJA), bonus depreciation was gradually phasing down from 100% to lower percentages each year and was set to expire completely by 2027. The OBBBA reverses this trend, permanently restoring full expensing for qualified property placed in service after January 19, 2025. That means businesses can deduct the entire cost of eligible assets upfront, providing a direct boost to cash flow and lowering taxable income in the year of purchase.
The rule applies to assets with a 20-year recovery period or less under the IRS tax code.
Examples of eligible assets include:
- Most land improvements
- Personal property
- Office furniture and fixtures
- Computers, servers and software
- Qualified improvement property (interior improvements to nonresidential buildings and short-term rentals)
Importantly, 100% bonus depreciation is available for both new and existing property, as long as it is the taxpayer’s first use of the property. However, If the asset was under contract to purchase or began construction prior to January 20, 2025 it is generally only eligible for 40% bonus depreciation under the previous TCJA phase-out schedule. Only property acquired and placed in service beginning January 20 (the effective date of the OBBBA) will benefit from 100% bonus depreciation. It’s also important to note that bonus only applies to specific IRS-approved assets, not the entire purchase price or land value associated with the property.
Cash Flow Boost from 100% Bonus Depreciation
Accelerated depreciation under the OBBBA can benefit investors considerably, making more cash available for other investments. The table illustrates an example of how depreciation benefits changed after the new law took effect.
What a difference a day can make! For this reason, businesses that made purchases in early 2025 should review their contract and placed-in-service dates carefully to ensure the correct bonus depreciation percentage is applied.
Why State Rules Matter
While the OBBBA permanently restored 100% bonus depreciation at the federal level, not all states follow federal rules. Some states fully conform to federal bonus depreciation, letting businesses maximize their upfront deductions. Others decouple, requiring companies to add back all or part of federal bonus depreciation on their state return, which can affect cash flow and overall project returns. For businesses investing in multiple locations, understanding these differences is essential for strategic tax planning.
Which States Favor 100% Bonus Depreciation?
While 100% bonus depreciation is a powerful federal tool, state rules vary. For example:
- Conforming states such as Louisiana, Montana and West Virginia allow the same federal bonus depreciation to be applied at the state level. Investing in these states can fully accelerate tax deductions and improve immediate cash flow.
- Examples of decoupled states include Connecticut, New York, New Jersey, Pennsylvania, Maryland and Virginia. Some decoupled states completely disallow bonus depreciation, while others impose restrictions, such as requiring deductions to be spread over several years. This reduces immediate benefits for businesses operating in those states.
Before making real estate investments, businesses should review state tax guidelines carefully since they change often. Doing so helps identify states where bonus depreciation provides the greatest benefit, ensures compliance and avoids unexpected tax liabilities.
How CRS Helps You Capitalize on the Incentive
The restoration of 100% bonus depreciation presents a significant opportunity for commercial real estate investments of all sizes. To maximize this incentive and minimize IRS audit risk, a cost segregation study from an American Society of Cost Segregation Providers (ASCSP), certified member is essential for supporting your tax filing. CRS has been guiding our clients through this complex process for the past 20 years by:
- Identifying assets that qualify for bonus depreciation
- Researching state-specific bonus depreciation rules and conformity levels
- Reviewing potential depreciation deductions available for multiple properties, allowing clients to make more informed purchase decisions and significantly reduce their tax liability
- Collaborating with accountants to ensure compliance with the latest federal and state tax law
We are ready to help you optimize your investments by leveraging the permanent reinstatement of the 100% bonus incentive to enhance your cash flow and facilitate smarter capital planning.
