The One Big Beautiful Bill just permanently restored 100% bonus depreciation for commercial properties—but there’s a strategic technique that can transform your 39-year building deductions into immediate, full tax write-offs starting this year.
Commercial real estate investors and business owners now have unprecedented opportunities to accelerate depreciation and improve cash flow through strategic tax planning. The combination of restored bonus depreciation and cost segregation creates immediate tax savings that were previously unavailable or severely limited.
The One Big Beautiful Bill Act (OBBBA) has fundamentally transformed the tax landscape for commercial property owners by permanently reinstating 100% bonus depreciation under IRC §168(k). This legislation eliminates the scheduled phase-out that would have reduced bonus depreciation to just 40% in early 2025 and eventually to zero after 2026.
Property owners can now deduct the full cost of qualifying assets in the first year they're placed in service, rather than spreading deductions over multiple years. The permanence of this provision allows for predictable long-term tax planning without concern about future phase-outs or expiration dates. Taxpayers retain the option to elect 40% bonus depreciation if preferred for their specific circumstances.
This restoration applies to both new and used qualifying property, including building systems, equipment, and certain improvements to nonresidential real property. The key requirement is that property must be acquired and placed in service after January 19, 2025, to qualify for the full 100% deduction.
Cost segregation studies serve as the strategic foundation for maximizing bonus depreciation benefits under the new law. These engineering-based analyses identify and reclassify building components that qualify for accelerated depreciation, transforming what would otherwise be long-term deductions into immediate tax savings.
Traditional commercial buildings depreciate over 39 years for nonresidential property or 27.5 years for residential rental property. Cost segregation studies examine the building's construction and identify specific components that qualify for shorter depreciation periods. These components include lighting systems, flooring, certain electrical work, and specialized equipment installations.
The reclassification process moves eligible building elements from the standard building depreciation schedule into much shorter categories. Five-year property typically includes carpeting, decorative lighting, and certain equipment. Seven-year assets include office furniture, fixtures, and most business equipment. Fifteen-year property includes qualified improvement property, land improvements like parking lots, and exterior landscaping.
Cost segregation benefits extend beyond new construction. Existing property owners can conduct studies on recently purchased buildings to identify components eligible for accelerated depreciation. The firm's engineering-based approach ensures compliance with IRS requirements while identifying every available deduction.
The difference between pre-OBBBA and post-OBBBA tax benefits demonstrates the significant financial impact of the restored bonus depreciation rules. Commercial property owners can now capture substantial first-year deductions that were previously unavailable or severely limited.
Under the previous law, bonus depreciation was steadily declining from its original 100% rate. Property placed in service during early 2025 would have qualified for only 40% bonus depreciation, with the remaining 60% subject to normal depreciation schedules. This meant a property owner identifying $1 million in short-life assets through cost segregation would receive only $400,000 in immediate deductions, with the balance spread over multiple years.
The same $1 million in reclassified assets now qualifies for complete first-year expensing under the restored 100% bonus depreciation rules. This represents a $600,000 increase in immediate tax deductions compared to the pre-OBBBA scenario. The increased cash flow from these accelerated deductions provides capital for reinvestment, debt reduction, or additional property acquisitions.
The OBBBA also increases Section 179 expensing opportunities, raising the deduction limit to $2.5 million with a $4 million phaseout threshold for 2025. Beginning in 2026, these limits will be indexed for inflation, providing additional flexibility for businesses with substantial equipment purchases or qualifying improvements.
These expanded limits work in conjunction with bonus depreciation to create layered tax planning strategies. Business owners can strategically combine Section 179 expensing with bonus depreciation to optimize their overall tax position based on their specific circumstances and asset types.
The increased depreciation benefits apply across numerous commercial real estate sectors, providing opportunities for diverse property types and business operations. Understanding which properties and improvements qualify helps investors maximize their tax planning potential.
Office buildings, manufacturing facilities, and hotels contain numerous components eligible for cost segregation treatment. Common qualifying elements include specialized HVAC systems, commercial kitchen equipment, decorative fixtures, and technology infrastructure. Industrial properties often have additional opportunities through machinery foundations, specialized electrical systems, and process-specific improvements.
Medical facilities typically contain substantial amounts of qualifying property, including specialized lighting, medical gas systems, and built-in equipment. Retail properties benefit from cost segregation through storefront improvements, specialized flooring, and point-of-sale infrastructure. Multifamily developments can accelerate depreciation on common area improvements, fitness facilities, and landscaping.
Tenant buildouts and improvements represent significant cost segregation opportunities, particularly with the restoration of qualified improvement property (QIP) benefits. Interior improvements, specialized lighting, flooring upgrades, and partition systems often qualify for accelerated depreciation treatment under the new rules.
The IRS expects taxpayers to use every allowable method to maximize deductions, provided they follow established rules and maintain appropriate documentation. Cost segregation studies, when properly prepared, do not increase audit risk but rather demonstrate compliance with tax regulations through detailed engineering analysis and supporting documentation.
Proper documentation includes detailed construction cost breakdowns, architectural and engineering drawings, contractor invoices, and photographic evidence of building components. This thorough approach ensures that deductions withstand IRS scrutiny while maximizing available benefits.
Professional cost segregation studies rely on engineering expertise to identify and classify building components according to IRS guidelines and established precedents. These studies examine actual construction documents, conduct site visits, and apply recognized methodologies to determine appropriate asset classifications.
The engineering foundation of these studies provides the technical rigor necessary to support aggressive but compliant tax positions. When prepared by qualified professionals with relevant engineering backgrounds, cost segregation studies create defensible positions that align with IRS expectations and industry standards.
Federal Tax Credits ORG delivers detailed cost segregation and tax credit services to help commercial property owners maximize their available deductions and credits through expert analysis and compliant strategies.
