The OBBBA has officially reinstated 100% Bonus Depreciation for qualified property, restoring one of the most significant tax advantages for real estate investors. Originally introduced under the 2017 Tax Cuts and Jobs Act, Bonus Depreciation allows investors to fully depreciate the eligible portion (purchase price, excluding land) of qualified property in the year of acquisition. Under this new legislation, 100% Bonus Depreciation is now available indefinitely for qualified property acquired and placed in service on or after January 19, 2025, without any sunset provision. This means investors or businesses can fully expense eligible assets in the year of acquisition.

Why this matters to Real Estate Investors with significant Tax Liability: 

• Reduce Tax Liability: In the year of acquisition, Bonus Depreciation Investments have the potential to significantly lower your Tax Liability. 
• Liquidity Event: Bonus Depreciation Investments potentially create significant Liquidity for reinvestment.
• Increase Returns: Reinvestment of Tax Savings (Liquidity), can enhance your real return on investment.    

Potential application of Bonus Depreciation Investments: 

• A Failed 1031 Exchange – If your 1031 fails, potentially offset, not defer, your entire capital gain and potentially create significant liquidity (“cash-out”). A Bonus Depreciation Investment may potentially be a more desirable option than a 1031 Exchange in some cases. An investor with a failed 1031 exchange should consult with their tax preparer to determine how the gains from sale will be characterized and if this strategy may be applicable. 
• Liquidity Event (Cash-Out) – In some cases investors may need liquidity and prefer not to take taxable cash from a 1031 Exchange. 
• Challenging 1031 Exchange – In the event an investor has too much debt to meet the debt replacement requirement of a 1031 Exchange, a Bonus Depreciation Investment may be a viable solution.  
• Offset Rental Income – Bonus Depreciation Investments can be used to potentially offset significant rental income.        
• Passive Business Owners – Some investors may own businesses in which they are no longer active, and the income derived from those businesses may be considered passive income which may be offset with a Bonus Depreciation Investment.   
• Real Estate Professionals – Some investors may be real estate professionals, as defined in the Internal Revenue Code. In which case, it may be possible for them to either invest as active participants in real estate, which would otherwise be considered passive activity, or aggregate all their real estate activities to claim active status.