For real-estate owners, developers, and investors, the recently enacted One Big Beautiful Bill Act (OBBBA) brings meaningful changes to depreciation and expensing rules. These changes offer significant opportunities — but also require careful planning and coordination. As your tax advisors, Hunsche CPA Group is here to walk you through the key reforms, how they apply to real-estate holdings, and what you should be doing today to maximize benefits while avoiding missteps.
What changed: Depreciation & Expensing under OBBBA
Below are the major shifts under OBBBA that affect depreciation and related tax planning for real estate.
1. Permanent 100% Bonus Depreciation for Qualified Property
Under prior law (the Tax Cuts and Jobs Act or TCJA), bonus depreciation — the ability to immediately expense a large portion (or all) of eligible assets — was scheduled to phase down after 2022 and expire by 2027. JD Supra+2National Law Review+2
OBBBA changes that: for property placed in service after January 19, 2025, taxpayers now can apply 100% bonus depreciation — permanently, unless changed by future legislation. Grant Thornton+2RSM US+2
In practical terms for real-estate owners, this means that many eligible assets — equipment, furniture/fixtures, land improvements, interior improvements (under certain definitions) — can be written off fully in year one rather than depreciated over multiple years.
2. Expanded §179 Expensing Limits
OBBBA increased the limits under §179 (which allows immediate expensing of certain business property) to support larger immediate deductions. For example, the deduction ceiling is raised and phase-out thresholds increased. Whiteman Osterman & Hanna LLP+1
For real-estate contexts, the caveat remains: §179 generally applies when the property is used in an active trade or business (e.g., a hotel, short-term rental business, or other active real-estate business) — rather than passive long-term rental activity. Schelin Uldricks & Co.+1
3. New Full Expensing Election for Qualified Production Real Property (QPP)
One of the more specialized changes: OBBBA introduces a new elective 100% expensing rule under § 168(n) for “qualified production property” (QPP) — which may include certain non-residential real property used in manufacturing/production activities. RSM US+1
Key requirements:
The property must be non-residential real property used in a qualified production activity. Grant Thornton
Construction (or substantial beginning) must begin after Jan. 19, 2025 and before Dec. 31, 2028 (and placed in service by Dec. 31, 2030) for eligibility. RSM US+1
Original use must begin with the taxpayer; leased property generally does not qualify. KBKG+1
For real-estate developers constructing owner-occupied industrial/manufacturing space, this creates a new path to immediate full write-off of building cost — a game-changer in certain scenarios.
4. Intersection with Other Provisions: Interest Deduction, QBI, State Conformity
The depreciation/expensing changes don’t exist in isolation. For example:
The deduction for business interest under §163(j) returns to an EBITDA-based limitation (beneficial for owners with large non-cash deductions like depreciation) for tax years beginning after Dec. 31, 2024. National Law Review+1
The 20% Qualified Business Income (QBI) deduction (§199A) is made permanent and remains relevant for real-estate businesses operating via pass-through entities. CLA Connect
Many states do not conform to federal bonus depreciation or §179 enhancements — so real-estate owners must check state tax treatment. CPA Pilot+1
Why this matters for real-estate owners & investors
Here are some of the tangible benefits and planning considerations:
Accelerated tax-deduction timing. With full write-off possibilities in year one, owners of eligible assets can significantly reduce taxable income in the acquisition/renovation year, freeing up cash flow.
Improved ROI and reinvestment flexibility. By reducing tax drag upfront, property owners can redeploy capital more quickly into acquisitions, improvements, or new development.
Enhanced cost-segregation opportunities. For properties with many components (e.g., HVAC, interior improvements, land improvements), cost-segregation studies become even more valuable — because identifying shorter-life assets that qualify for 100% bonus depreciation amplifies the benefit.
Active vs passive real-estate distinctions matter. For owners of passive long-term rentals, the ability to leverage expensing or bonus depreciation may be more limited compared with those structured as an active trade or business.
Planning for large capital outlays make sense. If you were considering a major renovation, redevelopment or assets purchase in 2025+, the timing could be especially beneficial given the restored full expensing.
Tax timing and entity structure implications. Because the benefits impact taxable income and due to the interaction with interest limits, NOL rules, passive activity rules, entity choice (LLC, partnership, REIT structure) should be revisited under the new law.
Example scenario
Here’s a simplified illustration:
A client purchases a commercial property and plans a major interior retrofit (e.g., HVAC, lighting, flooring) in 2025. Under prior law, many of those interior improvements might be depreciated over 39 years (or shorter lives via segregation). Under OBBBA:
The client commissions a cost-segregation study, identifies $400,000 of property components with recovery periods of 15 or 20 years or less (e.g., HVAC, lighting, certain interior systems).
Because these components are property with recovery periods ≤ 20 years and placed in service in 2025, 100% bonus depreciation can apply (under the “qualified property” rules) — allowing immediate expensing of the $400,000 instead of depreciating over many years.
The client’s taxable income in 2025 is dramatically reduced, improving cash flow, enabling reinvestment, and increasing return on investment for the retrofit.
Simultaneously, the firm checks state tax treatment, confirms that in the client’s state full bonus depreciation is allowed federally but limited or decoupled at the state level, and advises additional state strategies as needed.
Caveats and things to watch
Written binding contract dates and placed-in-service dates matter. Some property tied to contracts entered before January 20, 2025 might fall under the old phase-down schedule. RSM US+1
Mixed‐use buildings or portions of property that are not used in qualifying activities (especially for QPP) may lose the accelerated benefit — documentation, allocation and careful structuring are key.
For traditional passive residential rental real estate, some of the more aggressive expensing opportunities (e.g., §179) may not apply unless the owner is materially participating or meets the active trade/business test.
State tax conformity is uneven: even if federal law allows full expensing, state treatment may differ — and may create state-federal timing mismatches or adjustment items.
While OBBBA sets many provisions permanently, future legislation or IRS/regulatory guidance could fine-tune definitions, eligibility or interaction rules — monitoring remains important.
Large upfront deductions may generate net operating losses (NOLs) or deferred tax assets — understanding the client’s full tax profile, including other income, entity losses, passive activity and carryforward limitations, is essential.
Conclusion
The OBBBA marks a landmark shift in depreciation and expensing rules that real-estate investors and owners should not ignore. For many clients, the opportunity to accelerate deductions, improve cash flow, and expand investment flexibility is real and timely — but capturing those benefits requires thoughtful planning, accurate documentation and coordination with your CPA and tax advisors. At Hunsche CPA Group, we’re ready to help you assess your portfolio, model the impact of these changes, and structure your next moves to make the most of this new landscape.
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