Bonus Depreciation Opportunities for Real Estate Businesses Independent of Pending Legislation

Many in the real estate community are waiting with bated breath to see if the Tax Relief for American Families and Workers Act will cross the finish line with Senate approval before the April 15, 2024, tax deadline. The most significant item in the tax bill for real estate businesses is the restoration of 100% bonus depreciation for tax year 2023. If the legislation does not pass, there is still an opportunity for some real estate projects to claim 100% bonus depreciation on certain assets placed in service in 2023.

In case you missed it in December 2023, check out our blog post, Bonus Depreciation Changes: Keeping Your Strategy on Point. Should the Tax Relief for American Families and Workers Act not pass in the Senate Chamber this year, bonus deduction amounts will decrease by an annual reduction of 20% through 2026.

Key Criteria for Claiming 100% Bonus Depreciation

Self-constructed real estate projects that meet specific criteria are considered long-production period assets for the purpose of the bonus depreciation rules. The four key criteria to claim 100% bonus depreciation on certain assets are:

  1. The taxpayer must acquire the asset(s) before January 1, 2027
  2. The asset(s) must have a recovery period of at least ten years.
  3. The asset(s) are subject to the uniform capitalization (UNICAP) rules of §263A
  4. The asset(s) have an estimated production period exceeding one year and a cost exceeding $1M

Criteria in Context

There are a few considerations to the above criteria when determining if an asset will be eligible for 100% bonus depreciation. Since the recovery period needs to be at least ten years, any five or seven-year property identified in a cost segregation study would only be eligible for 80% bonus depreciation. The benefit in a cost segregation context lies with land improvements and, in some situations, qualified improvement property.

Under the Tax Cuts and Jobs Act (TCJA) of 2017, small taxpayers are no longer required to capitalize construction period interest and property taxes, which makes the UNICAP requirement especially important. If taxpayers took advantage of early deductions of interest and property taxes before construction was completed, they would not be eligible for the additional bonus depreciation. In addition, small or short construction projects would not qualify. In the current real estate environment, there likely will be few projects with a production period exceeding one year that won’t also exceed $1M in costs, but it is worth noting.

We’re Keeping Track

Your Perkins team is always in your corner, eagerly watching to see if the legislation will pass and bring back 100% bonus depreciation. While we await Congressional action, please don’t hesitate to contact your Perkins tax advisor to discuss if this opportunity is available to you.


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