The post-OBBBA (‘One Big Beautiful Bill’ Act) environment has amplified opportunities for real estate investors—especially those leveraging debt and strategic tax planning tools like cost segregation studies. With 100% bonus depreciation now in effect, investors can accelerate deductions, reduce taxable income, and improve after tax cash flow earlier in their investment cycle.
The Key Advantages
100% Bonus Depreciation
This provision allows investors to immediately expense qualifying property components, rather than depreciating them over time.
- Enables significant early-year deductions.
- Reduces current taxable income.
- Enhances after-tax cash flow and ROI.
Cost Segregation Studies
A cost segregation study breaks down a property into its individual components—such as fixtures, finishes, and land improvements—with shorter depreciable lives (typically 5, 7, or 15 years).
- Accelerates depreciation schedules.
- Unlocks eligibility for 100% bonus depreciation on many building elements.
- Maximizes the time value of money by front-loading deductions.
Leveraged Real Estate
When investors utilize debt financing, they can amplify returns while still claiming depreciation on the full value of the asset.
- Interest expense may be deductible.
- Depreciation applies to the total property value—not just the equity portion.
- Combined, these benefits create strong tax efficiency and enhanced after-tax yield.
Who Benefits
Passive Investors
For those seeking tax-efficient income and long-term appreciation, these strategies are especially compelling.
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Depreciation can offset passive income from other sources (e.g., rental properties or K-1s from syndications).
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In many cases, depreciation shelters most or all current cash flow.
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Upon exit, gains generally qualify for capital gains treatment—often at lower tax rates.
Material Participation Real Estate Professionals (MPREP)
Taxpayers who meet the material participation standards can treat losses as non-passive, providing even greater flexibility.
- Losses can offset active income.
- Strategic use of cost segregation and bonus depreciation can dramatically reduce taxable income.
- Ideal for investors with ongoing real estate activity and active income sources.
The Bottom Line
Investing in appreciating real estate while leveraging cost segregation studies and bonus depreciation can significantly enhance after-tax returns.
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Passive investors benefit from tax-sheltered cash flow and favorable capital gains treatment on exit.
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MPREP investors gain even more control and flexibility in managing taxable income.
Every investor’s situation is unique, and the rules can be complex. For guidance tailored to your real estate investments, reach out to Perkins Shareholder Isaac Jones, who specializes in real estate and construction tax strategies.