Bonus Depreciation Commercial Real Estate: Maximize Your Tax Savings in 2025

The U.S. commercial real estate market reached more than $718 billion in 2024 and is projected to climb toward $1 trillion by 2033. That massive growth screams opportunity for real estate investors looking to slash their tax liability.

From our experience, this kind of market expansion puts pressure on real estate investors to find ways to keep more of their returns.

One of the most effective tools available today is bonus depreciation commercial real estate, a strategy that can create a powerful tax benefit by allowing property owners to take immediate tax deductions instead of waiting years through traditional schedules.

This article will break down the rules, eligibility, and practical steps so property owners, CPAs, and developers can reduce their tax liability while improving cash flow. Readers will walk away knowing exactly how to use these strategies to maximize savings in 2025 and beyond.

We’ve recently covered one big beautiful bill bonus depreciation real estate, and next we’ll be discussing retail commercial depreciation access, while this guide serves as part of the broader bonus depreciation commercial real estate 2025 post.

Understanding Bonus Depreciation Rules For Commercial Real Estate

For property owners aiming to shrink their tax liability and boost cash flow, getting bonus depreciation rules right is critical. With the One Big Beautiful Bill Act (OBBBA) reshaping how bonus depreciation works, staying current is a no-brainer.

Definition Of Bonus Depreciation Vs. Standard Depreciation

Under standard depreciation, deductions stretch across decades. With real estate bonus depreciation, qualifying assets can be written off in full the year they are placed in service.

For example, instead of spreading a $100,000 electrical upgrade over 15 years, a property owner can deduct the entire amount immediately. This accelerates tax benefits and reduces taxable income right away.

Current Rules: Permanent 100% Expensing Under OBBBA

The Tax Cuts and Jobs Act originally set a phase out schedule that dropped bonus percentages year by year.

That schedule ended in January 2025. Under the new OBBBA, 100% bonus depreciation is now permanent for property acquired and placed in service on or after January

20, 2025.

For example, a business asset installed on January 21, 2025 qualifies for full expensing, while one placed in service on January 15 only received a certain percentage (40%) deduction under the prior regime.

These significant changes mean investors must watch placement dates closely.

Key Provisions That Matter

Here’s a major win for investors: Used property remains eligible, as long as it hasn’t been claimed before. Another provision allows qualified improvement property (QIP) to qualify fully, which includes interior, non-structural upgrades.

For example, new drywall and lighting installed in an office lobby after January 20, 2025 can be immediately deducted in full.

Federal Rules And State Conformity Issues

While federal law now provides permanent expensing, not every state conforms. Some follow IRS federal rules, while others require adjustments.

For example, a commercial investor filing in New York may have to calculate state depreciation differently than an investor in Texas. Checking state conformity helps avoid surprises during tax season.

Timeline of Legislative Changes

Over time, bonus depreciation has jumped from 30% to 50%, climbed to 100%, then briefly declined before being reinstated. The OBBBA has now locked in full bonus depreciation permanently. 

As a result, this created a more predictable environment for planning.

For investors, the lesson is clear: legislative updates can shift strategy, and service dates have become as important as purchase contracts.

Qualified Property Requirements And Eligible Assets

Not every asset qualifies for bonus depreciation. Want to unlock immediate deductions without raising red flags? Know the rules for qualified property and identifying eligible assets.

What Counts As Qualified Property?

Qualified property acquired for business or investment use must generally have a recovery period of 20 years or less. Assets must also be properly placed in service to count.

For example, new HVAC systems, parking lot improvements, and security cameras are considered qualifying assets with a defined useful life that makes them eligible.

Commercial Buildings Vs. Components

Entire commercial buildings remain ineligible. Instead, property components inside or around those buildings often qualify. For example, a cost segregation analysis might identify business assets like lighting, carpeting, and networking systems as bonus-eligible.

Don’t underestimate this distinction, though. It  helps property owners claim deductions correctly without overstating benefits.

Qualified Improvement Property And Interior Upgrades

Qualified improvement property (QIP) is a powerful category. Non-structural interior upgrades, such as new drywall, ceilings, or lighting, fall under this rule.

For example, a renovated office lobby placed in service on February 1, 2025 can be immediately deducted under the permanent 100% rule. However, structural changes like elevators still do not qualify.

Service Dates And Useful Life Precision

Exact timing matters more than ever. Property must be placed in service on or after January 20, 2025 to receive permanent 100% expensing.

For example, office furniture delivered and installed on January 18, 2025 would fall under the old 40% regime, while the same furniture installed two days later qualifies for the full deduction. Matching acquisition and service dates is critical!

Related Party Restrictions

The IRS limits transactions between a buyer and a related party to prevent abuse. For example, if a developer shifts real property into an LLC owned by the same family, that transfer won’t generate bonus depreciation applies benefits.

Ensuring that a property meets arm’s-length requirements keeps deductions valid.

Used Property Considerations

Under the OBBBA, used property remains eligible as long as it hasn’t already been claimed for depreciation by someone else. For example, purchasing pre-owned office furniture from an unrelated seller can qualify, provided it meets other criteria.

This rule greatly expands opportunities for property owners to reduce taxable income without being restricted to brand-new purchases.

Cost Segregation Study: Unlocking Maximum Depreciation Deductions

A cost segregation study is one of the most powerful tools available to commercial investors. The reason? It helps uncover hidden deductions by analysing separate certain assets within a building that qualify for faster write-offs. Here’s how it works in practice.

What Is A Cost Segregation Study And Why It’s Essential

Cost segregation is the process of reclassifying portions of a property into shorter-lived categories for tax purposes. This allows for accelerated deductions instead of using the full 39-year schedule.

For example, instead of depreciating carpeting over decades, a study may reclassify it as a 7-year asset, unlocking earlier depreciation deductions.

How Cost Segregation Identifies Eligible Assets

A professional review breaks down a building into its components. Items like lighting, flooring, or specialty plumbing can fall into shorter Modified Accelerated Cost Recovery System (MACRS) recovery period categories.

For instance, a warehouse might have conveyor belts or racking systems that qualify for a 5-year recovery period instead of the standard 39.

Breaking Down Property Components

When done carefully, a study identifies interior upgrades, land improvements, and office furniture that qualify for accelerated schedules. Examples include:

• Parking lots, sidewalks, and landscaping as land improvements (15 years)
• Carpeting, cabinetry, or decorative lighting as interior upgrades (5–7 years)
• Desks, chairs, and cubicles as office furniture (7 years)

When To Conduct A Study

The best time to complete a cost segregation study is in the first year after acquiring or constructing property. However, retroactive studies can be done too, often producing large catch-up deductions.

For example, a property purchased in 2020 but never analyzed could still qualify for substantial accelerated write-offs under today’s permanent 100% rules.

Calculating Your Bonus Depreciation Commercial Real Estate Benefits

Knowing how to calculate the benefit of bonus depreciation commercial real estate strategies can give property owners confidence at tax time. It starts with understanding the process step by step.

Step-By-Step Process To Claim Bonus Depreciation

To claim bonus depreciation, investors generally:

Record deductions on the tax bill with supporting schedules.

Allocating Purchase Price For Maximum Deductions

Proper allocation of the purchase price can increase savings. For example, separating $300,000 of equipment from a $2 million building allows that portion to be immediately written off.

The more precise the allocation, the greater the chance to claim deductions fairly and avoid disputes later.

Depreciation Recapture Considerations

While this doesn’t erase the benefit, it changes the long-term math and must be part of a tax strategy.

Comparing Immediate Vs. Traditional Methods

Choosing between immediate tax deductions and traditional schedules depends on the investor’s situation. A large upfront deduction can lower the tax burden in high-income years, freeing up capital.

For example, a developer with several projects may prefer to immediately deduct expenses to free cash for reinvestment, while a long-term holder may prefer gradual tax deductions.

Real-World Examples Of Tax Liability Reduction

Consider a shopping center acquired for $5 million in February 2025. After a cost segregation study, $1.2 million was allocated to short-life assets. Thanks to increased bonus depreciation, the owner could write off the full $1.2 million in year one, slashing their tax liability dramatically.

This approach delivered accelerated deductions that improved liquidity for reinvestment.

Strategic Implementation For Improving Cash Flow

Interested about cash flow? Then be aware that cash flow is affected by the timing and application of bonus depreciation. Here are practical ways property owners can maximize financial benefits and avoid common mistakes.

How Bonus Depreciation Applies To Rental Properties

Bonus depreciation applies to many rental properties if the improvements have a useful life of 20 years or less. For example, new appliances in multifamily units or upgraded security systems in residential properties can be deducted immediately.

These upfront deductions help in improving cash flow because owners don’t wait decades to recover the cost.

Timing Strategies That Matter

The tax year when an asset is placed in service determines eligibility. For example, office furniture installed on December 31, 2025 qualifies, but waiting until January 2, 2026 delays the deduction to the following year.

Planning installation and service dates carefully ensures higher deductions are captured when most useful.

Coordinating With Other Tax Relief Provisions

You know what works even better? When bonus depreciation is coordinated with other forms of tax relief. For example, pairing deductions with Section 179 expensing or energy-efficiency credits can provide an extra layer of benefit.

Investors who stack these strategies often see the strongest improvements in cash flow.

Role Of A Tax Professional In Strategy

Working with a tax professional ensures that every deduction aligns with IRS rules. For example, professionals can confirm when property is considered placed in service and whether the right recovery period was applied.

This guidance supports a stronger tax strategy and helps avoid costly mistakes.

Common Mistakes To Avoid

Some investors misclassify assets, double-count deductions, or miss filing deadlines. To prevent these errors:

Avoiding these missteps helps secure financial benefits that keep projects profitable year after year.

Maximizing Long-Term Tax Savings For Property Owners

It’s true that short-term deductions are important, but property owners who want durable results should also consider the big picture.

With the Big Beautiful Bill Act permanently restoring 100% bonus depreciation, planning for the future means balancing upfront deductions with longer investment goals.

Planning With A Long View

Even though the OBBBA eliminated the old phase-down, some states still operate under their own systems. Where states conform, deductions mirror federal rules. Where they don’t, adjustments may be required.

For example, an investor filing in Florida will enjoy federal alignment, while someone filing in California may have to run separate calculations.

Balancing Immediate Relief With Long-Term Goals

A smart plan considers both current tax relief and future performance. For example, investors can accelerate deductions today to free up cash for reinvestment, while still setting aside reserves for future projects.

Balancing long-term investment goals with short-term tax savings ensures growth doesn’t stall when market conditions shift.

Managing Depreciation Recapture And Exit Strategies

Depreciation recapture can create an extra tax bill when selling. Planning helps reduce that impact. For example, using 1031 exchanges or holding property longer can soften the hit. These exit strategies protect wealth while still letting owners take advantage of upfront deductions.

Building A Sustainable Tax Strategy

A sustainable tax strategy includes forecasting how future acquisitions will be treated and where deductions fit into the broader portfolio.

For example, owners with multiple projects can rotate improvements so that each tax year captures significant write-offs. This approach helps to maximize deductions without relying on timing luck.

Why Staying Current Matters

Legislation shifted from a phase-out to permanent 100%. That change brought clarity, yet future updates remain possible. Property owners who track legislative moves will avoid being caught off guard.

With OBBBA, deductions are more predictable. However, if another update reduces them to significantly lower levels, planning flexibility will be essential.