Accelerated Depreciation: A Win for Real Estate Investors in the New Tax Bill

Now that Congress has passed the highly controversial and widely debated “One Big Beautiful Tax Bill,” there’s a lot to unpack—most of which I’ll leave to others. While the bill touches on everything from tax-free overtime pay to changes in Medicaid, I want to zero in on just one aspect that impacts real estate and small businesses: accelerated bonus depreciation.

If you're a seasoned real estate investor or a small business owner who buys equipment, you’ve probably heard of “accelerated depreciation.” But for those who haven’t, it's an accounting method that allows businesses to deduct a larger portion of an asset’s cost earlier in its useful life—rather than spreading it out evenly over time. In simpler terms: you get bigger tax write-offs sooner, which can significantly boost your cash flow.

This strategy gained traction with the 2017 Tax Cuts and Jobs Act and has now returned—at full strength—in the 2025 tax bill. Here’s how it works: You can deduct more of an asset’s value in the early years, which lowers your taxable income right away. That extra cash flow gives business owners more money to reinvest—whether into properties, jobs, or other growth areas. We saw this play out after 2017, especially in the real estate sector.

How It Works in Real Estate

Let’s say you buy a $1,000,000 investment property in 2025. Under IRS guidelines, 20% of that value is considered the land (which isn’t depreciable), and 80% is the building (which is). So you’re working with $800,000 in depreciable value.

Before accelerated depreciation, you’d depreciate that $800,000 over 27.5 years:$800,000 ÷ 27.5 = $29,091/yearIn a 25% tax bracket, that’s roughly $7,273 in annual tax savings.

But with accelerated bonus depreciation—also called 100% bonus depreciation—you can depreciate certain parts of the property much faster. Things like carpets, appliances, electrical fixtures, cabinets, fencing, and landscaping qualify. That’s where a cost segregation study comes in. It breaks down the property into components with shorter useful lives, letting you deduct more, faster.

Example with Bonus Depreciation

Let’s stick with our $1,000,000 property example:

• $200,000: Land (not depreciable)

• $800,000: Building

  • Of that, about $320,000 can be reclassified via cost segregation and depreciated fully in year one

  • The remaining $480,000 continues on the standard 27.5-year schedule

Year One Deductions:

• $17,454 (standard depreciation on $480,000)

• $320,000 (bonus depreciation on short-life assets)Total first-year deduction: $337,454

If you’re in a 25% tax bracket, that means over $84,000 in tax savings—just in year one.

The Trade-Off

The catch? You’re front-loading your deductions. That means in future years, your standard annual depreciation drops to around $17,454 instead of the $29,091 you’d get without bonus depreciation. And when you sell the property, you may face higher depreciation recapture taxes—so it’s smart to consult a tax advisor. Strategies like 1031 exchanges can help mitigate those consequences.

Final Thoughts

Bonus depreciation isn't just a tax gimmick—it’s a cash flow accelerator. For real estate investors and small business owners, it frees up money to hire, reinvest, and grow. And frankly, putting more capital in the hands of business owners and job creators sounds like a much better use of funds than letting it sit in the federal treasury.

If you own investment property or run a business, now’s a good time to revisit your tax strategy.

—Jesse Brewer, Real Estate Investor, Broker, and Boone County Commissioner