In July 2025, the One Big Beautiful Bill Act was signed into law, bringing sweeping changes to tax incentives that directly impact real estate investors, developers, and owners. The final legislation revived 100% bonus depreciation, amended §179D deduction & §45L credit to expire for properties constructed after June 30, 2026. While all three updates offer meaningful opportunities, 100% bonus depreciation stands out as the most impactful tool, not just for the upfront tax savings, but for how it reshapes planning across the entire lifecycle of property ownership. And with §179D & §45L set to expire at the end of 2026, timing and execution matter more than ever.
What’s in the Bill for Real Estate?
100% Bonus Depreciation – Reinstated and Made Permanent
Effective for qualified property placed in service after January 19, 2025, investors can now deduct 100% of the cost of short-lived assets (those with a useful life of 20 years or less) in the first year. This includes assets like flooring, lighting, electrical systems, HVAC, and site improvements, typically identified through a cost segregation study. This provision had been phasing out in prior years (60% in 2024, 40% in 2025, etc.), but the new law removes all phase-down schedules and reinstates 100% bonus depreciation. It allows investors to significantly reduce taxable income in year one and gain earlier access to cash flow.
- 179D – Eligibility closing down for properties constructed after 2026
The §179D deduction, which encourages energy-efficient construction and renovation of commercial buildings, has been sunset for properties constructed after June 30, 2026. Projects that meet certain energy performance thresholds and comply with prevailing wage and apprenticeship requirements can now qualify for up to $5.81 per square foot in deductions—an increase from the prior $5.00 cap. Owners and designers (on tax-exempt projects) should act now to begin energy modeling and compliance planning. Given the expiration timeline, projects must be underway soon to be eligible before the deadline.
- 45L – Still Available, but More Limited in Practice
The §45L credit offers up to $5,000 per residential unit for new construction or substantial renovation that meets DOE Zero Energy Ready standards. While this sounds promising on paper, real-world qualification can be rare without advanced planning and specific design elements.
Qualified Production Property (QPP) – A New Bonus Opportunity
The newly enacted legislation amends Section 168 to introduce the definition and eligibility criteria for Qualified Production Property (QPP), aiming to incentivize domestic manufacturing and industrial investment. Under the revised provisions, QPP encompasses newly constructed real property where construction commenced after January 19, 2025, and is predominantly used in the production of goods at a qualified facility within the United States. This includes buildings or portions thereof dedicated to manufacturing, processing, refining, or similar productive activities. Notably, only the areas of the facility directly supporting these qualified production functions, such as production floors, equipment storage, and materials handling zones, are eligible for 100% bonus depreciation.
In contrast, ancillary spaces like office areas, breakrooms, or retail portions are excluded from QPP classification. This distinction enhances the cost segregation of Production Facilities. By leveraging Cost Segregation and QPP, you can maximize your deductions to unprecedented levels. If you hold the QPP for more than 10 years without ceasing to use the space for production, you are exempt from recapture tax on the QPP bonus. If you sell the property, it is treated like 1245, similar to QIP.
Why 100% Bonus Depreciation Deserves the Spotlight
The reinstatement of 100% bonus depreciation is more than just a tax break; it’s a fundamental shift in how real estate investors can accelerate returns, manage cash flow, and strategically plan their holding period.
It’s About Timing, Not Just Savings
A deduction taken today is more valuable than one taken over many years. Accelerated depreciation improves project IRR by bringing tax savings forward, where they can be reinvested or used to preserve cash. It’s a time value of money strategy, not just a line-item deduction. Combined with cost segregation, bonus depreciation allows investors to maximize first-year deductions in a structured, defensible way, and it opens the door to smarter exit planning when the time comes.
Lifecycle Tax Planning: From Purchase to Sale
The most successful investors plan for tax strategy across the full lifecycle of their real estate, starting before acquisition and extending all the way through exit. Here’s how the incentives in the new bill fit into that approach.
- Acquisition & Placement in Service
– Time acquisitions or project completion so that assets are placed in service after January 19, 2025, to qualify for full bonus depreciation.
– Conduct a cost segregation study to identify and reclassify short-life components eligible for immediate expensing. - First-Year Deduction
– Apply 100% bonus depreciation to all eligible 5-, 7-, and 15-year property.
– Capture significant deductions in year one, often shielding most or all of the year’s rental income.
– Use freed-up cash for improvements, acquisitions, or debt reduction.
- During Ownership
– Continue depreciating long-life assets on a standard schedule.
– For qualifying properties or improvements, consider §179D:
– Confirm construction starts before June 30, 2026.
– Run energy modeling early to identify eligibility.
– Ensure prevailing wage and apprenticeship requirements are addressed during planning.
– Complete the certification.
– Where applicable, evaluate §45L eligibility for residential units, especially in multifamily or senior housing development.
- Sale & Exit Planning
– Bonus-depreciated assets are subject to Section 1245 depreciation recapture, typically taxed as ordinary income.
– Through our proprietary 1245 Exchange (1245X) strategy, investors can:
– Allocate fair market value of 1245 property at the time of sale.
– Dramatically reduce the recapture amount subject to higher tax rates.
– Improve after-tax proceeds without changing deal terms.
Planning for 1245X before listing or closing ensures the recapture strategy is executed properly, rather than leaving money on the table at exit.
Why Acting Now Matters
This isn’t about missing a trend; it’s about meeting real deadlines.
– Properties must be placed in service after January 19, 2025, to qualify for 100% bonus depreciation.
– §179D requires construction of the building before June 30th, 2026, meaning project construction must have started before then and continued without pause.
– §45L remains active but often requires specific design specs that must be built in from the beginning. Construction must begin before June 30th, 2026, to be eligible for the deduction.
Waiting until tax time or project completion is too late. The path to claiming these incentives begins now, during design, acquisition, and construction.
What Should You Be Doing?
If you’re a real estate investor, developer, advisor, or owner with upcoming projects, now is the time to evaluate your tax strategy:
1. Review your 2025–2026 pipeline.
2. Initiate cost segregation planning before closing.
3. Start energy modeling now for eligible properties.
4. Incorporate 1245X into your exit strategy.
5. Don’t assume your CPA will bring it up.
Final Thoughts
The 2025 tax bill didn’t just bring back bonus depreciation; it reshaped the way real estate investments should be structured and optimized. Combined with time-limited opportunities like §179D and targeted credits like §45L, investors who act early can meaningfully improve after-tax returns throughout the entire investment lifecycle. But timing is everything. These incentives reward proactive planning, not passive filing. If you own, build, or invest in real estate, now’s the time to act.
