One Big Beautiful Bill and the Return of 100% Bonus Depreciation

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, is a landmark economic policy with wide implications. Building on the 2017 Tax Cuts and Jobs Act (TCJA), OBBBA makes permanent several pro-growth tax reforms. Most prominently, it reinstates 100% bonus depreciation, allowing businesses to fully expense qualifying assets in the first year, and makes permanent the Qualified Business Income (QBI) deduction.

 

The legislation also raises the estate tax exemption, preserves 1031 exchanges, and introduces incentives for industrial development, rural redevelopment, and Opportunity Zones. While near-term provisions like the expanded SALT deduction cap provide an immediate lifeline, the Act’s overall purpose is long-term growth. Its aim is to encourage investment, increase production, create jobs, and build economic resilience. The CRE industry is urged to consult tax advisors to maximize benefits and adapt strategy within this evolving tax landscape.

 

OBBBA and CRE

OBBBA places CRE at an inflection point, changing the way assets get taxed, transacted, and developed. By making key tax provisions of the 2017 TCJA permanent, the law removes uncertainty from sunset clauses that discouraged planning. This permanence allows real estate professionals to plan long-term with greater certainty, encouraging steady capital expenditures and property upgrades. It also supports strategic portfolio growth by enabling investors to align decisions with reliable tax structures and predictable outcomes. Rather than reacting to expiring incentives, investors can base choices on fundamentals, improving financial modeling and reducing regulatory risk.

 

Beyond general stimulus, OBBBA reveals a targeted industrial policy embedded within the tax code.The permanent bonus depreciation provision links strategically to new QPP incentives and enhanced rural Opportunity Zones, boosting infrastructure and growth. For CRE stakeholders, these policies translate into tangible investment opportunities in and strategically located development zones. By aligning with these priorities, investors can capitalize on government-backed demand while contributing to long-term economic resilience.

Bonus Depreciation Deep Dive

Bonus depreciation is an accelerated tax deduction that allows businesses to immediately deduct a substantial portion, or even the entire cost, of eligible assets in the year they are acquired and placed in service. This stands in marked contrast to normal depreciation, which mandates that deductions be extended over an asset’s pre-established “useful life.”

 

The History of Bonus Depreciation

Bonus depreciation was originally introduced into the U.S. tax code in 2002 by the Job Creation and Worker Assistance Act at a rate of 30%. It was enacted in response to the September 11, 2001, events and acted as a tool for economic recovery. In the years since then, the bonus depreciation rate has varied between 30% and 50%. The rate reached 100% for property acquired after September 8, 2010, and placed in service before January 1, 2012. This was established under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

 

A change came with the 2017 TCJA, allowing 100% bonus depreciation for property placed in service after September 27, 2017. This full benefit applied through December 31, 2022, before the law enacted a gradual phase-out. The phase-out reduced bonus depreciation to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. By 2027, the TCJA fully eliminated the bonus depreciation benefit, ending the temporary expensing incentive.

 

Importance for CRE Investors

Investment in real estate has the natural advantage of lowering tax payments by depreciating the value of a building over its useful life. Bonus depreciation amplifies that advantage by providing faster write-offs, which enables property owners to front-load the deductions and realize substantial savings on their tax bills.

 

To be eligible for bonus depreciation, property must be eligible for depreciation under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less. For real estate, this means it applies specifically to land improvements such as parking lots, sidewalks, and landscaping. It also applies to Qualified Improvement Property (QIP), which is interior upgrades to nonresidential commercial buildings made after the building was initially placed in service.

 

Cost segregation studies

These strategic tax planning analyses allow property owners to identify and reclassify various components of a building (specific electrical systems, plumbing, specialized equipment, or decorative elements) that have shorter depreciation lives (typically 5, 7, or 15 years) from the standard 39-year period for commercial real property. This reclassification significantly increases the portion of an investment eligible for accelerated deductions, including bonus depreciation.

 

While some may argue that bonus depreciation primarily represents a timing shift the immediate availability of these deductions has a profound and tangible impact on a business’s current cash flow. For example, under the old phase-out schedule, a $1 million renovation to an apartment complex in 2025 would have only yielded a $400,000 deduction in that year. With the return of 100% bonus depreciation, the entire $1 million can be deducted immediately. This difference in cash savings is substantial, directly enhancing a business’s liquidity and working capital. The capital can be saved or strategically redeployed into other business ventures, new development projects, business expansion initiatives, new hiring, or further property upgrades.

 

Defining Qualified Property

The definition of qualifying property for bonus depreciation remains consistent with prior law. Generally, eligible assets include Modified Accelerated Cost Recovery System (MACRS) property with a recovery period of 20 years or less. This specifically covers Qualified Improvement Property (QIP), meaning interior improvements to nonresidential real property placed in service after construction. Additionally, land improvements like parking lots, sidewalks, and landscaping generally qualify for the provision’s tax benefits. The reinstated 100% bonus depreciation applies to newly acquired qualified property as well as previously owned qualified used property.

 

Qualified Production Property (QPP)

The OBBBA introduces an entirely new and significant category of assets known as Qualified Production Properties. This provision allows for the immediate deduction of the entire cost of building a new manufacturing plant or modern warehouse. This constitutes a 100% first-year depreciation allowance specifically for certain commercial real property used in qualified production activities.

 

To be eligible, QPP must meet several stringent criteria: it must be placed in service within the United States; its original use must commence with the taxpayer; its construction must begin after January 19, 2025, and be completed before the end of 2030; and it must be placed in service no later than 2031.

 

A “qualified production activity” broadly includes manufacturing, production, or refining of tangible personal property, except for certain food and beverages. Notably, this benefit applies to eligible real property but specifically excludes any leased property from qualification. Unlike the general 100% bonus depreciation, this Qualified Production Property incentive is temporary and limited in scope. The incentive aims to boost industrial development and renovations, supporting America’s continued leadership in advanced manufacturing and competitive global industries.

 

Section 179 Expensing Limits

The OBBBA also substantially increases the expensing limits under Internal Revenue Code (IRC) Section 179. The maximum Section 179 deduction is now $2.5 million, up from the $1.25 million cap in 2025. The phase-out threshold has increased to $4 million, compared to $3.13 million under prior 2025 law. Both deduction and threshold amounts will be indexed for inflation in future years. Generally, Section 179 expensing applies to the same property types that also qualify for bonus depreciation.

Conclusion

The permanent 100% bonus depreciation allows businesses to aggressively offset current-year taxable income by immediately expensing newly acquired assets, leading to significantly improved cash flow. This directly increases the effective return on owners’ investments. The return of full bonus depreciation is expected to stimulate more property improvements, leading to better buildings and an enhanced quality of life for commercial real estate users. It also provides greater financial flexibility for investors employing value-add strategies, where property improvements are central to increasing asset value.