100% Bonus Depreciation for Real Estate: What the OBBBA Means for Investors

To qualify for bonus depreciation under federal tax law, depreciable property must meet three main requirements:

1. Specified type of property. Only MACRS property with a depreciation life of 20 years or less will quality for bonus depreciation. Common examples include the following:
   • Automobiles
   • Computers and software
   • Office machinery, equipment, and furniture/fixtures
   • Geothermal and solar energy equipment
   • Improvements to land such as fences, roads, parking lots, and landscaping
   • Qualified improvement property (generally, interior nonstructural improvements to commercial real estate)
2. Original use of the depreciable property must start with the taxpayer. To qualify for bonus depreciation, the property’s original use must begin with the taxpayer. This means the taxpayer must be the first to place the property in service for their business. Both new and used property can quality, but used property cannot have been previously used or placed in service by another taxpayer. Internal Revenue Code Section 179(d)(2)(A) states that property acquired from a related party such as a family member, a partner, and any other entities under common control, do not qualify. Code Section 179(d)(2)(B) states that property acquired from a corporation or partnership that the taxpayer has an ownership interest that does not qualify. Code Section 179(d)(2)(C) states that property that has a basis from another person such as gifts or inheritances do not qualify.

3. The property must be placed into service by the taxpayer within a specified time period. Under the Tax Cuts and Jobs Act (2017) had previously scheduled phaseouts for bonus depreciation. Conversely, the OBBBA (2025) features a permanent extension of 100% bonus depreciation for qualifying property placed in service after January 19, 2025.