2026 is here, and so is a completely reshaped tax landscape. | If you closed on property after January 19, 2025, you accidentally stumbled into the best tax window in a decade. You're likely sitting on $300K–$1M in unclaimed tax deductions, and the window to capture them is shrinking. | The One Big Beautiful Bill (OBBB), passed July 4, 2025, permanently restored 100% bonus depreciation for qualified property placed in service after January 19, 2025. This reversed the Tax Cuts and Jobs Act's phase-out schedule that was killing real estate cash flows. | The Bonus Depreciation Shift | Placement Date | Pre-OBBB Rate | Post-OBBB Rate |
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2022–2023 | 100–80% | 100–80% | 2024 | 60% | 60% | Jan 1–19, 2025 | 40% | 40% | Jan 20, 2025+ | 20% → 0% by 2027 | 100% (permanent) |
| Properties placed in service after January 19, 2025, can now immediately write off short-lived components like fixtures, land improvements, and interiors, instead of depreciating them over decades. |
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| | The Mechanics: Engineering, Not Guesswork | In simple terms, cost segregation allows property owners to accelerate depreciation deductions by reclassifying building components into shorter tax lifespans. For instance, investors can separate short-lived components (5–7 year assets) from the long-term building structure (39 years). | Engineers and tax specialists dissect architectural drawings, blueprints, and cost breakdowns to reclassify components under IRS-defensible categories. These experts use Building Information Modeling (BIM) platforms and engineering analysis that can survive an audit. | MACRS Asset Classifications | Category | Recovery Period | Examples |
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5-Year Property | 5 years | Office equipment, computers, specialized fixtures | 7-Year Property | 7 years | Office furniture, general fixtures | 15-Year Property | 15 years | Parking, landscaping, and sidewalks | Building Structure | 39 years | Core building, integral systems |
| Legal Foundation: IRC §168 (MACRS), IRC §179 (immediate expensing up to ~$2.5M annually), and Qualified Production Property rules. |
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| | A Small Scenario | Let's say you buy a $5M commercial building: | | What Cost Seg Finds: | Your engineers break down that $4M: | $2M in fast-track assets (5 and 15-year items like fixtures, flooring, landscaping). $2M stays as a 39-year building structure.
| Year One: | With 100% bonus depreciation: | Immediate write-off: $2M (all the reclassified assets). Regular depreciation: $51K (from the 39-year building). Total Year 1 deduction: $2.05M. Tax savings at 25% rate: ~$513,000.
| That's half a million dollars you're not sending to the IRS in year one. | Years 2–5: | Back to normal depreciation on the remaining building—about $51K per year, saving roughly $13K annually in taxes. | The Exit Tax (Year 5): | Sale price: $6M. Depreciation recapture tax: ~$564K. Capital gains tax: ~$200K. Total tax at exit: ~$764K. Net proceeds: ~$5.24M.
| Even if you just invested that $513K at 7%, it would grow to over $700K by year five. That's not deferring taxes. That's weaponizing your cash flow. |
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| | Who Should Use Cost Segregation (And Who Shouldn't) | | For Qualified Production Property (QPP), construction must begin between January 20, 2025, and December 31, 2029. Property must be placed in service by January 1, 2031. Miss these dates, lose the benefit. | Binding contracts executed before January 20, 2025 may trigger reduced depreciation rates even if placed in service later. Timing is everything. | Cost segregation doesn't offer you free money. Think of it like an interest-free loan from your future self. The terms are excellent, but the bill comes due at sale. | You saved $513K in year one when cash was tight. You'll pay $1.1M in taxes at exit. But if you invested that $513K at 7%, it grew to $700K+. |
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| | The Bottom Line | The OBBB created a permanent 100% bonus depreciation window. For properties >$1M placed in service after January 19, 2025, cost segregation delivers massive year-one tax savings, but with recapture consequences at exit. | The math works if you: | Need cash flow now (high-rate environment). Plan hold periods >5 years. Model exit taxes before buying. Chain 1031 exchanges to defer recapture.
| The window is open. The code is favorable. The documentation requirements are strict.
Talk to your CPA. Commission the engineering study. Model the exit scenario. | Then move fast, because while bonus depreciation is now permanent, acquisition timing and asset placement deadlines are not. |
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| | | | | Important disclosures: This newsletter is provided for informational purposes only and does not constitute investment advice. All investments involve risk, including possible loss of principal. Please consult with your financial advisor before making investment decisions. |
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