The return of 100% bonus depreciation marks one of the most impactful tax developments for commercial real estate in recent years. Following the passage of the One Big Beautiful Bill, the IRS issued interim guidance clarifying how the reinstated deduction applies, removing much of the uncertainty that had weighed on depreciation planning since the phase-down began.

 

For owners and investors, the change reshapes after-tax returns, acquisition underwriting, and capital deployment decisions heading into 2026 and beyond.

 

Why Bonus Depreciation Matters in CRE

Bonus depreciation allows qualifying properties to be expensed immediately rather than depreciated over time. In commercial real estate, this most commonly applies to:

• Cost-segregated building components
• Tenant improvements and interior buildouts
• Qualified improvement property (QIP)
• Certain land improvements, including parking and site work

As bonus depreciation phased down in recent years, the upfront tax benefits tied to value-add and repositioning strategies diminished. The permanent return to 100% expensing restores a planning tool that had steadily lost effectiveness since 2023.

 

What Changed

Under the new law, 100% bonus depreciation is permanently available for qualifying properties acquired and placed in service after January 19, 2025.

 

For commercial real estate investors, this means accelerated depreciation is no longer a timing strategy or temporary window. Full first-year expensing is available for qualifying components again, and underwriting assumptions can reflect stable depreciation treatment across hold periods.

 

IRS Guidance Brings Clarity

The IRS’s interim guidance confirms that taxpayers may rely on existing bonus depreciation regulations, with updated effective dates, until formal regulations are issued. For real estate owners, this preserves the established cost segregation framework already embedded in most underwriting models.

 

Key takeaways include:

• Eligibility is tied to placed-in-service dates, not contract dates
• Used property continues to qualify, subject to acquisition rules
• Owners may elect out of bonus depreciation by asset class when appropriate

This guidance reduces execution risk for late-2025 and 2026 acquisitions and adds certainty for renovation and repositioning projects.

 

Implications for Deals and Underwriting

The reinstatement of 100% bonus depreciation has immediate economic implications:

• Higher year-one after-tax cash flow, especially for value-add assets
• Improved IRRs driven by accelerated tax shields
• Greater pricing flexibility as buyers offset higher basis with upfront deductions

For investors utilizing cost segregation, the ability to fully expense qualifying components in year one materially enhances early-period returns, particularly in a market defined by higher cap rates and more conservative rent growth.

 

Cost Segregation Back in Focus

With full expensing restored, cost segregation reclaims its role as a core CRE tax strategy. Assets with meaningful short-life components can once again generate substantial first-year deductions, particularly across multifamily, industrial, retail, and hospitality.

 

Depreciation modeling, which had become a secondary underwriting input during the phase-down period, is again central to acquisition analysis.

 

Bottom Line

The permanent return of 100% bonus depreciation restores a key driver of commercial real estate tax efficiency. Paired with clearer IRS guidance, it gives investors renewed confidence to deploy capital, pursue value-add strategies, and underwrite after-tax returns with greater precision.

 

In a market where basis matters more than momentum, accelerated depreciation once again meaningfully moves the needle.