Introduction
The One Big Beautiful Bill (OBBB) of 2025, signed into law on July 4, 2025, has brought back 100% bonus depreciation, a game-changing tax incentive for real estate investors. This provision allows you to deduct the full cost of qualifying assets in the year they are placed in service, significantly reducing taxable income and boosting cash flow. Whether you’re investing in commercial properties, exploring triple net (NNN) 1031 exchange opportunities, or managing a portfolio of NNN properties for sale, this guide will walk you through the essentials of 100% bonus depreciation, including effective dates, eligible assets, interactions with other tax rules, and critical record-keeping strategies to avoid audit pitfalls.
Immediate Expensing Returns
The OBBB restores 100% bonus depreciation, a provision that had been phasing out under the Tax Cuts and Jobs Act (TCJA) of 2017. According to a report, previously, bonus depreciation was set at 40% for 2025, but the OBBB makes it 100% again, effective for assets placed in service after January 19, 2025. This change is permanent, offering long-term certainty for investors planning capital expenditures. For real estate investors, this means immediate deductions for qualifying improvements, such as those in NNN properties for sale, which can significantly reduce taxable income.
The reinstatement is expected to drive real estate investment. For instance, Blackstone Real Estate Partners X has $18.5 billion in dry powder, signaling robust capital ready for deployment in CRE markets (WFG National Title, July 15, 2025). Additionally, the permanent 20% Qualified Business Income (QBI) deduction under Section 199A prevents a tax rate increase from 29.6% to 37%, further incentivizing real estate investments (Crowe LLP, July 17, 2025).
Effective Dates & Phase-Out Schedule
The OBBB makes 100% bonus depreciation permanent for most qualified property placed in service after January 19, 2025. This eliminates the previous phase-out schedule, which reduced the deduction to 80% in 2023, 60% in 2024, and 40% in early 2025. For Qualified Production Property (QPP), a new category under the OBBB, 100% depreciation is available for assets with construction beginning between January 19, 2025, and December 31, 2028, and placed in service before January 1, 2031 (KBKG, July 18, 2025).
The table below outlines the key effective dates:
| Provision | Effective Date | Details |
| 100% Bonus Depreciation | After January 19, 2025 | Permanent for most qualified property; applies to tangible assets with a recovery period of 20 years or less. |
| Qualified Production Property | Construction: Jan 19, 2025 – Dec 31, 2028; Placed in service: before Jan 1, 2031 | 100% depreciation for manufacturing buildings meeting specific criteria. |
| Section 179 Deduction Cap | After December 31, 2024 | Increased to $2.5 million, with phase-out at $4 million. |
This permanence allows investors to plan triple net (NNN) 1031 exchange transactions with confidence, aligning property acquisitions with the new rules to maximize deductions.
Eligible Asset Types (QIP, Land Improvements)
To qualify for 100% bonus depreciation, assets must meet specific IRS criteria. Eligible assets include:
- Tangible Property: Property with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS), such as machinery, equipment, and certain nonresidential real property.
- Qualified Improvement Property (QIP): Interior improvements to nonresidential buildings, such as new flooring, lighting, or HVAC systems, made after the building is placed in service.
- Qualified Production Property (QPP): Nonresidential real estate used for manufacturing, production, or refining, with construction beginning after January 19, 2025, and placed in service before January 1, 2031. This includes buildings but excludes non-production areas like offices (RSM US, July 15, 2025).
- Other Assets: Depreciable computer software, qualified films, television shows–
Important Note: Raw land itself does not qualify for depreciation. Only the improvements or structures placed upon it are eligible.
Interaction with Section 179 & State Rules
Bonus depreciation and Section 179 expensing can be used together, but they serve different purposes. Section 179 allows businesses to deduct the full cost of qualifying equipment and Hawkins, or software up to a cap of $2.5 million in 2025, with phase-outs beginning at $4 million (EisnerAmper, July 19, 2025). Bonus depreciation, on the other hand, has no cap and applies to a broader range of assets.
The table below compares the two provisions:
| Feature | Bonus Depreciation | Section 179 |
| Deduction Percentage | 100% | Up to $2.5 million |
| Asset Types | Qualified property (20-year recovery period or less, QIP, QPP) | Qualifying equipment, software, certain improvements |
| Limits | None | Phase-out at $4 million |
| Interaction | Can be used together | May reduce available Section 179 deduction |
However, state tax rules can complicate matters. Many states do not conform to federal bonus depreciation rules, meaning you may need to add back the deduction for state tax purposes, potentially reducing savings. For example, states like California and New York have historically decoupled from federal bonus depreciation, requiring separate depreciation schedules (WFG National Title, July 15, 2025). Investors should consult tax professionals to understand state-specific implications, especially for single-tenant NNN investments.
Record-Keeping & Audit Red Flags
Claiming 100% bonus depreciation requires meticulous record-keeping to comply with IRS rules and withstand potential audits. Essential documentation includes:
- Purchase Invoices: Proof of the asset’s cost, including detailed breakdowns for components like QIP.
- Placement in Service Dates: Evidence of when the asset was put into use, such as installation records or occupancy certificates.
- Depreciation Schedules: Detailed calculations showing the deduction amount and asset basis.
- Cost-Segregation Studies: Reports identifying components eligible for bonus depreciation, particularly for complex properties.
Audit red flags include:
- Ineligible Assets: Claiming deductions for non-qualifying assets, such as land or landscaping, can trigger IRS scrutiny.
- Incorrect Placement Dates: Assets must be placed in service after January 19, 2025, to qualify. Incorrect dates can lead to disallowed deductions.
- Related-Party Transactions: Anti-churning rules prevent bonus depreciation on assets acquired from related parties or previously used by the taxpayer within five years (IRS Publication 946, 2024).
- Inadequate Documentation: Failing to provide detailed records or cost-segregation studies can result in disallowed deductions.
To mitigate risks, investors should work with tax professionals and use 1031 Deal Hub to identify bonus depreciation–eligible property and ensure compliance. For example, properties in Jacksonville or Fort Worth can be paired with cost-segregation studies to maximize deductions.
Frequently Asked Questions
- Are renovations made in 2027 still eligible?
Yes, so long as placed in service before Dec 31, 2029, and qualify under bonus rules. - Can triple-net NNN lease investors benefit?
Yes, single-tenant NNN properties with improvements qualify easily under bonus depreciation rules. They also offer passive net‑lease income. - What assets qualify for bonus depreciation?
Tangible property with a 20-year or less recovery period, QIP, QPP, and certain intangibles qualify, but land improvements do not. - Can I combine bonus depreciation with Section 179?
Yes, but Section 179 deductions reduce the asset’s basis before applying bonus depreciation, and Section 179 has a $2.5 million cap. - How do state tax rules affect bonus depreciation?
Some states, like California, do not conform to federal bonus depreciation, requiring add-backs for state taxes. Consult with a tax professional for guidance. - How can I avoid audit risks when claiming bonus depreciation?
Ensure assets qualify, document placement dates accurately, avoid related-party transactions, and use cost-segregation studies for complex properties.
Final Thoughts
From 2025–2029, the return of 100% bonus depreciation offers investors a once-a-decade opportunity to reset investment calculus. That first-year expense turbocharges your investment returns, cash flow, and reinvestment capacity.
To maximize this, here are your action steps:
- Plan acquisitions and improvements after Jan 20, 2025.
- Commission a cost segregation study early.
- Prepare documentation and depreciation schedules precisely.
- Understand the interplay with Section 179 and your state’s tax rules.
- Use 3115 for lookbacks on missed opportunities.
Investors targeting replacement NNN property for sale or planning a triple net (NNN) 1031 exchange, can leverage these deductions to boost sustainability and returns.
Ready for passive income? Visit 1031 Deal Hub to browse NNN 1031-eligible properties.
DISCLAIMER
I am not a CPA, attorney, broker-dealer, or investment adviser. This content is for general education and must not be relied upon for tax, legal, or accounting advice. Always consult your licensed professional. Federal and state rules change frequently; info may become outdated. Circular 230 Notice: Nothing here is intended for, nor can it be used for, avoiding U.S. tax penalties.
Advertising Disclosure. Posts may reference services offered by AMC Real Estate Investment Services and affiliates, including 1031DealHub.
Forward-Looking Statements. Any opinions or projections are based on current data and may change without notice.
