🇺🇸 Made in America·100% U.S.-Based Team · 24+ Years in Cost Segregation
In a closing room in Dallas on the morning of January 20, 2025, a commercial real estate investor named Carlos sat across the table from his attorney signing the purchase documents on a $7.8 million medical office building. The deal had been scheduled to close in December. Lender delays pushed it to January. Carlos had been frustrated by the slippage.
His attorney pushed the final signature page across. "You should probably know," the attorney said, "President signed the One Big Beautiful Bill yesterday. Bonus depreciation just got restored to 100 percent. Your closing date might end up being the most profitable accident of your career."
Carlos signed. Three months later, his cost segregation study produced $1,950,000 of Year 1 federal deductions on the $7.8 million property. Every dollar of that deduction was claimed in Year 1 instead of spread across multiple years under the phase-down schedule that had been in effect just days before he closed. At his marginal federal tax bracket of 37 percent, the One Big Beautiful Bill Act had reduced his federal tax bill by approximately $360,000 compared to what he would have paid under the prior rules.
The One Big Beautiful Bill Act, signed into law on January 19, 2025, restored 100 percent bonus depreciation permanently for qualifying property placed in service after that date. The math today is the strongest it has been since the original 100 percent bonus was enacted in 2017. This article walks through what the new rules cover, who qualifies, what the policy actually does, and how to make sure you claim every dollar the law authorizes.
Bonus depreciation is a tax provision under Section 168(k) of the Internal Revenue Code that allows certain qualifying property to be deducted in the year placed in service, rather than depreciated over its normal MACRS recovery period. The deduction is taken in addition to (not instead of) regular MACRS depreciation, and it accelerates the entire deduction into Year 1.
The mechanics work like this. A piece of property with a 5-year MACRS recovery period would normally be depreciated over 5 years using the 200 percent declining balance method, with most of the deduction claimed in years 1 through 3 and the remainder spread through years 4 and 5. Under 100 percent bonus depreciation, the entire cost of the property can be deducted in Year 1. The MACRS schedule that would have followed becomes unnecessary because the basis has already been fully depreciated.
The effect is dramatic. A $1 million piece of qualifying property generates $200,000 of deduction in Year 1 under standard MACRS. The same $1 million generates $1,000,000 of deduction in Year 1 under 100 percent bonus depreciation. At a 37 percent marginal federal tax bracket, that translates to a difference of roughly $296,000 of additional cash kept in Year 1.
For cost segregation purposes, bonus depreciation is the unlock mechanism that turns reclassified property into immediate cash flow. Without bonus, a cost segregation study still produces accelerated deductions, but the timing benefit is moderate (a few hundred thousand dollars in Year 1 instead of spreading evenly across the shorter MACRS class lives). With 100 percent bonus, the entire reclassified amount drops into Year 1.
Understanding the One Big Beautiful Bill Act restoration requires understanding the bonus depreciation history that preceded it.
2002 through 2017: Partial bonus depreciation. Bonus depreciation has been a tax policy tool used episodically since the early 2000s. The rate fluctuated between 30 percent, 50 percent, and other levels at various points, generally enacted as economic stimulus and extended periodically.
Tax Cuts and Jobs Act of 2017: 100 percent bonus, with phase-down. The TCJA, signed into law in December 2017, expanded bonus depreciation to 100 percent for qualifying property placed in service after September 27, 2017. The 100 percent rate was scheduled to remain in effect through 2022, then phase down by 20 percentage points per year through 2027. The phase-down schedule was: 100 percent through 2022, 80 percent in 2023, 60 percent in 2024, 40 percent in 2025, 20 percent in 2026, and zero starting in 2027.
The phase-down years (2023-2025). During these three years, the math on cost segregation studies was meaningfully diminished. A study on a $5 million property that would have produced $1.5 million of Year 1 deduction under 100 percent bonus produced only $1.2 million in 2023 (at 80 percent), $900,000 in 2024 (at 60 percent), and was on track to produce only $600,000 in 2025 (at 40 percent). The strategy still worked. The numbers were less impressive than they had been.
January 19, 2025: One Big Beautiful Bill Act. The OBBBA restored 100 percent bonus depreciation permanently for qualifying property placed in service after the enactment date. The phase-down schedule that had been in effect was eliminated for property placed in service after January 19, 2025. The math returned to the 2017-2022 strength, and this time without an expiration date.
The change is significant for property owners because it converts what had been a sunset-clause incentive into a permanent feature of the depreciation system. A property placed in service in 2027 receives the same 100 percent bonus treatment as a property placed in service in 2025. The strategic planning value of the deduction returned permanently.
The OBBBA preserved the basic qualification framework that had been in place under TCJA. To qualify for 100 percent bonus depreciation, property must meet several requirements:
The property must be qualifying property under Section 168(k). The basic categories of qualifying property include: depreciable property with a MACRS recovery period of 20 years or less, certain qualified film and television productions, certain qualified live theatrical productions, certain water utility property, and qualified improvement property (QIP) with a 15-year recovery period. The most relevant category for cost segregation is the first one: property with a MACRS recovery period of 20 years or less.
The property must be placed in service after January 19, 2025. The OBBBA's restoration applies to property placed in service after the enactment date. Property placed in service before January 19, 2025 falls under the prior phase-down schedule (60 percent in 2024, 40 percent in early 2025 before enactment). Property placed in service after January 19, 2025 qualifies for the full 100 percent.
The property must be acquired after the OBBBA enactment date or after a qualifying binding contract date. The acquisition timing rules look at when the taxpayer entered into a binding contract to acquire the property, with specific transition rules for property under contract before the enactment date.
The property must be used in a trade or business or for the production of income. Personal-use property does not qualify. Property held purely for investment with no business use may not qualify depending on the specific facts.
The property must not be acquired from a related party. Acquisitions between related parties have specific rules limiting bonus eligibility to prevent gaming.
For commercial real estate cost segregation purposes, the practical effect is that components reclassified into 5-year and 15-year MACRS classes through a cost segregation study generally qualify for 100 percent bonus depreciation when the underlying property was placed in service after January 19, 2025. The building shell itself (39-year or 27.5-year property) does not qualify for bonus because it exceeds the 20-year MACRS recovery period threshold.
The interaction between cost segregation and 100 percent bonus depreciation is direct. A cost segregation study identifies components of a building that legally qualify for shorter MACRS class lives. The 100 percent bonus depreciation then allows the entire amount of those reclassified components to be deducted in Year 1.
Run the numbers on a typical commercial property under both pre-OBBBA and post-OBBBA rules.
Property: $5 million commercial office building. Cost segregation study reclassifies 30 percent of purchase price ($1.5 million) into 5-year and 15-year MACRS classes.
Pre-OBBBA scenario (placed in service in 2024 at 60 percent bonus). Year 1 deduction from reclassified property: $1.5 million × 60 percent = $900,000 bonus, plus regular MACRS on the remaining 40 percent first-year depreciation = approximately $60,000. Total Year 1 deduction from cost segregation: approximately $960,000. At 37 percent marginal rate, Year 1 federal tax savings: approximately $355,000.
Post-OBBBA scenario (placed in service after January 19, 2025). Year 1 deduction from reclassified property: $1.5 million × 100 percent = $1.5 million. Total Year 1 deduction from cost segregation: $1.5 million. At 37 percent marginal rate, Year 1 federal tax savings: approximately $555,000.
The difference between the two scenarios is $200,000 of additional Year 1 federal tax savings on a single $5 million property, attributable purely to the OBBBA restoration of 100 percent bonus depreciation. The cost segregation study is identical in both cases. The deduction methodology is identical. Only the bonus depreciation percentage changed.
For a property owner deciding whether to pursue cost segregation today, the math is roughly 67 percent better under OBBBA than under the 2024 phase-down rules. The strategy that always worked has been substantially amplified.
Several aspects of cost segregation remain governed by the existing framework rather than by OBBBA. Property owners should understand the distinction.
The Whiteco 6-factor test still controls classification. Whether a component qualifies as Section 1245 personal property (eligible for shorter MACRS class lives and bonus depreciation) versus Section 1250 real property (39-year or 27.5-year, not bonus eligible) is determined by the Whiteco analysis. OBBBA did not change this framework. Aggressive reclassifications that fail the Whiteco analysis are no more defensible under OBBBA than they were before.
The IRS Audit Technique Guide methodology still applies. Studies must still use IRS Approaches 1 and 2 (the preferred methodologies under the ATG) to produce defensible classifications. The 100 percent bonus depreciation only applies to components that legitimately qualify for the shorter MACRS class lives. Studies that overreach on classifications produce inflated deductions that the IRS can disallow.
Recapture rules still apply on sale. Section 1245 recapture on personal property and unrecaptured Section 1250 gain on real property are unchanged by OBBBA. Property owners planning eventual sale should factor recapture into the long-term math, even though the time value of money typically still favors cost segregation strongly.
Form 3115 lookback studies still work the same way. Properties placed in service in prior years can still benefit from cost segregation through a Section 481(a) catch-up via Form 3115. The catch-up calculation continues to follow the bonus depreciation rules in effect during each prior year. A property placed in service in 2023 captures catch-up based on the 80 percent bonus in effect then, not the current 100 percent.
The One Big Beautiful Bill Act's restoration of 100 percent bonus depreciation made cost segregation more powerful than it has been in three years. A study that would have produced moderate Year 1 deductions under the 2024 phase-down rules now produces the full deduction the strategy was originally designed to deliver.
If you bought or built a commercial property after January 19, 2025, you are sitting on the strongest cost segregation math the law has authorized since 2017. A cost segregation study captures the full Year 1 deduction. The math is now permanent rather than declining year over year.
If you bought or built a commercial property in prior years (2024 or earlier) and never did a cost segregation study, the Form 3115 lookback process still applies. The catch-up captures prior years at the bonus rates that were in effect during each year, but the current year forward benefits from the new 100 percent rate on any depreciation still remaining.
The Cost Seg America team has been performing engineered cost segregation studies through every bonus depreciation regime: pre-2017 partial bonus, the original 100 percent under TCJA, the 2023-2025 phase-down, and now the OBBBA restoration. 24 years of work. 16,000 studies. 125 IRS audits defended. Zero losses. $0 ever returned to the IRS. The average first-year savings across the 16,000+ completed studies is $438,511. Every study uses IRS Approaches 1 and 2. Every study is engineered, not estimated. Made in America, by Americans.
The next step on your property takes 30 seconds. Send the property address, the approximate purchase price, and the year placed in service. The Cost Seg America team sends back a free preliminary proposal within 24 hours showing the estimated Year 1 deduction under current OBBBA rules.
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