Congress and President Trump signed into law on July 4, 2025 the “One Big Beautiful Bill Act” (OBBBA), locking in 100% bonus depreciation as a permanent part of the tax code.

If you own property or plan to buy, this changes the way you look at every deal because you can now write off qualified improvements and personal property in year one, for good. No sunset dates.

This post breaks down how this works, what traps to watch for, and how to set yourself up to take advantage.

How OBBBA Ended the Bonus Depreciation Phase-Down

Before Trump’s One Big Beautiful Bill Act, bonus depreciation was phasing down from 40% in 2025 to 0% by 2027.

Now, OBBBA locks in 100% bonus depreciation permanently, for any qualified property you buy and place in service after January 19, 2025.

Old vs. New Bonus Depreciation Rates

Here’s a quick chart for reference:

Placed-in-Service Year Pre-OBBBA Law (TCJA Phase-Out) New OBBBA Law (Post-Jan. 19, 2025)
2023 80% 80%
2024 60% 60%
2025 40% 100%
2026 20% 100%
2027 and beyond 0% 100% (Permanent)

Important to note:

  • If you signed a binding contract before Jan 19, 2025, you don’t qualify for 100% bonus.
  • The date you legally acquired the property is what counts, not necessarily your closing date.

Example:

  • You signed a contract on Jan 15, 2025 and closed in March 2025 → not eligible for 100% bonus
  • You signed on Feb 1, 2025 and closed in March 2025 → eligible

In short: watch your purchase contracts and dates.

What is “Qualified Property”?

Think of bonus depreciation like a one-year instant tax deduction for certain parts of your property, but not the entire building.

To get 100% bonus, the property has to have a MACRS recovery period of 20 years or less. The building itself (27.5-year residential rental or 39-year nonresidential) doesn't qualify, but many components inside and around it do. That means things like:

  • 5-Year Property: appliances, carpeting, decorative lighting
  • 7-Year Property: office furniture, fixtures
  • 15-Year Property: land improvements (paving, landscaping, fences, sidewalks, drainage systems), Qualified Improvement Property (QIP)
  • Used Property: still counts, as long as you didn’t use it before you bought it

Qualified improvement property (QIP) is especially important and includes any non-structural interior improvements to commercial property (think drywall, ceilings, interior doors, fire systems). These can fall under QIP and get the 100% bonus.

Cost Segregation: How Short-Life Components Get Identified

If you just hand your CPA a settlement statement and let them book the property as “building,” you’ll only get a 27.5-year (residential) or 39-year (commercial) deduction, which means tiny deductions each year.

However, a cost segregation study uses engineering analysis to separate out the shorter-life components described above, so they can be depreciated faster and, for property acquired after January 19, 2025, deducted at 100% in year one.

No cost seg = no accelerated deduction.

Example: A $5 Million Commercial Building

Say you buy a $5 million commercial building:

  • $1 million goes to land (not depreciable)
  • $4 million basis

No cost seg: you write off the $4M over 39 years. About $100K per year in year one.

With cost seg: let’s say you can move 25% ($1M) into short-life assets. That means you can write off $1M in year one, and the remaining $3million is depreciated over 39 years (about $77,000 per year).

At a 37% tax rate, that’s about $370,000 in your pocket in year one.

Real Estate Professional Status (§469(c)(7)) and Material Participation

A. The 750-Hour and More-Than-50% Tests

Defined under $IRC § 469(c)(7)$, Real Estate Professional Status is a designation that allows a qualifying taxpayer to overcome the passive activity loss (PAL) rules. For most investors, rental real estate is considered a “passive” activity, meaning any losses generated (including from depreciation) can only be used to offset income from other passive activities. REPS status is the key that recharacterizes these rental losses as non-passive.

To qualify for REPS, a taxpayer must satisfy two strict tests annually:

  1. The 750-Hour Test: The taxpayer must spend more than 750 hours during the tax year performing services in “real property trades or businesses” (e.g., development, construction, acquisition, management, brokerage).
  2. The More-Than-50% Test: The time spent on these real property trades or businesses must constitute more than half of the taxpayer’s total time spent on all personal services during the year.

This is a high threshold to clear, particularly for individuals with demanding full-time careers outside of real estate. However, for a married couple filing jointly, only one spouse needs to qualify, making it a valuable strategy for high-income households where one spouse can focus on the real estate portfolio.

B. Material Participation and the Grouping Election

Qualifying for REPS is the first major hurdle; the second is demonstrating material participation in the rental activities themselves. Without this, the losses remain passive despite REPS status. The IRS provides seven tests for material participation, with the most common being :

  • Participating for more than 500 hours in the activity during the year.
  • The taxpayer’s participation constitutes substantially all of the participation in the activity.
  • Participating for more than 100 hours, and that is not less than the participation of any other individual.

For investors with multiple properties, the IRS allows a crucial grouping election under Treas. Reg. § 1.469-9(g). This election permits the taxpayer to treat all their rental properties as a single, combined activity, making it far easier to meet the material participation hour requirements. To withstand IRS scrutiny, maintaining a contemporaneous time log detailing dates, hours, and specific tasks performed is not just recommended; it is essential.

C. How Cost Segregation, Bonus Depreciation, and REPS Stack

This strategy gets very powerful when you stack cost segregation, bonus depreciation, and REPs together. At Maven, we work with real estate brokers, owner's of property management companies, and full time investors on executing this strategy. Here's how it works:

  1. Step 1: Identify the short-life property. An investor acquires a property and immediately engages a firm like Maven for a cost segregation study. The study identifies a significant portion of the asset’s cost as short-life property.
  2. Step 2: Deduct it in year one.. The new 100% bonus depreciation rule allows the investor to deduct the full value of those segregated assets in Year 1, creating a massive “paper loss” that can easily reach six or seven figures.
  3. Step 3: Make the loss usable. For a taxpayer who qualifies for REPS status, this massive paper loss is transformed from a restricted passive loss into an unrestricted non-passive loss.

That offset has a ceiling. The excess business loss limit caps how much net business loss you can deduct in a single year, and W-2 wages don't count as business income in that calculation. A household with a large first-year loss and mostly salary income will usually hit the cap.

OBBBA made the Excess Business Loss cap permanent. It also reset it. Instead of carrying the 2025 threshold forward with inflation, Congress reverted to the original 2017 base of $250,000 / $500,000 and indexed from there.

The cap went down:

  • 2025: $313,000 single / $626,000 married filing jointly
  • 2026: $256,000 single / $512,000 married filing jointly

That's $114,000 less loss a married couple can use against ordinary income than they could a year earlier.

Anything above the cap isn't lost. It becomes a net operating loss carried forward, usable against up to 80% of taxable income in future years. But you lose the year you wanted it in.

Example:

  • $1.2M non-passive loss
  • $512,000 deductible this year
  • $688,000 carries forward as an NOL

That’s why planning matters. The deduction got bigger and the ability to use it got smaller.

Section 179, §163(j), QPP, and Other OBBBA Provisions

  • Section 179 expensing: increased to $2.56M, with a phase-out between $4M - $6.65M. Good for expensing smaller property and improvements. But it cannot create a loss
  • Section 163(j) business interest: goes back to EBITDA (instead of EBIT) for calculating your interest expense cap. That means you can deduct more interest if you’re highly leveraged.
  • Qualified Production Property (QPP): new, temporary 100% deduction for some manufacturing/industrial real estate if used in a qualified U.S. production activity.
  • Opportunity Zones & LIHTC: OBBBA made the Opportunity Zone program permanent, with new zone designations starting in 2027 and added benefits for rural funds. It also raised state Low-Income Housing Tax Credit allocations by 12% starting in 2026. Both come with their own rules and timelines.

5 Steps Before You Buy or Renovate

  • Confirm your acquisition date, not your closing date. For a property under a written binding contract on or before January 19, 2025, you're on the old 40% schedule regardless of when you closed.
  • Model your deals with 100% bonus built in. It changes the cash flow profile a lot.
  • Plan cost segregation up front, especially if you’re doing a heavy reno or new build.
  • Look at REPS. If you or a spouse could qualify, it’s worth a serious conversation.
  • Talk to your CPA. The timing rules, basis allocation, and documentation are not a DIY project.

Run the Numbers on Your Property

This bill is a monster win for real estate investors, but only if you line up the timing, get your cost seg right, and think a couple years ahead on your tax plan.

If you want to see how these numbers look on a property you’re buying or already own, reach out. We can help you run the scenarios and see what’s possible.

Check out our Cost Segregation Calculator.

Additional Resource: The One Big Beautiful Bill Act Real Estate Tax Provisions

Provision (IRC Section) Pre-OBBBA Law New OBBBA Law Implication for Investors
Bonus Depreciation (§168(k)) Phasing down from 60% in 2024 to 0% by 2027. 100% bonus depreciation restored permanently for property acquired & placed in service after 1/19/25. Massive immediate deductions for short-life assets identified via cost segregation, boosting after-tax cash flow.
EBL Limitation (§461(l)) Temporary rule set to expire, losses carried forward as NOLs. Made permanent; limits annual non-passive loss deduction to ~$578K (MFJ). Unused losses become NOLs. Caps the amount of active income that can be offset in a single year, requiring multi-year tax planning.
Business Interest Limit (§163(j)) Limited to 30% of EBIT (after depreciation). Limitation reverts to 30% of EBITDA (before depreciation) temporarily. Greatly increases interest deduction capacity for leveraged properties, resolving a conflict with taking large depreciation deductions.
Section 179 Expensing ~$1.22M limit, ~$3.05M phase-out (2024). Limit increased to $2.5M, phase-out to $4M. Significant immediate expensing benefit for tangible personal property, roofs, HVAC, etc., for smaller and mid-size projects.
Qualified Production Property (QPP) N/A New temporary 100% deduction for the cost of certain new non-residential real property used in... Unprecedented incentive for investors developing or owning industrial...