Bonus Depreciation Is Back...
Unless you’ve spent the entire summer barbequing, fishing, or out on the lake, you probably saw that President Trump signed the One Big Beautiful Bill Act into law on July 4th, 2025. We are not planning to debate the pros and cons of the entire Bill; but we do want to call out the key change that matters most for real estate investing.
100% Bonus Depreciation is Back! And Permanent!
The biggest benefit for real estate investors is the return of 100% bonus depreciation, a tool that can be used to accelerate tax benefits on qualified real estate investments. The new law restores 100% bonus depreciation for most qualified property acquired after January 19, 2025 and placed into service afterwards, reversing the phase-out schedule that had fallen to 40% in 2025 and was set to drop to 20% in 2026, before phasing out completely in 2027.
Bonus depreciation becomes even more powerful when paired up with a cost segregation study. What is a cost seg study and who performs one? Imagine if an accountant and an engineer had a baby merger; a tax engineer who doesn’t see just a building but instead a breakdown of doors, windows, HVAC units, roof, fencing, flooring, and more. Because each component has its own IRS-mandated depreciation schedule, investors can now shift large amounts of the building out of the 39-year (all commercial excluding multifamily) or 27.5-year (multifamily and other residential) straight-line depreciation schedule and into bonus depreciation-eligible 5-, 7-, or 15-year buckets. With the new bonus legislation, these shorter schedule items can be written off within the first year, resulting in massive tax savings.
How Does it Work?
To see this in action, it is helpful to look at a hypothetical purchase of a self-storage facility:
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We buy a self-storage facility for $1 million.
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The land (which cannot be depreciated) appraises for $200k, leaving a value for the building of $800k.
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If you do not do a cost segregation study, the required straight-line depreciation over 39 years would be $800k / 39 = $20.5k per year. If you assume a 35% federal income tax rate, that equals a tax shield of about $7k each year which can be used to offset income generated by this property (or other properties).
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When we perform a cost segregation study, we find $100k eligible for the interior buildouts and fixtures, $100k for security and access systems, and $100k for land improvements (paving, fencing, drive lanes, and the gate). We have typically found that depending on the property, 15-40% of the property can be eligible for accelerated depreciation schedules.
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With the 100% bonus depreciation provision, that $300k is eligible for deduction in the purchase year. At a 35% tax rate the $300k bonus + ~$13K straight line (remaining $500K / 39) is about a $110k tax shield allocated pro-rata to each owner’s share of the property. Using the combination of bonus depreciation and a cost segregation study could create an additional tax shield of about $103k in the first year compared to the basic straight-line method with no cost seg study.
What this Means for LIG and Our Investors
This is a huge win for the Legacy Investment Group family, as it allows all of us to create significant tax shields against the income each property generates. Part of the amazing benefits of real estate is stacking cash flows from multiple properties to add up to a significant passive income stream that is not tied to your time. With bonus depreciation back in place, it is also possible to stack tax benefits to help protect as much of your new cash flow as possible! As we saw above with the self-storage example, the combination of the new law and cost segregation studies can dramatically reduce taxable income boosting after-tax returns. We work with our accounting and cost segregation partners to make sure we capture the full depreciation benefits for each asset we buy and pass those benefits on to our investors. We continue to lean into self-storage, essential neighborhood retail centers and select multifamily properties, the asset classes where our value-add playbooks and operational expertise allow us to achieve consistent and excellent returns for our investors.