In his recent address to Congress, President Donald Trump signaled a strong commitment to reinstating full bonus depreciation under the Tax Cuts and Jobs Act (TCJA), a provision currently set to phase out by the end of 2026. The reinstatement, according to Trump, would be made retroactively to January 20, 2025. If implemented, this move would have significant implications for real estate investors, making cost segregation studies even more valuable in maximizing tax benefits.

Understanding Bonus Depreciation Under the TCJA

The TCJA of 2017 allowed businesses to immediately deduct 100% of the cost of qualifying assets, including certain real estate improvements, in the year they were placed in service. However, under current law, this bonus depreciation is set to phase out as follows:

• 80% in 2023
• 60% in 2024
• 40% in 2025
• 20% in 2026
• Fully eliminated in 2027

Trump’s proposed restoration of 100% bonus depreciation would ensure real estate investors can continue to claim large upfront deductions, enhancing cash flow and reducing taxable income.

Impact on Real Estate Investors

For real estate investors, this policy change would be a major tax advantage. While bonus depreciation primarily applies to short-lived assets, these investors can leverage cost segregation studies to reclassify components of a building (such as personal property and land improvements) into shorter depreciation categories. With full bonus depreciation restored, these reclassified assets could be immediately deducted, accelerating tax savings.

Cost Segregation Becomes Even More Valuable

A cost segregation study is a strategic tax tool that allows real estate owners to break down building components into different asset classes, accelerating depreciation deductions. With full bonus depreciation:

• More assets qualify for immediate deductibility, increasing upfront tax benefits.
• Building owners experience improved cash flow, allowing for reinvestment into new properties or business expansion.
• Real estate investors can minimize taxable income, reducing their overall tax liability in early years.

Looking Ahead

While Trump’s pledge signals a strong tax policy direction, actual implementation would depend on legislative approval. However, for real estate investors and business owners, the potential restoration of full bonus depreciation would significantly enhance the tax advantages of real estate investments.

To lower taxable income with a cost segregation study, contact the experts at ICS Tax, LLC for personalized guidance on this valuable tax incentive.