Real estate investors thrive on strategies that unlock rapid tax deductions—and the One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, has supercharged two of the most impactful tools: Section 179 expensing and Bonus Depreciation.
What’s Changed Under the OBBBA?
1. Bonus Depreciation is Back—Permanently at 100%
OBBBA restores 100% bonus depreciation as a permanent benefit for qualified property placed in service on or after January 19, 2025 (RSM USGrant ThorntonWhiteman Osterman & Hanna LLPKBKG).
This change represents a monumental shift from the prior phase-down. Say goodbye to shrinking deduction rates and hello to fully expensing qualifying assets in year one.
2. Section 179 Expensing—Upgraded Limits
Section 179’s deduction ceiling has now doubled—from approximately $1.25 million to $2.5 million, with a raised phase-out threshold of $4 million, both subject to inflation indexing (CBIZR&A CPAsWhiteman Osterman & Hanna LLPKBKG).
This means businesses, including many real estate ventures, have much greater leeway to immediately expense eligible purchases—particularly in asset-heavy situations.
3. New Expensing for Qualified Production Property (QPP)
OBBBA introduces a new provision under Section 168(n) for Qualified Production Property (e.g., owner-occupied manufacturing or refining buildings). If construction begins between January 20, 2025, and December 31, 2028, and the property is placed in service by December 31, 2030 (or before), investors may elect 100% expensing (GBQArnold & PorterKBKGBaker McKenzie InsightPlus).
This opens doors previously closed for real property—beyond just equipment or improvements.
How Does This Shape Real Estate Depreciation Strategy?
Section 179: Expanded Utility for Real Estate
Previously limited to certain improvements to nonresidential property (like HVAC, roofing, security systems), Section 179 now offers higher limits—let’s say up to $2.5 million—for expensing these elements when placed in service after December 31, 2024 (Arnold & PorterKBKGCBIZ).
However, Section 179 is still not available for traditional residential rental properties unless actively traded—like hotels or healthcare facilities—so passive landlords may still lean on bonus depreciation.
Bonus Depreciation—The Real Estate Power Move
OBBBA’s permanent reinstatement of 100% bonus depreciation (effective for assets placed in service after January 19, 2025) gives investors the ability to immediately expense:
- Nonresidential interior improvements (like Qualified Improvement Property)
- Short-life assets identified via cost segregation studies
- Specified plants, orchards, or other qualifying assets (KBKGWhiteman Osterman & Hanna LLPRSM US)
This accelerates depreciation far beyond the old timelines—transforming ROI and freeing up capital sooner.
Qualified Production Property (QPP): A Game-Changer for Industrial Real Estate
The new Section 168(n) expensing provision enables full year-one depreciation for new manufacturing or refining facilities built by the owner, so long as they meet strict criteria (timing, use, and election requirements) (Arnold & PorterBaker McKenzie InsightPlusKBKG).
This is particularly impactful for developers of owner-occupied industrial real estate.
Implementation—Putting It All Together
1. Know Your Timing
- Assets placed in service after Jan 19, 2025 qualify for the revived 100% bonus depreciation.
- Section 179 enhancements apply to property in tax years beginning after December 31, 2024 (R&A CPAsArnold & Porter).
2. Combine Tools Strategically
A well-planned cost segregation study can break property into eligible asset buckets:
- Elect Section 179 on qualifying improvements (up to $2.5 M, if income allows)
- Apply 100% bonus depreciation to the remaining short-life assets
- For QPP projects, elect full expensing under Section 168(n)
3. Factor in Active Use vs. Passive Holding
- Section 179 remains limited for passive residential rentals.
- Bonus depreciation, however, remains accessible for most real property improvements and short-life assets.
- QPP expensing is reserved for owner-occupied, production-use buildings—not passive rentals.
4. Document Carefully
- File the QPP election when placing property in service.
- Track timelines strictly (construction start and service-in-date).
- Coordinate cost segregation, assess active versus passive use, and align with Section 163(j) EBITDA interest limits, plus your broader tax strategy (RSM USKBKGGBQ).
The Bottom Line
- Bonus Depreciation is now 100% and permanent for qualifying property placed in service after January 19, 2025.
- Section 179 now offers up to $2.5 million in upfront expensing capacity (phasing out starting at $4 million).
- New QPP expensing enables full write-off of certain owner-occupied production facilities built between 2025–2028.
These updates supercharge depreciation strategies, accelerate ROI, and can dramatically improve early-year cash flow for real estate investments—when paired with proper cost segregation, active use classification, and planning.
DISCLAIMER: This is not tax advice so please consult a CPA before acting on any information above. The information is deemed to be accurate; however, tax laws and regulations could change at any time. It’s crucially important to consult your tax advisor before acting on any recommendation or strategy.