According to a recent article released by the National Association of REALTORS (NAR), one of the most effective ways to reduce taxable income is by accelerating deductions through bonus depreciation. (The detailed information below from the NAR article was provided by Robert D. Matt, CPA, a principal with Kaufman Rossin, CPA + Advisors, specializing in tax consulting, planning and compliance.)
Bonus depreciation allows a taxpayer to deduct a large percentage of the cost of certain assets in the year they are placed into service rather than spreading that depreciation over several years. Governed by Section 168(k) of the Internal Revenue Code, it currently applies to new or used assets (as long as they’re new to the taxpayer) with a useful life of 20 years or less.
For real estate investors, bonus depreciation generally applies to items identified as personal property and land improvements, such as:
• Parking, roadway, sidewalk and curb paving
• Stormwater management systems
• Irrigation systems
• Fences, decks and retaining walls
• Certain landscaping components and recreational amenities
• Furniture, fixtures, flooring and window treatments
• Signs
• A/V and communication systems, and some components of electrical systems
• Appliances, countertops and cabinets
The 2017 Tax Cuts and Jobs Act (TCJA) expanded bonus depreciation and allowed it to apply to acquired used property. For properties placed in service from Jan. 1, 2025, to Jan. 19, 2025, and those under contract or being built before Jan. 19, 2025, but placed in service after Jan. 19, 2025, a taxpayer could deduct 40% of the value of an eligible asset. However, under the new One Big Beautiful Bill Act, 100% depreciation is restored for qualifying property placed into service after Jan. 19, 2025, and before Jan. 1, 2031. To qualify, construction must begin between Jan. 20, 2025, and Dec. 31, 2029.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
