Find Tax Savings Even With Lower Bonus Depreciation: CLA

As federal bonus depreciation phases down under the Tax Cuts and Jobs Act — currently at 40% for 2025 — the importance of cost segregation studies can still be significant for real estate owners, operators, and investors aiming to enhance after-tax cash flow.

The power of cost segregation

Cost segregation is a well-established tax strategy that accelerates depreciation deductions by identifying and reclassifying building components into shorter-life asset categories (5-, 7-, or 15-year property). This approach front-loads depreciation expenses into earlier years, thereby reducing taxable income and increasing liquidity.

Why cost segregation still works — even at 40% bonus for 2025

Although the full 100% federal bonus depreciation expired after 2022 and we are now in a phasedown period (dropping to 20% in 2026), partial federal bonus depreciation still offers significant tax deferral benefits.

When combined with accelerated depreciation from cost segregation, even a 20% federal bonus can result in substantial first-year deductions. For example, a well-executed cost segregation study on a newly acquired or constructed property can still yield six- or seven-figure deductions, enhancing return on investment and freeing up capital for reinvestment.

Key tax planning opportunities

Cost segregation can be particularly beneficial in the following scenarios: 

• New acquisitions and developments 
• Major renovations or improvements 
• Inherited or previously placed-in-service properties (with a look-back study) 
• New construction expected to be held long-term

2025 proposed legislation – One, Big, Beautiful Bill

The proposed legislation, which recently moved from the United States House of Representatives to the Senate, would reinstate and extend 100% federal bonus depreciation, allowing taxpayers to claim full first-year depreciation on eligible property acquired and placed in service between January 20, 2025, and December 31, 2029.

We’re still in the early stages, and the proposal will likely go through several revisions before it’s finalized and signed into law by the President. Lawmakers aim to complete and pass the bill by July or August.

How CLA can help with tax strategy

Don’t leave tax savings on the table. Even at reduced federal bonus depreciation rates, cost segregation remains a valuable tool in the real estate tax planning arsenal.

Our tax strategies team specializes in identifying and implementing cost segregation opportunities tailored to your asset type and investment strategy. We can help you evaluate the potential benefits and maintain compliance with applicable compliance standards.