Key Takeaways
- Permanent 100% bonus depreciation changes the equation: The One Big Beautiful Bill Act (OBBBA) restores full expensing, enabling immediate deductions and more predictable long-term tax planning.
- Cost segregation becomes a high-impact strategy, not just a timing benefit: With full bonus depreciation, reclassified assets can often be fully expensed in year one, significantly improving cash flow, IRR, and capital flexibility.
- Missed opportunities may still be recoverable: Look-back studies and accounting method changes (e.g., Form 3115) allow owners to capture prior depreciation in a single year, creating meaningful one-time tax benefits.
For real estate owners and operators, tax policy often feels reactive, like something to manage after a transaction closes. In 2026, however, the landscape has shifted in a way that rewards proactive planning.
With the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, Congress permanently restored 100% bonus depreciation for qualifying property, eliminating years of uncertainty and fundamentally changing the economics of cost segregation for real estate owners.
This is not merely a return to the past. The permanence of full bonus depreciation creates an opportunity for owners to rethink how depreciation fits into broader capital strategy, which impacts cash flow, investment timing, and portfolio‑level decision‑making.
In the tax world, “permanent” may only apply for a certain number of years, depending on the political landscape of Congress. That's why it's important for real estate owners and investors to understand the changes and decide whether they’re impactful to their portfolio.
A Reset in the Depreciation Landscape
Under prior law, bonus depreciation had been on a steady phase‑down path, falling from 100% to 20% by 2026, with full expiration planned to take effect in 2027. That uncertainty led many owners to delay or dismiss cost segregation studies, particularly for smaller assets where the economics appeared marginal.
The OBBBA reversed course. For qualifying property acquired and placed in service after January 19, 2025, 100% bonus depreciation is now a permanent feature of the tax code. This change provides something the real estate industry enjoys: long‑term planning certainty.
For owners, this means depreciation planning can once again be modeled with confidence and not just for the current year, but across the anticipated holding period of an asset.
Cost Segregation: From Tactical Tool to Strategic Lever
Cost segregation has long allowed owners to accelerate depreciation by reclassifying certain components of a building into shorter‑lived asset categories (generally 5, 7, or 15‑year property). Historically, the main benefit was timing, allowing an acceleration of deductions that would otherwise be taken slowly over 27.5 or 39 years.
The permanent return of 100% bonus depreciation changes that value proposition. Reclassified assets are no longer just accelerated; they can often be fully deducted in the first year they are placed in service.
That shift turns cost segregation from a marginal tax optimization into a potentially high‑impact financial strategy. Properties that may not have justified a study under partial bonus depreciation often generate compelling returns under the current rules, with no corresponding increase in study cost.
At Kreischer Miller, we work with several third-party cost segregation firms that provide a thorough and detailed study should an audit occur and would be happy to provide an introduction if needed.
Why This Matters: Cash Flow and Capital Efficiency
While depreciation is a non‑cash expense, the tax savings it produces are very real. For owners, the most important question is not “How much depreciation can we generate?” but rather, “What does this do for cash flow and capital allocation?”
Front‑loading depreciation expenses can:
- Increase after‑tax cash flow in the early years of ownership
- Improve internal rate of return (IRR) without operational changes
- Reduce reliance on external financing
- Create flexibility to redeploy capital into new investments
With higher interest rates and rising costs, these benefits can make a real difference. For many owners, depreciation planning becomes a practical way to protect cash flow while still keeping upside potential intact.
Portfolio Opportunities Owners Often Miss
One of the most overlooked aspects of cost segregation is its applicability to existing properties. Owners who acquired assets in prior years but never completed a study may still be able to capture missed depreciation through a “look‑back” study.
Using an accounting method change (generally Form 3115), owners can often claim catch‑up depreciation in the current year without amending prior returns. When paired with 100% bonus depreciation, this can produce a significant one‑time deduction which effectively corrects years of under‑depreciation at once.
Additionally, owners should consider cost segregation in connection with:
- Major capital improvements and renovations
- Change‑in‑use scenarios
- Planned dispositions, where modeling depreciation recapture can meaningfully impact exit strategy
Planning Considerations Under the New Bonus Depreciation Rules
While the opportunity is meaningful, execution matters more than ever. The return of full bonus depreciation increases the dollar amounts involved and, as a result, the level of scrutiny.
Owners should focus on the quality of the cost segregation study by relying on engineering-based analyses with thorough documentation. It’s also important to pay close attention to acquisition and placed in service timing requirements and recognize that not all states conform to federal bonus depreciation rules, which can affect the overall benefit.
For real estate owners, this reinforces the importance of integrating tax advisors early in the acquisition and planning process, rather than treating depreciation as a post‑closing exercise. Kreischer Miller works closely with our clients throughout this process, helping them evaluate opportunities, coordinate with cost segregation specialists, model outcomes, and align depreciation planning with broader investment and portfolio strategies.
The Strategic Questions Real Estate Leaders Should Be Asking
With the rules now settled, real estate owners should be asking themselves:
- Which assets in our portfolio are under‑optimized from a depreciation standpoint?
- Are we modeling acquisitions on an after‑tax basis or relying too heavily on pre‑tax assumptions?
- How does accelerated depreciation align with our hold period, refinancing plans, and exit strategy?
In 2026, depreciation is less about compliance and more about decision quality.
Turning Tax Policy Into Long‑Term Advantage
The OBBBA did more than restore a tax benefit; it changed the math for real estate owners. By making 100% bonus depreciation permanent, Congress provided a stable framework that rewards thoughtful planning and disciplined execution.
Real estate owners who treat cost segregation as a strategic lever rather than a one‑off tax play can enhance cash flow, improve returns, and increase capital flexibility across their portfolios. In a competitive and capital‑intensive real estate market, the ability to systematically integrate cost segregation and bonus depreciation into investment planning can materially influence reinvestment capacity, financing decisions, and long‑term portfolio performance. To learn how these strategies may apply to your properties, learn about our services for the Real Estate Industry or contact us to discuss cost segregation and bonus depreciation planning tailored to your portfolio.