A recent change in federal tax law brings back 100% bonus depreciation and expands Section 179 deductions, two tools that can significantly impact how real estate investors write off costs.
If you own rental properties, short-term rentals, or flip homes, here’s what you should know.
What’s Changing
1. Full 100% Bonus Depreciation Returns
Starting in 2025, investors can again deduct the full cost of qualifying assets in the first year they’re placed in service, instead of depreciating them over several years.
This applies to items such as new appliances, HVAC systems, flooring, lighting, furniture, or other eligible property improvements.
To qualify, the asset must be purchased and placed in service after January 19, 2025.
2. Section 179 Expensing Is Expanded
The Section 179 deduction—another way to immediately expense qualifying purchases—increases to roughly $2.5 million for 2025, with phase-outs beginning around $4 million.
This helps many small and mid-sized investors deduct renovation and improvement costs more quickly.
3. You Can Use Both Together
In many situations, investors can combine Section 179 expensing with bonus depreciation to maximize deductions, depending on the property type and income level.
How It Applies to Real Estate
For property owners, a cost segregation study can be especially valuable. This process breaks down a building into components—such as cabinetry, fixtures, flooring, or landscaping—so that certain parts can qualify for faster depreciation.
That means larger deductions sooner, which can help offset rental or sales income.
These rules can apply to:
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Rental property owners upgrading units or furnishings
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Investors renovating or flipping homes
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Owners of short-term rentals or mixed-use properties
Key Timing and Rules
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Property must be acquired and placed in service after January 19, 2025 to qualify for 100% bonus depreciation.
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Assets must be used primarily for business or income-producing purposes.
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Some states may not follow the new federal rules exactly—check with your tax advisor for details.
The Takeaway
These updated depreciation rules can help real estate investors recover costs faster and improve cash flow, especially when making major upgrades or renovations.
Before planning large purchases or improvements, consult your tax professional to confirm how the 2025 changes apply to your specific investment strategy.
