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Massive Tax Savings May Return: How 100% Bonus Depreciation Could Help You

• David (Viacheslav) Davidenko

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Ready for a potential game-changer in real estate investing? Bonus depreciation—that supercharged tax deduction allowing investors to write off qualifying assets immediately instead of over many years—might be making a dramatic comeback.

The House has narrowly approved a bill that would restore 100% bonus depreciation for assets placed in service between January 2025 and December 2029. This represents a potential windfall for real estate investors, particularly those in commercial, manufacturing, and agricultural sectors. Imagine deducting the entire cost of qualified improvement property (QIP) like office renovations, HVAC upgrades, and retail store modernizations in a single tax year rather than spreading those deductions over decades. The financial implications are substantial: accelerated returns on investment, improved immediate cash flow, and the ability to undertake larger improvement projects that might otherwise seem financially daunting.

What makes this proposal particularly noteworthy is its "cliff edge" design—100% bonus depreciation through 2029, then abruptly dropping to zero on January 1, 2030. This structure will likely create strategic opportunities for forward-thinking investors who plan projects with this timeline in mind. Though the legislation still needs Senate approval and presidential signature, industry experts suggest it has significant momentum. For real estate professionals, understanding these potential changes now could position you to capitalize quickly if the provision becomes law. The window of opportunity may be limited, but for those prepared to act, the tax advantages could be extraordinary. Are you ready to rethink your investment and improvement strategies for the coming years?

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Speaker 1:

OK, let's dive in. We've got some really interesting material today, focusing on something that could be pretty significant for anyone involved in real estate.

Speaker 2:

Yeah, we're talking about the potential comeback of 100 percent bonus depreciation.

Speaker 1:

Exactly. Our sources are mainly news reports covering this major tax and policy bill that just got through the House. We're really zeroing in on that bonus depreciation piece.

Speaker 2:

We're really zeroing in on that bonus depreciation piece, right, and our goal here is to unpack what the shift could mean. You know what is 100 percent bonus depreciation in plain terms? Who really benefits and why should you, as an investor, be paying attention? So let's just hit the headline first the US House did approve a bill that might just bring back 100 percent bonus depreciation. Ok, and bonus depreciation if that sounds a bit like tax jargon, let's simplify it.

Speaker 1:

Please do.

Speaker 2:

Think of it like well, a supercharged tax deduction. Normally you write off the cost of business assets over time, right Little bits each year.

Speaker 1:

Yeah, standard depreciation takes ages.

Speaker 2:

Exactly Bonus depreciation less. Businesses and investors deduct a huge chump, maybe even the entire cost of qualifying assets, right away In the year you start using them.

Speaker 1:

So give me an example, like if I own a rental property.

Speaker 2:

Perfect, say. You put in I don't know, $20,000 worth of new appliances, maybe a new HVAC system. Okay, normally you deduct a small fraction of that $20K each year for several years. Five, seven depends on the asset Right With 100% bonus depreciation, boom, you could potentially deduct the full $20,000 on this year's taxes.

Speaker 1:

The whole thing in one go.

Speaker 2:

Potentially yes. That's a massive difference in your immediate tax bill, Significant cash flow impact.

Speaker 1:

Okay, that definitely gets my attention. And this isn't entirely new, right? We had this before.

Speaker 2:

That's right. We had 100% bonus from the Tax Cuts and Jobs Act, basically from 2017 all the way through 2022.

Speaker 1:

But it was set to disappear.

Speaker 2:

It was designed to phase out. Gradually it dropped to 80 percent in 2023. It's at 60 percent right now in 2024.

Speaker 1:

And scheduled to go lower.

Speaker 2:

Yeah, supposed to hit 40 percent next year, 2025, and then keep dropping this new proposal. It just resets the clock straight back to 100%.

Speaker 1:

OK, let's get into the weeds of this specific proposal, the bill itself. Well, it passed the House.

Speaker 2:

You said it did pass very early on May 22nd, but it was incredibly close to 15 to 214.

Speaker 1:

Wow, razor thin. What does that tell us?

Speaker 2:

Well, it tells us it wasn't exactly a bipartisan love fest but crucially, it did pass that first hurdle. Now it moves over to the Senate.

Speaker 1:

And the Senate will likely want to make changes.

Speaker 2:

Oh, almost certainly. That's usually how it works, but the key provision we're tracking the 100% bonus depreciation part is specifically proposed for qualifying property placed in service after January 19th 2025.

Speaker 1:

OK, so starting next year basically.

Speaker 2:

Right, and it runs before January 1st 2030. That five year window is critical.

Speaker 1:

And the fact it got through the House even narrowly suggests it has a real shot.

Speaker 2:

Absolutely. It signals strong momentum. There's a very decent chance this provision, or something very like it, ends up in the final legislation.

Speaker 1:

So, assuming this goes through, who benefits the most? Is it all real estate equally?

Speaker 2:

Well, technically, any qualifying real estate investment could benefit from faster depreciation on some assets, but the sources we're looking at really highlight a few sectors for potentially getting an exceptional boost.

Speaker 1:

Which ones.

Speaker 2:

Manufacturing agriculture and, interestingly, certain types of commercial properties.

Speaker 1:

Why those specifically? What's special there?

Speaker 2:

Because the way this bill is structured, it seems qualifying structures in those specific areas think a new factory or a big farm building improvement could potentially be fully expensed right away.

Speaker 1:

The whole structure, not just equipment inside.

Speaker 2:

That seems to be the implication for those sectors under this specific part of the bill. Imagine deducting the cost of a whole new building up front. That's a game changer for their tax burden in year one Huge, immediate relief.

Speaker 1:

That is significant. Ok, now the sources also talk a lot about something called qualified improvement property. What's that?

Speaker 2:

Right QIP. This is super relevant for many commercial property owners. Qit is basically any improvement made to the interior of a commercial non-residential building after the building itself was first put into service.

Speaker 1:

Okay, interior improvements. What's not included?

Speaker 2:

Good question. It specifically excludes things like enlarging the building, anything involving the internal structural framework, elevators or escalators. It's really focused on the inside finishes and systems.

Speaker 1:

So things like putting up new walls inside an office or new lighting.

Speaker 2:

Exactly. The examples given are things like upgrading the HVAC, modernizing office layouts, you know, tearing down old offices and building new ones, or doing a major interior renovation on a retail store. Common stuff for landlords.

Speaker 1:

Got it. So if this bill passes, how would the 100% bonus depreciation apply to those QIP projects?

Speaker 2:

This is where it gets really interesting for commercial real estate. The entire cost of that qualified improvement property could potentially be deducted in the single year you finish the project and place it in service.

Speaker 1:

The entire cost of the renovation.

Speaker 2:

If it qualifies as QIP and is completed within that proposed window January 2025 through December 2029, yes, so finish a big office refit in, say, July 2026. That whole cost could potentially offset your 2026 income.

Speaker 1:

Wow, okay, that completely changes the economics of doing major improvement.

Speaker 2:

It really does. The sources point to a couple of major impacts. First, obviously, it speeds up your return on investment like crazy. You get the tax savings back immediately, not dribbled out over years.

Speaker 1:

Shortens that payback period.

Speaker 2:

Massively and second. Those tax savings mean more cash in your pocket right now.

Speaker 1:

Which you can then use for other things.

Speaker 2:

Exactly, it frees up capital that would have been tied up paying taxes. You can reinvest it, maybe buy another property, do more improvements, expand your business. It just makes your capital work harder, faster.

Speaker 1:

And I guess it makes those really big, ambitious renovation projects seem well less daunting financially.

Speaker 2:

Definitely. A project that might look too expensive or take too long to recoup costs under normal depreciation rules suddenly looks much more feasible if you can expense most or all of it up front. It really encourages significant investment in upgrading commercial interiors.

Speaker 1:

Yeah, you mentioned that end date December 31st 2029. That sounds pretty final.

Speaker 2:

It is and this is a really important point maybe one of the most critical strategic elements here. The proposal isn't for another gradual phase out, like we saw before.

Speaker 1:

Nope 80 percent, 60 percent, 40 percent. Step down this time.

Speaker 2:

Nope. According to this proposal, it's 100 percent through the end of 2029 and then on January 1st 2030, it drops straight to zero.

Speaker 1:

Zero, just off like a light switch.

Speaker 2:

Exactly the sources call it a cliff edge expiration. It's abrupt.

Speaker 1:

What does that kind of hard stop usually do?

Speaker 2:

Well, it could trigger a real scramble. You might see a rush of investment activity, especially on bigger projects, as people try to get property placed in service before that deadline hits. Everyone wants to lock in that 100% deduction.

Speaker 1:

So planning becomes absolutely crucial if you want to take advantage.

Speaker 2:

You have to. If you're eyeing a major acquisition that involves significant depreciable assets or a large QIP project, you need to be really mindful of that timeline. You've got to get it completed and officially placed in service sometime between early 2025 and the end of 2029. Timing is everything here.

Speaker 1:

OK, so we've got this bill past. The House has momentum, but it's not law yet. What's the latest status? What's the outlook?

Speaker 2:

Like we said, it's now in the Senate's court. They need to approve it, maybe after making their own changes, and then, of course, it needs the president's signature to become law.

Speaker 1:

So hurdles remain. But what's the general feeling? Is this likely?

Speaker 2:

The sense from the sources from industry chatter is that the momentum is pretty solid. This isn't some minor proposal. It the sources from industry chatter is that the momentum is pretty solid. This isn't some minor proposal. It's part of a big package. Experts seem to think some version of this bill, very likely including this bonus depreciation piece, has a good chance of getting enacted.

Speaker 1:

When might that happen? Any guesses?

Speaker 2:

Timelines are always tricky in DC, but some analysts are pointing toward maybe late summer as a possibility.

Speaker 1:

OK, so not something you can bank on today, but definitely something to watch very, very closely.

Speaker 2:

Absolutely. The advice is clear Keep your eyes peeled as this moves through the Senate. Understanding the potential rules and implications now means you can be ready to move quickly, adjust your strategy and really capitalize if 100 percent bonus depreciation does become reality again. Being prepared is key.

Speaker 1:

All right, let's just quickly sum up the main opportunity here. We're looking at the potential return of 100% bonus depreciation based on this House Pass bill.

Speaker 2:

Which means potentially huge upfront tax savings for qualifying real estate buys and, importantly, for those interior improvements on commercial properties. Qip.

Speaker 1:

And the window for this, if enacted, would be for property place in service starting early 2025, right through the end of 2029.

Speaker 2:

Correct. Still needs Senate and presidential approval, but it cleared a big hurdle in the House, giving it real momentum.

Speaker 1:

So definitely stay informed, watch how this develops, because it could open up a significant, though time-limited opportunity.

Speaker 2:

And maybe a final thought for you to chew on, especially thinking about that cliff edge expiration, yeah.

Speaker 1:

Consider how that hard stop at the end of 2029 might affect the market. If everyone is rushing to finish projects before the deadline, could that drive up costs for labor or materials? Could it create bottlenecks? How might that sharp cutoff influence your investment decisions differently than if it were just fading away slowly? Something to factor into your strategic thinking.

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David (Viacheslav) Davidenko

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