Unpacking H.R. 1, The “One Big Beautiful Bill Act”
Congress just passed the “One Big Beautiful Bill Act” (OBBBA), locking in 100% bonus depreciation as a permanent part of the tax code.
If you own property or plan to buy, this changes the way you look at every deal because you can now write off qualified improvements and personal property in year one, for good. No sunset dates.
I want to break down, in plain English, how this works, what traps to watch for, and how to set yourself up to take advantage.
What Actually Passed?
Before Trump’s One Big Beautiful Bill Act, bonus depreciation was phasing down — it was going to 40% for 2025 and zero by 2027.
Now, OBBBA locks in 100% bonus depreciation permanently, for any qualified property you buy and place in service after January 19, 2025.
Important to note:
- If you signed a binding contract before Jan 19, 2025, you don’t qualify for 100% bonus.
- The date you legally acquired the property is what counts, not necessarily your closing date.
Example:
- You signed a contract on Jan 15, 2025 and closed in March 2025 → not eligible for 100% bonus
- You signed on Feb 1, 2025 and closed in March 2025 → eligible
In short: watch your purchase contracts and dates.
What is “Qualified Property”?
Think of bonus depreciation like a one-year instant tax deduction for certain parts of your property, but not the entire building.
To get 100% bonus, the property has to have a MACRS recovery period of 20 years or less. That means things like:
- 5-Year Property: appliances, carpeting, decorative lighting, certain cabinetry
- 7-Year Property: office furniture, fixtures
- 15-Year Property: land improvements (paving, landscaping, fences, sidewalks, drainage systems), Qualified Improvement Property (QIP)
- Used Property: still counts, as long as you didn’t use it before you bought it
QIP is especially important. Basically any non-structural interior improvements to commercial property (think drywall, ceilings, interior doors, fire systems) can fall under QIP and get the 100% bonus.
Why You Need a Cost Segregation Study
Here’s the catch: if you just hand your CPA a settlement statement and let them book the property as “building,” you’ll only get a 27.5-year (residential) or 39-year (commercial) deduction.
That means tiny deductions each year.
Cost segregation breaks the property down into components (5-, 7-, 15-year parts), so you can apply bonus depreciation to them in year one.
No cost seg = no accelerated deduction.
A Cost Segregation Case Study and Example Using the New Tax Laws
Let’s put it in real money terms.
Say you buy a $5 million commercial building:
- $1 million goes to land (not depreciable)
- $4 million basis
No cost seg: you write off the $4M over 39 years. About $100K per year in year one.
With cost seg: let’s say you can move 25% ($1M) into short-life assets. That means you can write off $1M immediately.
At a 37% tax rate, that’s about $370,000 in your pocket in year one.
Combining REPS, Cost Segregation, and 100% Bonus Depreciation
A. The Holy Grail of Real Estate Tax Planning: Real Estate Professional Status (REPS)
Defined under $IRC § 469(c)(7)$, Real Estate Professional Status is a designation that allows a qualifying taxpayer to overcome the passive activity loss (PAL) rules. For most investors, rental real estate is considered a “passive” activity, meaning any losses generated (including from depreciation) can only be used to offset income from other passive activities. REPS status is the key that recharacterizes these rental losses as non-passive.
To qualify for REPS, a taxpayer must satisfy two strict tests annually:
- The 750-Hour Test: The taxpayer must spend more than 750 hours during the tax year performing services in “real property trades or businesses” (e.g., development, construction, acquisition, management, brokerage).
- The More-Than-50% Test: The time spent on these real property trades or businesses must constitute more than half of the taxpayer’s total time spent on all personal services during the year.
This is a high threshold to clear, particularly for individuals with demanding full-time careers outside of real estate. However, for a married couple filing jointly, only one spouse needs to qualify, making it a potent strategy for high-income households where one spouse can focus on the real estate portfolio.
B. The Three-Part Synergy: How the Magic Happens
The true power emerges when these three components work in concert. The logical chain is simple but profound:
- Step 1: Create the Loss. An investor acquires a property and immediately engages a firm like Maven for a cost segregation study. The study identifies a significant portion of the asset’s cost as short-life property.
- Step 2: Supercharge the Loss. The new 100% bonus depreciation rule allows the investor to deduct the full value of those segregated assets in Year 1, creating a massive “paper loss” that can easily reach six or seven figures.
- Step 3: Unleash the Loss. For a taxpayer who qualifies for REPS status, this massive paper loss is transformed from a restricted passive loss into an unrestricted non-passive loss.
- The Payoff: This non-passive loss can now be used to directly offset active, ordinary income—such as a high-earning doctor’s salary, a lawyer’s partnership income, or profits from an active business—potentially reducing their federal tax liability to zero.
The sheer scale of the deductions now available under 100% bonus depreciation makes the effort to achieve REPS more valuable than ever. The potential to generate a seven-figure deduction from a single large acquisition provides a compelling financial incentive for high-income households to strategically structure their activities to meet the REPS qualification tests.
C. Don’t Forget Material Participation: The Second Hurdle
Qualifying for REPS is the first major hurdle; the second is demonstrating material participation in the rental activities themselves. Without this, the losses remain passive despite REPS status. The IRS provides seven tests for material participation, with the most common being :
- Participating for more than 500 hours in the activity during the year.
- The taxpayer’s participation constitutes substantially all of the participation in the activity.
- Participating for more than 100 hours, and that is not less than the participation of any other individual.
For investors with multiple properties, the IRS allows a crucial grouping election under Treas. Reg. § 1.469-9(g). This election permits the taxpayer to treat all their rental properties as a single, combined activity, making it far easier to meet the material participation hour requirements. To withstand IRS scrutiny, maintaining a
contemporaneous time log detailing dates, hours, and specific tasks performed is not just recommended; it is essential.
The New Guardrail: Navigating the Permanent Excess Business Loss (EBL) Limitation
There is one guardrail.
Congress also made the Excess Business Loss cap permanent. For 2025, it’s about $626,000 for married filers. That’s the maximum non-passive business loss you can use to offset ordinary income each year.
If your loss is bigger than that, the leftover becomes a Net Operating Loss carried forward to future years.
So you can still use it, just takes longer.
Example:
- $1.2M non-passive loss
- You use $626K in 2025
- The leftover $574K rolls forward as NOL
That’s why planning matters.
Other Pieces of The One Big Beautiful Bill Act Investors Should Know
✅ Section 179: increased to $2.5M, with a $4M phase-out. Good for expensing smaller property and improvements.
✅ Section 163(j): goes back to EBITDA (instead of EBIT) for calculating your interest expense cap. That means you can deduct more interest if you’re highly leveraged.
✅ Qualified Production Property (QPP): new, temporary 100% deduction for some manufacturing/industrial real estate if used in a qualified U.S. production activity.
✅ Opportunity Zones & LIHTC: renewed and sweetened, if you’re investing in low-income or community areas.
How the Bonus Depreciation Schedule Changed
Here’s a quick chart for reference:
| Placed-in-Service Year | Pre-OBBBA Law (TCJA Phase-Out) | New OBBBA Law (Post-Jan. 19, 2025) |
|---|---|---|
| 2023 | 80% | 80% |
| 2024 | 60% | 60% |
| 2025 | 40% | 100% |
| 2026 | 20% | 100% |
| 2027 and beyond | 0% | 100% (Permanent) |
What You Should Do Next
- Check your contracts. If you’re under contract now, see if it makes sense to push closing past Jan 19.
- Model your deals with 100% bonus built in. It changes the cash flow profile a lot.
- Plan cost segregation up front, especially if you’re doing a heavy reno or new build.
- Look at REPS. If you or a spouse could qualify, it’s worth a serious conversation.
- Talk to your CPA. The timing rules, basis allocation, and documentation are not a DIY project.
Final Take
This bill is a monster win for real estate investors, but only if you line up the timing, get your cost seg right, and think a couple years ahead on your tax plan.
If you want to see how these numbers look on a property you’re buying or already own, reach out. We can help you run the scenarios and see what’s possible.
Check out our Cost Segregation Calculator.
Additional Resource: The One Big Beautiful Bill Act Real Estate Tax Provisions
| Provision (IRC Section) | Pre-OBBBA Law | New OBBBA Law | Implication for Investors |
|---|---|---|---|
| Bonus Depreciation (§168(k)) | Phasing down from 60% in 2024 to 0% by 2027. | 100% bonus depreciation restored permanently for property acquired & placed in service after 1/19/25. | Massive immediate deductions for short-life assets identified via cost segregation, boosting after-tax cash flow. |
| EBL Limitation (§461(l)) | Temporary rule set to expire, losses carried forward as NOLs. | Made permanent; limits annual non-passive loss deduction to ~$578K (MFJ). Unused losses become NOLs. | Caps the amount of active income that can be offset in a single year, requiring multi-year tax planning. |
| Business Interest Limit (§163(j)) | Limited to 30% of EBIT (after depreciation). | Limitation reverts to 30% of EBITDA (before depreciation) temporarily. | Greatly increases interest deduction capacity for leveraged properties, resolving a conflict with taking large depreciation deductions. |
| Section 179 Expensing | ~$1.22M limit, ~$3.05M phase-out (2024). | Limit increased to $2.5M, phase-out to $4M. | Significant immediate expensing benefit for tangible personal property, roofs, HVAC, etc., for smaller and mid-size projects. |
| Qualified Production Property (QPP) | N/A | New temporary 100% deduction for the cost of certain new non-residential real property used in… | Unprecedented incentive for investors developing or owning industrial… |
