Maximizing Benefits from 100 Percent Bonus Depreciation in 2025: Timing Is Key

The recent restoration of 100% bonus depreciation starting in 2025 has created a buzz in the real estate and investment sectors. The One Big Beautiful Bill Act (OBBBA) reintroduces this crucial tax incentive. However, when you place properties in service will significantly affect how much you benefit. Grasping these details is essential for developers, investors, and business owners aiming to increase their tax deductions and improve cash flow.

In this blog post, we will highlight the implications of the restored bonus depreciation, emphasize the importance of timing, and present strategic planning opportunities to ensure you derive maximum benefit from this tax incentive.

Understanding Bonus Depreciation

Bonus depreciation allows businesses to deduct a substantial percentage of the cost of eligible assets in the year they are placed in service. This can lead to significant tax savings, particularly for those involved in real estate. With the OBBBA reinstating 100% bonus depreciation starting January 20, 2025, property owners can potentially write off the entire cost of qualifying assets in the first year.

For example, if you purchase a property for $500,000 and place it in service on or after the critical date, you can deduct the full $500,000 in the first year. However, properties placed in service just before this date will be limited in the deductions available. Understanding these rules is vital for maximizing benefits.

The Timing Factor

Important Dates to Remember

• Placed in service on/after January 20, 2025: Eligible for 100% bonus depreciation.

• Placed in service January 1–19, 2025: Limited to 40% bonus depreciation.

  
  

This narrow window of time can greatly affect your depreciation claims. For instance, a property placed in service on January 19, 2025, limits your deduction to just 40%, costing you $300,000 in tax benefits compared to a property placed in service on January 20.

The Impact of Construction Progress

For construction projects, timing is even more crucial. If 10% or more of your project is completed before January 20, 2025, it may qualify under the less favorable depreciation schedule. Keeping detailed records of project milestones is essential. For example, if you are constructing an apartment building and 15% of it is complete before the cutoff date, that portion may not be eligible for full write-off, potentially reducing your available deductions significantly.

Acquisition vs. Closing Dates

Understanding the distinction between acquisition and closing dates is crucial. The acquisition date is when the contract is signed, not when you close the deal. For instance, if you sign a contract in December 2024, but the property is placed in service after January 20, 2025, you could be stuck with the earlier depreciation schedule. This oversight can lead to unexpected tax liabilities and hinder your investment planning.

Strategic Planning Opportunities

Start New Projects After January 19, 2025

To leverage the full benefits of 100% bonus depreciation, initiate new projects after January 19, 2025. This ensures your properties qualify for the optimal deduction, providing a powerful boost to your overall tax strategy.

Phase Construction Smartly

If you have ongoing projects, adjust your construction phases to complete at least 10% after the critical date. This might mean altering timelines or reallocating resources strategically. For example, staggering subcontractor schedules can help ensure that significant portions of a project are not completed until the eligible date.

Schedule Major Equipment or Technology Purchases

Bonus depreciation is also available for certain equipment and technology. Strategic timing of these purchases to align with the 100% bonus depreciation eligibility can yield considerable tax savings. For example, spending $200,000 on new equipment can result in a full deduction of that amount if purchased after January 19, 2025.

Final Thoughts

Getting the timing right for bonus depreciation can significantly impact your first-year tax deductions and cash flow. Pairing this with a cost segregation study can enhance your depreciation benefits even further.

By understanding the rules and implementing strategic planning, you can maximize your results and fully capitalize on the tax incentives available to you.

Construction site ready for new projects

Closing Remarks

The return of 100% bonus depreciation in 2025 offers a valuable opportunity for developers, investors, and business owners. However, how and when properties are placed in service plays a vital role in maximizing these benefits.

By keeping track of key dates, understanding how construction progress impacts eligibility, and strategically planning projects and purchases, you can significantly increase your tax savings and enhance your cash flow.

Stay informed, plan wisely, and seize the opportunities ahead!

AI was used in portions of this article.