Bonus Depreciation in Commercial Real Estate: What You Need to Know in 2025

As a commercial real estate expert, I’m excited to share a major development that will shape investment sales, property acquisition, and business strategy for years to come: the return of 100% bonus depreciation. If you’re considering purchasing commercial real estate, understanding this policy, and how to leverage it, can dramatically impact your bottom line.

What Is Bonus Depreciation?

Bonus depreciation is a tax incentive that allows businesses to immediately deduct a large portion, or even the entire cost, of qualifying assets in the year they are placed in service. Traditionally, assets like commercial real estate improvements, equipment, and certain building components are depreciated over many years (typically 39 years for commercial property). With bonus depreciation, you can accelerate these deductions, improving cash flow and reducing taxable income upfront.

Key terms explained:

• Depreciation: Spreading the cost of an asset over its useful life for tax purposes.

• Bonus depreciation: Accelerated first-year deduction for qualifying assets.

• Qualified improvement property (QIP): Interior improvements to non-residential buildings, such as HVAC, lighting, and flooring, which often qualify for bonus depreciation.

The 2025 Policy Update: 100% Bonus Depreciation Is Back

Recent federal legislation has fully reinstated 100% first-year bonus depreciation for qualified property placed in service after January 19, 2025, through December 31, 2029. This is a significant shift from the phased reduction that began after the 2017 Tax Cuts and Jobs Act.

What changed?

• From 2023–2025, bonus depreciation was set to phase down (80% in 2023, 60% in 2024, 40% in 2025).

• The new law reverses this trend, locking in 100% bonus depreciation for new qualifying purchases and improvements made after January 19, 2025.

• This applies to both new and used property (if not previously used by the taxpayer), and includes many types of commercial real estate assets.

Why does this matter?

• Immediate, full expensing of qualifying costs in the year of purchase.

• Massive first-year tax deductions for businesses and investors acquiring or improving commercial real estate.

• Increased liquidity and cash flow, enabling further investment in commercial properties, equipment, or tenant improvements.

What Qualifies for Bonus Depreciation?

To maximize this incentive, it’s critical to know which assets are eligible:

Eligible for 100% Bonus Depreciation:

• Land improvements: Parking lots, sidewalks, landscaping.

• Qualified improvement property (QIP): Interior non-structural improvements (HVAC, lighting, flooring, plumbing, etc.).

• Personal property: Furniture, fixtures, equipment, and certain building systems.

• Assets with a useful life of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS).

Not eligible:

• The building structure itself (depreciated over 39 years).

• Enlargements, elevators, or escalators.

Tip: A cost segregation study can help identify and reclassify components of a commercial property that qualify for accelerated depreciation, unlocking substantial tax savings.

How to Use Bonus Depreciation to Your Advantage

1. Plan Purchases Strategically

Time your commercial real estate acquisitions and improvements so that qualifying assets are placed in service after January 19, 2025. This ensures you capture the full 100% deduction.

2. Leverage Cost Segregation

Engage a professional to conduct a cost segregation study. This process breaks down your property into its depreciable components, maximizing the portion eligible for bonus depreciation—especially useful for industrial space for rent, commercial office space for rent, and retail commercial real estate.

3. Enhance Cash Flow

By reducing your taxable income in the first year, you free up capital that can be reinvested in additional commercial real estate listings, tenant improvements, or business expansion.

4. Combine With Section 179

Section 179 allows businesses to deduct the full purchase price of qualifying equipment and software, up to a limit. The new law increases this cap, and combining Section 179 with bonus depreciation can further amplify your tax benefits.

5. Optimize for Investment Sales

For real estate investment trusts (REITs), owner-users, or those investing in commercial real estate for sale, these deductions can make new acquisitions and upgrades significantly more attractive, boosting after-tax returns and overall ROI.

Example: Bonus Depreciation in Action

Suppose your business purchases a commercial space for rent and invests $500,000 in qualified improvements (HVAC, lighting, flooring). With 100% bonus depreciation, you can deduct the entire $500,000 in the first year, rather than spreading it over 15 years. This could save you $100,000 or more in taxes, depending on your tax bracket—money that can be reinvested into additional commercial real estate investments.

Final Thoughts

Bonus depreciation is a game-changer for commercial real estate buyers, investors, and owner-users. With the return of 100% expensing, now is the time to review your acquisition pipeline, plan improvements, and consult with your tax advisor and commercial real estate broker to maximize your tax savings and investment returns.

Key Takeaways:

• 100% bonus depreciation is available for qualified property placed in service after January 19, 2025, through 2029.

• Use cost segregation studies to identify eligible assets.

• Time purchases and improvements to maximize deductions.

• Work with experienced commercial real estate professionals to structure your deals for optimal tax outcomes.

If you’re considering a commercial real estate purchase or want to learn more about how these tax incentives can work for your business, contact our team of experts today.