Part 1: Immediate Tax Relief, A Game Changer for Real Estate Investors
The passage of the Build Back Better Act (BBBA) brought with it several impactful policy changes, but few have resonated with real estate investors as powerfully as the restoration of 100% bonus depreciation and the expansion of Section 179 expensing. These two tax incentives are not just technical updates, they are game, changing tools that allow property owners to reduce taxable income dramatically, unlock trapped capital, and create momentum for new growth.
In simple terms, bonus depreciation and Section 179 allow for immediate expensing of certain property improvements and tangible personal property. Before these provisions were restored, improvements to real estate typically had to be depreciated over 15, 27.5, or even 39 years. Now, qualifying property can be fully deducted in the same year it’s placed into service, a monumental shift that accelerates tax benefits and transforms investment timelines.
What Qualifies for Full Expensing?
The scope of assets eligible for 100% bonus depreciation and Section 179 expensing is broad. It includes improvements to nonresidential buildings such as:
- Interior renovations and tenant improvements
- Building systems like HVAC, electrical, and plumbing
- Fixtures, furniture, and equipment
- Roofs, security systems, and fire protection
It’s important to note that land and building exteriors typically don’t qualify, but nearly every interior enhancement and operational system can. This is particularly valuable for value, add investors, developers, and owner/users who invest heavily in modernizing or customizing space.
The Strategic Impact on Real Estate Investment
This level of immediate tax relief enables investors to retain more of their capital upfront, which directly enhances liquidity and shortens the ROI timeline. Capital that would have been locked up in depreciation schedules over multiple decades is now available in year one to be reinvested in additional assets, used to pay down debt, or reserved for future opportunities.
For example, if an investor spends $500,000 upgrading a commercial building’s interior and systems, they could potentially deduct the full $500,000 from their taxable income in the same year. Assuming a 35% tax bracket, this results in an immediate $175,000 reduction in taxes owed, funds that can immediately be repurposed for business growth.
What Industry Leaders Are Saying
Jeff Pori, CEO of Kingsbarn Realty Capital, underscored the significance of the policy shift, stating:
“Restoring full expensing and bonus depreciation is a major win for our investors. It means more capital can be reinvested into new projects, debt can be paid down faster, and our clients can realize the benefits of their investments much sooner.”
These restored provisions don’t just make individual projects more profitable, they open the door to a more agile investment strategy overall. Investors can move more quickly, scale more efficiently, and respond to market opportunities with less financial friction.
A Catalyst for Broader Adoption of Tax Strategies
This legislative change has also placed a spotlight on advanced tax planning strategies like cost segregation. As we’ll explore in Part 2, combining 100% bonus depreciation with a cost segregation study can significantly increase the amount of deductions available, especially for renovation, heavy properties or recently acquired commercial real estate.
In a climate where maximizing capital efficiency is key, these tools are not optional, they’re essential.
Final Thoughts
The restoration of 100% bonus depreciation and enhanced Section 179 expensing should not be overlooked. They represent a rare opportunity for real estate investors to optimize their tax positions and scale their portfolios more efficiently than ever before. Johnston Pacific Commercial Real Estate, Inc can assist you in expanding your portfolio. Give us a call at 949-366-2020
In Part 2 of this series, we’ll dive deeper into how these tax provisions can enhance cash flow, and why cost segregation studies have become a critical part of the real estate investor’s toolkit. Check back in September 2025!
