Buying a property in 2025 - Bonus Depreciation?

Question

I've already lined up a property to purchase in 2025 for roughly $450,000. I am a full time real estate professional and my spouse as a state employee W2 paid job. I plan to keep this property for the long run and am considering options for bonus depreciation.

I'm familiar with concept and benefits of bonus depreciation but I'm not sure where the current law stands and the bill that was floating around congress. Any insight on this front?

Is there anything I can do in the run up until the purchase to be prepared for doing a bonus depreciation or cost segregation report etc....?

Thanks

Account Closed · Answer

Hey Spencer, As of 2024, bonus depreciation is still available at 60%, but it is set to decrease to 40% in 2025, with further reductions planned for future years unless Congress takes action to extend or change the law. There was a bill in Congress aiming to extend or modify the bonus depreciation provisions, but no definitive changes have passed yet. To prepare for maximizing bonus depreciation or conducting a cost segregation study, you can begin gathering detailed records of the property's assets and improvements, coordinate with a cost segregation specialist early, and consider any renovations or purchases of eligible equipment to align with tax strategies that take full advantage of the current bonus depreciation rates before they phase out.

Ashish Acharya · Answer

Account Closed As of 2024, the current law is phasing out bonus depreciation. For properties acquired in 2025, bonus depreciation will be reduced to 40% (down from 100% in 2022). That means you’ll only be able to immediately depreciate 40% of qualifying property components like appliances or land improvements through a cost segregation study. However, if new tax legislation is passed, it could extend or change these rules, so keep an eye on any updates.

To prepare:

• Line Up a Cost Segregation Specialist: Reach out to a reputable firm now so they can review your property soon after purchase.
• Document Pre-Purchase Costs: Any fees or improvements related to acquisition should be organized for easier allocation.
• Tax Strategy Planning: Consult your CPA to align this with your overall real estate strategy and optimize benefits for 2025.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Austin Cheatham · Answer

Glad you are thinking ahead and planning to maximize your tax situation. What I would do is go ahead and coordinate with a tax professional and a cost seg professional to be sure you have your ducks in a row.

If you are planning on doing renovations, it is possible you could have two cost segs done to maximize deductions. You could look at doing a cost seg pre-renovation and post-renovation to be sure you capture the maximum deductions for the initial purchase and for the upgrades both. In this case the cost seg guy will likely need to look at your property both before and after purchase/renovation. I have worked with several clients in this capacity who had both cost segs completed and it resulted in significant tax savings.

Be sure to consider your income for that year and how much depreciation you take. It may not be worth it to take all of the bonus depreciation and to elect out on some and save for the future.

Happy to recommend some cost seg guys or help with running any numbers if you need! Feel free to reach out.

Austin Cheatham · Answer

$250 an hour can be pretty standard for consulting. However, I usually include tax planning with my tax preparation fees and do not charge separately for the two. So if I have a client who pays me for tax preparation, that fee includes planning as well. I believe that in order to efficiently do tax prep then we need to be doing tax planning as well.

Yes on the cost seg piece (for the most part). While you can try and do a DIY cost seg, it is very tricky to understand the tax law piece and the engineering/construction piece. That is something I generally refer out for my clients to cost seg professionals.

And no, you do not have to use a CPA. It is not required. You can file your taxes anyway you would like. Is it going to be the most effective way to maximize tax deductions and correctness? Likely not, but if you don't mind taking the risk and spending a little extra in taxes (from missing possible deductions or misunderstanding the law) then that's ok. But in my experience I've found that often people who come to me after doing their own had been doing it wrong, or missing out on some deductions. I would rather see someone pay a tax professional a fee and possibly save money on taxes rather than run the risk of paying extra to the government.

Jason Malabute · Answer

Hi Spencer,

For 2025, bonus depreciation will be reduced to a 40% limit. Earlier this year, the government did not renew or pass any law to extend bonus depreciation back to 100% after 2027, so the current phase-out schedule remains in place.

In the meantime, I would recommend doing some tax planning to assess where you stand in terms of projected tax liability for 2024. If you find that you really need a deduction, it might be worth exploring the possibility of pushing the closing on your property into 2024. This way, you could perform a cost segregation study this year and benefit from a higher bonus depreciation rate of 60% for 2024.

Sean Graham · Answer

You can try to close in 2024 if possible while bonus depreciation is still 60%! We don’t know what will happen in future years but the rules will continue to change. When? Not sure

Ryan Cheek · Answer

To my understanding what Zachary saying is pretty accurate; however, I have one thing I would like to add. I believe the bonus deprecation will jump back up to 100% no matter who is elected, but when the election is over whoever is in office will more than likely pass the bill and take credit for it.

Please feel free to PM me I have a cost segregation specialist who teaches me everything and knows 10x what I do when it comes to this. Would be more than happy to put you in contact with him.

Account Closed · Answer

So much wonderful information here. Thank you for all the responses.

UPDATE*

I reached out to locally CPA and they claim they can handle preparing my taxes in addition to handling a bonus depreciation. With that said they are quoting me $250/hour to consult in tax planning services in addition to the tax preparation fees.

MY QUESTION(s):

Do I have to get a cost segregation in order to determine the bonus depreciation amount for the home I'm purchasing?

I've really enjoyed doing my own taxes and doing them through turbotax. Is it possible to do the above stated method through turbotax or do I HAVE TO use a CPA or other tax professional? (Sorry all the tax professionals that responded, I know you are better at this than your average consumer)

Is there a way to ballpark how much bonus depreciation I may even be able to use as a tax loss to offset income? Trying to get a sense if it's even worth exploring this on a smaller scale like I'm talking about.

Buying a property in 2025 - Bonus Depreciation?

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