BIG BEAUTIFUL BILL-Supercharging Cost Segregation & Early Depreciation

With the passage of the One Big Beautiful Bill, multifamily real-estate investors have a unique tax window ahead, one that can meaningfully accelerate depreciation, boost cash flow, and optimize the economics of acquisitions and renovations. If you’re investing in apartments or rental communities, understanding how cost segregation and early deductions interplay with this new law is critical.

What the Bill Changes

• The legislation restores 100 % bonus depreciation for qualifying property placed in service after January 19, 2025, reversing the prior phase-down schedule.
• For real-estate investors, this means certain property components can be written off immediately rather than depreciated over many years.
• The bill also brings renewed strategic value to cost-segregation studies (reclassifying portions of a building to shorter depreciation lives) given the resurgence of bonus depreciation.

Why This Matters for Multifamily Investors

Cost Segregation Meets Supercharged Bonus Depreciation

When you acquire or renovate a multifamily property, a cost-segregation study allows you to carve out components of the building (e.g., flooring, cabinetry, certain mechanical systems, land improvements) that qualify for shorter-life asset classes (5, 7, or 15 years) rather than the standard 27.5 years (for residential rental) or 39 years (for commercial).

Now, with 100 % bonus depreciation restored, those shorter-life components can often be expensed immediately or in the first year, dramatically accelerating tax deductions. For example, as one advisory noted:

“With the return to 100 % bonus depreciation… the full benefit of a cost segregation study is once again available.”

Faster Cash Flow, Better IRR

Earlier deductions reduce taxable income sooner, freeing up cash that can be reinvested or used to support operations, improvements, or debt service. That enhances the internal rate of return (IRR) of your investment.

Strategic Timing of Acquisition / Service In-Place

Note: The property or components must be placed in service after the threshold date (Jan. 19, 2025) to fully benefit from the 100 % bonus depreciation under this regime.

Potential Scenarios for Multifamily Deals

1. Acquisition Scenario:You purchase a 100-unit apartment building in mid-2025 and engage a cost-segregation study to identify 20 % of the building basis as 15-year personal/land-improvement property. Under the restored bonus-depreciation rules, that portion may be expensed immediately, providing a large upfront write-off.
2. Renovation Scenario:You invest in a major renovation (kitchen, flooring, landscaping, exterior lighting) in a multifamily property placed in service in late 2025. By allocating renovation costs into shorter-life classes and leveraging the 100 % bonus depreciation, you accelerate write-offs and improve near-term cash flow.

Important Caveats & Considerations

• Even though deductions accelerate, you still need to consider depreciation recapture upon sale, and the timing of exit strategy matters.
• State tax treatment may differ, some states decouple from federal bonus-depreciation rules, so check local conformity.
• Cost segregation studies incur fees (engineers, tax advisors). The incremental benefit should justify the cost and align with your investment horizon.
• Passive‐activity rules may limit immediate use of deductions unless you qualify as a “real estate professional” or have other passive income to offset.
• The 100 % bonus depreciation benefit only applies to qualified property (typically property with recovery periods of 20 years or less). Not all building components qualify.

Bottom Line

For multifamily investors, the One Big Beautiful Bill opens a powerful opportunity: accelerated depreciation through cost segregation + instantaneous write-offs via 100 % bonus depreciation. If you’re acquiring or upgrading rental real estate now, structuring the deal with the right tax planning in mind could deliver outsized early-year benefits, improved cash flow, and stronger ROI.

Thinking of deploying capital into multifamily?

Let’s connect and talk about how you can strategically structure your next acquisition or renovation to maximize early depreciation benefits under the new law.