Bonus Depreciation Is Back, Real Estate Tax Strategy Breakdown

Featuring: Tyler Lyons (Cashflow Connections Podcast) and James Bohan, CPA, MRED

This conversation originally aired on the Cashflow Connections Real Estate Podcast, where host Tyler Lyons invited CPA and fund CFO James Bohan to break down why the One Big Beautiful Bill (OBBA) is the most meaningful tax legislation for real estate investors in a decade.

James explains how bonus depreciation returning to 100 percent permanently reshapes everything from multifamily underwriting to fund structure to LP passive loss benefits. He also clarifies widespread confusion around the bill, including interest deductibility changes, Opportunity Zone expansion, QBI updates, and SALT cap increases. Together these changes create a powerful short-term environment for real estate investors while still acknowledging long-term risks.

Summary:

Real estate investors and fund managers rely on tax policy to manage cash flow, capital allocation, and investment structure. The OBBA bill creates a unique window by restoring 100 percent bonus depreciation, expanding interest deductibility, improving Opportunity Zone rules, and preserving the Qualified Business Income (QBI) deduction.

In this episode, James breaks down:

• Why 100 percent bonus depreciation is a major opportunity

• How political timing on January 19, 2025 connects to the bill

• How cost segregation unlocks very large first year write offs

• How LPs benefit through passive losses and recapture management

• Why interest deductibility expansion helps leveraged real estate

• How Opportunity Zones 2.0 opens new long term tax planning options

• Why QBI preservation and SALT changes matter for business owners

The core message is that real estate is entering a highly favorable tax season, but long term economic risks like debt expansion and inflation still matter

Watch the Full Episode:

FAQ's

1. How does 100 percent bonus depreciation impact real estate investors?

It accelerates deductions into the first year, allowing investors to write off a large portion of their basis through cost segregation. This creates significant passive losses for LPs and improves after tax cash flow.

2. What is Opportunity Zones 2.0?

Starting in 2027, the Opportunity Zone program becomes permanent with rolling five year deferrals, a ten percent basis step up, a thirty percent step up for rural zones, and expanded eligibility.

3. Why is expanded interest deductibility important?

Real estate deals often rely on leverage. Increasing the interest deduction limit improves underwriting, increases after tax cash flow, and supports more competitive deal structures.

📞 Book a Tax Strategy Call with James:
https://calendly.com/jamesbohan/book-a-call

📨 Connect With James:
LinkedIn: James Bohan, CPA, MRED
Instagram: @jamesbohancfo
Website: stonehan.com

Chapter Breakdown With Timestamps:

00:00, Why this tax bill matters for real estate
02:08, Populist bill, big government, bullish short term outcomes
04:45, Long term risks, debt expansion and the dollar
06:22, Certainty and uncertainty for capital allocators

Bonus Depreciation

07:58, Bonus depreciation restored to 100 percent permanently
09:00, Why January 19, 2025 matters
10:48, How cost segregation unlocks first year deductions
13:32, What components qualify, land improvements and shorter lived property
15:05, Typical multifamily example, 25 to 35 percent written off in year one
17:40, LP benefits, passive losses, recapture and rollover planning

Other Key Tax Changes

22:05, Interest deductibility expands
24:30, Why this helps leveraged real estate
26:10, Depreciable life adjustments

Opportunity Zones 2.0

27:52, OZ program becomes permanent in 2027
29:00, Rolling five year deferral replaces the 2026 cliff
30:20, Ten percent basis step up remains, thirty percent for rural OZs
32:18, Expanded eligibility based on 70 percent median income

QBI and SALT

34:41, QBI deduction preserved
36:10, Why individual and corporate rate parity matters
38:22, SALT cap increased
39:15, PTE workaround remains in place
41:18, James’ closing thoughts
42:00, Where to follow James

Original Episode:
This conversation originally aired on the Cashflow Connections Real Estate Podcast.
Listen or watch here:
https://podcasts.apple.com/us/podcast/bonus-depreciation-is-back-and-why-that-matters-e1109-tt/id1193877994?i=100071966706

Full Transcript:

00:00: Why this tax bill matters for real estate

Tyler (00:00):
Welcome back to the Cashflow Connections Real Estate Podcast. Today we have James Bohan with us to talk about the One Big Beautiful Bill, also known as OBBA. This is one of the biggest tax changes to hit real estate in a long time. There is a lot of confusion about what is actually in this bill, so we are going to break it down in a very practical way.

Tyler (00:15):
James, thanks for being here again. You have been one of our most requested repeat guests because you always bring clarity to these complicated tax issues. Now that bonus depreciation is back at 100 percent, people want to understand what that really means. So before we get into the details, can you tell us why this bill matters so much for real estate investors?

James (00:36):
Thanks for having me back, Tyler. Yes, this bill matters because it restores certainty to something real estate investors rely on, which is accelerated depreciation. When bonus depreciation phased down, a lot of investors started reworking their underwriting because the tax benefits were not as strong. Bringing 100 percent bonus depreciation back, permanently, changes the math again in a positive direction.

James (00:57):
Real estate is an asset class built on depreciation. It is how you shelter cash flow, create passive losses, and manage long term tax efficiency. When you suddenly get that benefit back at full strength, it impacts everything from LP expectations to fund projections to how syndicators structure deals.

02:08: Populist bill, big government, and short term bullish effects

Tyler (02:08):
One interesting thing you mentioned behind the scenes was that this is a populist bill. It tries to give something to everyone, right?

James (02:18):
Yes. This bill has clear political motivations. It is framed as a tax relief bill for working Americans, but in reality it also hands a massive benefit back to real estate investors. Politicians know real estate drives jobs, development, and economic activity, so giving this sector a strong tax incentive is a way to stimulate the economy without directly calling it a stimulus package.

James (02:42):
Short term, this bill is very bullish for real estate. Operators who paused deals because of declining tax benefits now have a reason to move again. Funds that were waiting for clarity now have it. LPs who were worried about losing the ability to offset passive income now see a path forward.

04:45: Long term risks, debt expansion, and dollar pressure

Tyler (04:45):
Let us talk about the other side of this. You have said this bill is great right now, but long term it may accelerate some issues that are already in play. What do you mean by that?

James (04:57):
Yes, this is the part most people do not want to think about. Bills like this expand the debt ceiling. They increase government spending. They increase the deficit. Over time, that puts pressure on the dollar. When you zoom out, this bill adds fuel to trends that were already happening, and none of those trends are positive. Inflation, currency dilution, and debt expansion are all long term risks we should not ignore.

James (05:23):
To be clear, I am not saying do not take advantage of the benefits in this bill. You absolutely should. But you should also understand the macro environment we are moving toward. Short term this is a gift. Long term it amplifies issues with the dollar and the federal balance sheet.

06:22: Certainty and uncertainty for capital allocators

Tyler (06:22):
So to summarize, short term this creates opportunity, long term it adds risk?

James (06:27):
Exactly. Capital allocators hate uncertainty. When bonus depreciation was phasing down, that created uncertainty. Now that it is back at 100 percent, we have clarity again. That clarity allows investors and fund managers to plan, raise capital, and execute deals with more confidence.

James (06:45):
But big picture, every time the government adds trillions to the deficit, we need to acknowledge that future tax rates could rise. Inflation could rise. The purchasing power of the dollar could weaken. Real estate is still a strong hedge against all of that, but we need to understand the full context.

07:58: Bonus depreciation is back at 100 percent and permanent

Tyler (07:58):
Let us get into the big headline. Bonus depreciation is officially back at 100 percent. People keep asking whether it is temporary or phased in, but you are saying it is permanent.

James (08:10):
Yes, it is permanent. This is the part that shocked a lot of accountants. Typically these types of incentives phase out over several years because the government wants to soften the budget impact. But in this bill they brought bonus depreciation back at 100 percent and made it permanent. That is powerful for real estate because it gives long term clarity.

James (08:31):
When you can rely on accelerated depreciation year after year, it changes how you structure your deals, how you model distributions, and how you raise capital. Investors understand the value of large first year deductions. When that becomes a permanent part of the tax code instead of a temporary incentive, it becomes a foundational strategy.

09:00: Why January 19, 2025 matters

Tyler (09:00):
Before we move on, you mentioned an important political date baked into the bill. What is the significance of January 19, 2025?

James (09:10):
January 19, 2025 is the last day of the current administration. There is a political strategy behind this date. By setting certain provisions to activate or sunset around that time, lawmakers essentially forced the next administration to either keep these incentives or be the ones who take them away. It shifts responsibility.

James (09:31):
It is a political chess move. If the next administration removes 100 percent bonus depreciation or scales back Opportunity Zones, they will be blamed. So in a sense, the bill is designed to survive a transition of power.

10:48: How cost segregation unlocks first year write offs

Tyler (10:48):
Let us explain how this actually works. What does 100 percent bonus depreciation mean in practical terms for someone buying a multifamily property?

James (10:58):
Great question. When you buy a building, you cannot depreciate the whole structure upfront. You depreciate it over 27.5 years for residential or 39 years for commercial. But a cost segregation study identifies the parts of the property that qualify for shorter depreciable lives.

James (11:19):
So instead of depreciating everything slowly, cost segregation breaks the property into categories like land improvements, five year property, seven year property, and fifteen year property. With bonus depreciation at 100 percent, you can write off the entire amount of that shorter lived property in the first year.

James (11:42):
For example, if you buy a $10 million multifamily property, a cost segregation study may identify 25 to 35 percent of that as shorter lived components. With 100 percent bonus depreciation, you can potentially write off $2.5 to $3.5 million in year one. That is a huge tax advantage.

13:32: What components qualify for accelerated depreciation

Tyler (13:32):
What kinds of components typically qualify in these studies?

James (13:37):
A lot. Flooring, cabinetry, millwork, appliances, electrical systems, plumbing fixtures, site improvements like sidewalks and landscaping, asphalt, fencing, retaining walls, curbs, gutters, pool equipment if the property has one, and more.

James (13:54):
Most people do not realize how much of a building can legally be reclassified into shorter lived buckets. This is why cost segregation is such a powerful tool when combined with bonus depreciation.

15:05: Typical multifamily example, 25 to 35 percent first year deduction

Tyler (15:05):
So when investors hear 25 to 35 percent year one deductions, that is where the number comes from?

James (15:12):
Yes. It varies by property type, but multifamily typically falls in that range. Newer construction sometimes has even higher percentages because more components qualify for shorter lives.

James (15:24):
This is why bonus depreciation matters so much for syndications and funds. LPs often look at the year one K-1 deduction. They want passive losses. Operators know this. And now that bonus depreciation is back at full strength, the ability to deliver those benefits is back as well.

17:40: LP benefits, passive losses, recapture, rollover strategy

Tyler (17:40):
Let us talk specifically about LPs. How do passive investors benefit from this?

James (17:47):
LPs benefit in a few ways. First, they get large first year passive losses that can offset other passive income. Second, it allows them to plan multi year rollover strategies where they continue to defer recapture as they move from one deal to the next. Third, it improves overall after tax returns, especially for high income earners.

James (18:07):
Real estate is one of the only vehicles where you can generate positive cash flow and still show a paper loss. That is extremely attractive to LPs, and bonus depreciation strengthens that dynamic.

22:05: Interest deductibility expands

Tyler (22:05):
Another part of the bill that caught people’s attention is the change to interest deductibility. This is something that can really affect underwriting. Can you explain what changed?

James (22:17):
Yes. The interest deduction rules have been a moving target for the last several years. Previously, the limitation was based on EBIT, which is earnings before interest and taxes. Under the new bill, the limitation uses EBITDA again. That means earnings before interest, taxes, depreciation, and amortization.

James (22:38):
This is a much more favorable test for real estate because depreciation is such a large non cash expense. When depreciation is added back into the calculation, as it is with EBITDA, you qualify for a much larger interest deduction.

James (22:53):
In simple terms, this means operators will be able to deduct more of their interest expense, which improves cash flow and strengthens deal viability.

24:30: Why this is great for leveraged real estate

Tyler (24:30):
Some people may not understand just how meaningful that is. Can you talk about why this matters for leveraged real estate?

James (24:38):
Real estate is built on leverage. Most commercial deals use debt as part of the capital stack. When interest deductibility is limited, it reduces the tax efficiency of that leverage. By expanding the deduction, the bill restores the ability to use leverage strategically without being penalized.

James (24:58):
This is especially important right now because interest rates are still elevated compared to the last decade. If your rates are higher and you are also limited on what interest you can deduct, it puts a squeeze on returns. This change removes that pressure.

26:10: Depreciable life changes and multifamily implications

Tyler (26:10):
There was also a lot of talk online about changes to depreciable life. There was confusion about whether multifamily would move to a longer schedule. What actually happened?

James (26:23):
This is where misinformation spread quickly. Some people claimed the depreciable life was increasing, but that is not true for most real estate investors. The bill keeps the standard 27.5 year schedule for residential property and 39 year schedule for commercial property. The main changes relate to certain special use categories and corporate structures, not standard multifamily.

James (26:46):
For the vast majority of syndicators, funds, and LPs, nothing meaningful changed here. Depreciation schedules remain the same.

27:52: Opportunity Zones 2.0

Tyler (27:52):
Let us shift to Opportunity Zones. A lot of people were concerned the program was going to sunset in 2026. What does Opportunity Zones 2.0 actually mean?

James (28:04):
The new bill essentially revives and extends the program, but with updates. First, Opportunity Zones become permanent starting in 2027. Second, instead of the original 2026 tax cliff, the program moves to a rolling five year deferral model. That gives investors more flexibility and removes the artificial rush that the old deadline created.

James (28:28):
Another important update is that the ten percent basis step up remains. There is also a new thirty percent basis step up for rural Opportunity Zones. This is meant to encourage development outside major metropolitan areas.

James (28:45):
The eligibility criteria were also expanded. Previously, census tracts needed to be below certain median income thresholds. The new rules raise those thresholds, which means more areas can qualify as Opportunity Zones starting in 2027.

29:00: Rolling 5 year deferral replaces the 2026 cliff

Tyler (29:00):
So instead of a single deadline, investors now have rolling windows to participate.

James (29:07):
Exactly. The original program created panic around the 2026 date. Investors rushed into deals to get the benefits. The new structure is more logical. It allows investors to make decisions based on deal quality instead of expiration pressure.

30:20: Step ups: 10 percent remains, 30 percent for rural zones

Tyler (30:20):
And that thirty percent step up for rural areas, that is new.

James (30:28):
Yes, and it is a big incentive. Rural development often struggles to attract capital. A thirty percent basis step up is a massive tax benefit and will likely create real economic activity in those markets.

32:18: Expanded eligibility for Opportunity Zones

Tyler (32:18):
Can you explain the expanded eligibility piece?

James (32:23):
Sure. The median income threshold was raised from roughly 80 percent to 70 percent, which means more census tracts can qualify as Opportunity Zones. This broadens the geographic reach of the program and creates more opportunities for developers and investors.

34:41: QBI deduction preserved

Tyler (34:41):
Let us move to the Qualified Business Income deduction. There was a lot of speculation that QBI would be eliminated. What happened?

James (34:50):
QBI was preserved, which is a major win for small business owners and real estate operators. The deduction gives eligible taxpayers up to a twenty percent deduction on certain business income. Keeping it in place maintains parity between business owners and corporations, which is important for tax fairness and economic stimulation.

36:10: Why parity between individual and corporate rates matters

Tyler (36:10):
You mentioned parity between individual and corporate tax rates. Why is that such an important concept?

James (36:18):
It matters because when individual rates and corporate rates drift too far apart, it creates incentives for people to game the system. They might try to structure deals or entities only to take advantage of the lower tax rate. When rates stay closer together, it reduces complexity and keeps the playing field more balanced.

James (36:36):
The bill preserves QBI, which keeps that twenty percent deduction available for qualifying business income. This helps maintain parity. It is not perfect, but it prevents a massive gap between corporate tax rates and individual pass through rates.

38:22: SALT cap raised

Tyler (38:22):
Let us talk about the SALT cap. It was a huge limitation for people in high tax states. What changed?

James (38:31):
The SALT cap was originally ten thousand dollars. Under the new bill, the cap is raised to forty thousand dollars. This gives much more breathing room to taxpayers in states with high property taxes or state income tax burdens.

James (38:47):
It does not eliminate the issue completely, but it softens the negative impact that high tax state residents have been dealing with since the original SALT cap was introduced.

39:15: PTE workaround remains intact

Tyler (39:15):
One thing people have asked about is the PTE workaround. Did it survive the bill?

James (39:22):
Yes, it did. The Pass Through Entity Tax workaround is still intact, which is great news for partnerships and S corporations. In many states, this workaround allows business owners to bypass the SALT cap limitation by having the entity pay the tax instead of the individual. Keeping it in place preserves a significant planning tool for high income business owners and investors.

41:18: James' final thoughts: long term risks, short term opportunity

Tyler (41:18):
We have covered a lot. Before we wrap up, what are your final thoughts on how investors should approach this new tax environment?

James (41:26):
Short term, I think the environment is very positive for real estate investors. You have bonus depreciation back at 100 percent, improved interest deductibility, better Opportunity Zone rules, and preserved QBI. All of these tools improve tax efficiency and strengthen deal economics.

James (41:43):
Long term, we need to be honest about the risks. Expanding the deficit, increasing the debt ceiling, and weakening the dollar are real issues. Investors should enjoy the benefits of this bill while also being aware that our macroeconomic landscape may look very different in the next decade.

James (41:59):
Real estate remains one of the best hedges we have against inflation and currency risk. This bill makes real estate even more attractive in the near term.

42:00: Where to follow James

Tyler (42:00):
James, this has been incredibly helpful as always. If people want to follow your work or learn more about what you are doing, where should they go?

James (42:09):
You can find me on LinkedIn under my full name, James Bohan, CPA and MRED. I also share updates on Instagram at @jamesbohancfo. And if you want to dive deeper into tax strategy, you can visit my website at stonehan.com.

Tyler (42:23):
Perfect. Thanks again for coming on the show.

James (42:27):
Thanks for having me.