For Texas families building wealth through rental real estate, the One Big Beautiful Bill Act (OBBBA) is the most consequential tax law change in years. Signed into law on July 4, 2025, OBBBA permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. The phase-down schedule from the Tax Cuts and Jobs Act — which would have dropped bonus depreciation to 40% in 2025 and zero in 2027 — is gone. The 100% deduction is now a permanent feature of the code.
For an investor who owns 2-to-10 doors alongside a W-2 paycheck, that single change can rewrite the after-tax math of every property they buy, every renovation they undertake, and every refinance they consider in the years ahead. It also resurrects cost segregation as one of the most powerful — and underused — levers in real estate tax planning.
This article is the primer. We walk through what bonus depreciation actually is, what OBBBA changed, why cost segregation now sits at the center of the conversation, what the math looks like on real properties, the recapture trap nobody warns you about, how this interacts with Real Estate Professional Status, and the watch-outs that can turn a savvy strategy into a costly mistake.
We're not going to tell you whether to buy a property, hire a cost segregation engineer, or elect any particular treatment. That's between you, your CPA, and the specifics of your situation. We're going to explain the mechanics — clearly, in depth, with numbers — so you can ask the right questions.
Bonus Depreciation 101: What It Actually Is
To understand what OBBBA changed, you have to understand what bonus depreciation is and how it differs from the depreciation you're already taking on your rental properties.
When you buy a residential rental property, the IRS lets you deduct the cost of the building (not the land) over 27.5 years using straight-line depreciation. For nonresidential property — an office building, a retail strip, a warehouse — the recovery period is 39 years. Each year you take roughly 1/27.5 (or 1/39) of the building's depreciable basis as an expense against your rental income.
That's regular depreciation. It's slow, predictable, and works in the background.
Bonus depreciation, codified in IRC Section 168(k), is different. It lets you take an immediate first-year deduction equal to a percentage of the cost of qualifying property. Under OBBBA, that percentage is 100% — meaning you can write off the entire cost of qualifying assets in the year you place them in service.
But here's the critical limitation: the building itself doesn't qualify. Bonus depreciation is only available for property with a recovery period of 20 years or less. Residential rental buildings have a 27.5-year life. Nonresidential buildings have a 39-year life. Both are excluded from bonus depreciation by definition.
What does qualify? Anything inside or around the building with a shorter recovery period, including:
- 5-year property: carpet, appliances (refrigerators, dishwashers, ranges, washers/dryers), specialty plumbing, decorative lighting, certain window treatments, removable partitions, certain landscape elements
- 7-year property: office furniture, certain types of equipment
- 15-year property: land improvements — sidewalks, driveways, parking areas, fencing, swimming pools, structural landscaping, exterior lighting, retaining walls
- Qualified Improvement Property (QIP): interior improvements made to nonresidential buildings after they were placed in service. QIP has a 15-year recovery period and is eligible for bonus depreciation. Important note: QIP does not apply to residential rentals — only to nonresidential property.
The shortest-lived asset class produces the largest first-year deduction under bonus depreciation, but every category of personal property and land improvement contributes.
The challenge for the typical investor is that when you buy a property, the purchase price isn't itemized by component. The settlement statement just says you bought a duplex for $500,000. The IRS, by default, treats the entire structure as 27.5-year residential property — and your CPA has nothing to work with to peel off the 5-year, 7-year, and 15-year components. That's where cost segregation comes in. We'll get there in a moment.
What OBBBA Actually Did
To appreciate the OBBBA reset, you need to remember where bonus depreciation was headed before the law passed.
The Tax Cuts and Jobs Act of 2017 (TCJA) had set 100% bonus depreciation as a temporary policy — fully available through 2022, then phasing down 20 percentage points per year. The schedule looked like this:
| Year | TCJA bonus depreciation rate (pre-OBBBA) |
|---|---|
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027 | 0% |
For early 2025 specifically, real estate investors were operating under a 40% bonus depreciation regime. Cost segregation still made sense in some scenarios, but the math was meaningfully worse than it had been five years earlier, and the strategy was clearly on its way out.
OBBBA flipped the script. Effective for property acquired and placed in service after January 19, 2025, bonus depreciation is back at 100% — and this time it's permanent. There is no scheduled phase-down. There is no sunset date. The deduction percentage is locked at 100% under current law.
A few technical points matter for investors:
The placed-in-service date is the gate. Bonus depreciation under the new 100% rate applies to property placed in service after January 19, 2025. “Placed in service” generally means the date the property is ready and available for its intended use — for a rental, that typically means the date it's listed for rent and able to accept a tenant, not the closing date.
The binding-contract exception preserves old rates for some property. If you signed a written binding contract to acquire a property before January 20, 2025, that property is treated as acquired under the pre-OBBBA rules. The applicable rates for property under those pre-existing contracts are 40% bonus in 2025, 20% in 2026, and 0% in 2027. For nearly everyone reading this, that exception is moot — but it can matter for investors who locked in development deals or large acquisitions in late 2024 and early 2025.
Used property still qualifies. A common misconception is that bonus depreciation only applies to brand-new property. Since TCJA, used property has been eligible as long as it's new to the taxpayer — meaning you didn't previously own or use it, and you didn't acquire it from a related party. OBBBA preserved that treatment. When you buy an existing single-family rental from another investor, the qualifying components inside it are eligible for 100% bonus depreciation.
Section 179 is also expanded, but separate. Section 179 is a different mechanism for immediate expensing, capped at $2,560,000 for 2026 with a phase-out beginning at $4,090,000 of total qualifying purchases. Section 179 is more useful for active trade-or-business owners than for typical rental investors, partly because it's limited by business taxable income (it can't create a loss) and partly because bonus depreciation is broader in scope. For most rental real estate owners, Section 179 is a supporting actor while bonus depreciation is the lead.
Section 280F luxury auto limits still apply. If you use a passenger vehicle in your rental activity, the first-year depreciation deduction (including bonus depreciation) is capped under IRC Section 280F. For 2026, the cap is $20,300 for vehicles placed in service that year under Revenue Procedure 2026-15. Vehicles over 6,000 pounds GVWR — heavy SUVs and trucks — are exempt from the 280F caps and can be more aggressively depreciated, though specific Section 179 sub-caps apply to SUVs.
The combined effect of these provisions is that, for the first time since 2022, real estate investors have full, permanent access to 100% first-year expensing on a broad swath of property — and the strategic implications are substantial.
Why Cost Segregation Now Matters More Than Ever
Cost segregation is an engineering-based study that breaks down the components of a property and reassigns them to their proper recovery periods. The whole building isn't 27.5-year property — it's a collection of assets, each with its own statutory life.
A cost segregation study typically reclassifies somewhere between 20% and 35% of a residential rental's depreciable basis from 27.5-year property into 5-year, 7-year, or 15-year property. For commercial property, the reclassified portion can be even higher. The exact split depends on the property's age, condition, finishes, and surrounding site improvements.
Under the pre-2018 regime, a cost segregation study was useful because it accelerated depreciation — you'd take more deduction in the early years and less later. The total deduction over the life of the property was the same; you were just front-loading it. The benefit was the time value of money: a dollar of deduction today is worth more than a dollar of deduction in year 25.
Under the post-OBBBA regime, the math is dramatically different. When you reclassify $150,000 of a duplex's basis into 5-year, 7-year, and 15-year property, that $150,000 isn't just being depreciated faster — it's being deducted entirely in year one via 100% bonus depreciation. The reclassified portion converts directly into a first-year write-off.
That makes cost segregation, on properties where the math works, one of the most powerful planning tools available to a real estate investor.
A few practical points:
Cost seg studies have a fixed cost. Engineering-based studies typically run $5,000 to $15,000 for residential rentals, more for larger commercial properties. That cost has to be weighed against the tax savings.
The math gets compelling above a certain property value. For a small single-family rental, a $7,000 cost seg study to unlock an extra $40,000 of first-year deductions might or might not be worth it depending on the investor's marginal tax rate. For a $1 million property, the savings from cost segregation often dwarf the study cost many times over.
You can do cost seg on properties you've already owned for years. If you bought a rental in 2019 and never did a cost segregation study, you haven't lost the opportunity. A “look-back” study can be performed retroactively, and the IRS allows you to claim the missed depreciation in the year you file the catch-up election, via Form 3115. This is one of the most overlooked planning moves in real estate.
Bonus depreciation is automatic unless you elect out. Under Section 168(k), bonus depreciation applies by default to all qualifying property unless you affirmatively elect out for the entire class. That election is made on a class-by-class basis (e.g., for all 5-year property placed in service that year). The default is “take the deduction” — which sounds great until you realize that, in some situations, taking the deduction is actually the wrong move. We'll cover that in the recapture and watch-outs sections.
We've written more about the mechanics of cost segregation in [PLACEHOLDER LINK: Article #3 — Cost Segregation Deep Dive]. For now, the key idea is that OBBBA's permanent restoration of 100% bonus depreciation has shifted cost seg from “useful, situational tool” to “default consideration on every property purchase or recently-acquired property over a certain size.”
A Worked Example: Bonus Depreciation in Practice
Let's make this concrete. Below are two residential rentals — one at $500,000, the other at $1,000,000 — both purchased and placed in service in mid-2026. For each, we'll look at first-year depreciation three ways: (1) straight-line only, (2) with a cost segregation study and no bonus depreciation, and (3) with a cost segregation study plus 100% bonus depreciation under OBBBA.
For both properties, we'll use these assumptions:
- 80% of the purchase price is allocated to the building (depreciable), 20% to land (not depreciable)
- A cost segregation study reclassifies 25% of the depreciable basis to short-life property eligible for bonus depreciation (5-, 7-, and 15-year property combined)
- The remaining 75% of the depreciable basis stays as 27.5-year residential property
- The investor is in the 32% federal marginal tax bracket
Tables below illustrate a full first year of depreciation on the long-life portion for clarity. Actual first-year deductions on the 27.5-year basis will be lower under MACRS's mid-month convention, depending on which month the property is placed in service. The bonus depreciation portion (5-, 7-, and 15-year property) is unaffected by month of placement.
Scenario A — $500,000 single-family rental
| Item | Amount |
|---|---|
| Purchase price | $500,000 |
| Land allocation (20%) | $100,000 |
| Depreciable basis (building + components) | $400,000 |
| Short-life property after cost seg (25%) | $100,000 |
| Long-life property (27.5-year, 75%) | $300,000 |
First-year depreciation under each approach:
| Approach | Year 1 deduction | Tax savings @ 32% |
|---|---|---|
| Straight-line only (no cost seg) | ~$14,545 | ~$4,654 |
| Cost seg, no bonus depreciation | ~$26,000 | ~$8,320 |
| Cost seg + 100% bonus depreciation | ~$110,909 | ~$35,491 |
Quick math on the cost-seg-plus-bonus row: $100,000 of short-life property × 100% bonus depreciation = $100,000 immediate write-off, plus the standard year-one straight-line depreciation on the remaining $300,000 of 27.5-year property (roughly $10,909 on a full-year basis; less under the mid-month convention). Total: approximately $110,909 in year-one deductions on a full-year illustrative basis.
Scenario B — $1,000,000 single-family rental
| Item | Amount |
|---|---|
| Purchase price | $1,000,000 |
| Land allocation (20%) | $200,000 |
| Depreciable basis | $800,000 |
| Short-life property after cost seg (25%) | $200,000 |
| Long-life property (27.5-year, 75%) | $600,000 |
| Approach | Year 1 deduction | Tax savings @ 32% |
|---|---|---|
| Straight-line only | ~$29,091 | ~$9,309 |
| Cost seg, no bonus depreciation | ~$52,000 | ~$16,640 |
| Cost seg + 100% bonus depreciation | ~$221,818 | ~$70,982 |
The pattern is the same in both cases: the cost seg plus bonus combination produces a first-year deduction roughly 7-to-8x what straight-line alone would produce. On the $1M property, that's a $71,000 federal tax savings in year one — money that can be reinvested, used to pay down acquisition debt, or held as a liquidity cushion.
A few things worth noticing:
The deduction is the same percentage of the property either way. Whether you bought a $500K or a $1M house, cost segregation reclassifies roughly the same proportion of basis to short-life property. The dollar savings scale linearly, but so do the costs of the study and the recapture exposure on eventual sale.
Bonus depreciation isn't free money — it's accelerated money. You're not deducting more than the property's basis. You're just front-loading deductions that would otherwise be spread over 27.5 years. The total lifetime deduction is unchanged. What changes is the timing.
The deduction can exceed the rental's annual income. A $111,000 first-year deduction on a property that generates $30,000 of rental income produces a paper “loss” of roughly $81,000. Whether you can actually use that loss against your other income — your W-2 wages, your business income, your spouse's income — is governed by the passive activity loss rules under IRC Section 469. That's where the planning gets interesting (and where Real Estate Professional Status comes in).
These numbers are illustrative, not predictions. Your actual reclassification percentage will depend on the property. The marginal tax rate that applies to your specific situation will depend on your total income. A cost segregation engineer and a CPA who knows your full picture are the people to run this for your situation.
The Recapture Problem Nobody Talks About
When the cost segregation and bonus depreciation pitch gets made — by a real estate guru, by a YouTube tax strategist, by a cost seg engineer's marketing material — the recapture issue is almost always glossed over or ignored entirely. It shouldn't be.
Here's the mechanics.
When you eventually sell a depreciated rental property, the IRS doesn't just tax your gain at long-term capital gains rates. It “recaptures” some or all of the depreciation you took along the way and taxes it differently — typically at less favorable rates than long-term capital gains.
Two categories of recapture matter for real estate investors:
Unrecaptured Section 1250 gain applies to depreciation taken on real property (the building itself, the structural components). When you sell, the portion of your gain attributable to prior depreciation on real property is taxed at a maximum 25% rate — higher than the 20% long-term capital gains rate that applies to the rest of the gain (assuming you're in the top bracket).
Section 1245 recapture applies to personal property and certain other depreciable assets — exactly the categories that cost segregation reclassifies into. When you sell and have taken bonus depreciation or accelerated depreciation on 5-year, 7-year, or 15-year property, the depreciation you took on that property is recaptured as ordinary income — taxed at your marginal rate, up to 37% federally.
Read that again. The personal property you carved out through cost segregation and wrote off via 100% bonus depreciation gets recaptured at ordinary income rates, not capital gains rates.
This doesn't make cost segregation a bad strategy. But it complicates the simple-sounding pitch of “take the deduction now and pay capital gains rates later.”
A few planning implications:
The deduction-rate vs. recapture-rate spread can swing the analysis. If you take a $100,000 deduction at 37% (saving $37,000) and recapture it later at 37% (paying $37,000), you've effectively gotten an interest-free loan from the government for the holding period. The longer you hold, the more valuable that loan is. But if both years are in the same bracket, the rate spread isn't the source of the value — the time value is. If you take the deduction in a low-bracket year and recapture in a high-bracket year, you can actually come out worse than if you'd just taken straight-line.
Recapture only happens on sale. If you hold the property until death, the heirs receive a stepped-up basis under current law, and the previously-taken depreciation is effectively forgiven. This is one reason real estate gets called “die-with-it” wealth in tax planning circles. Under OBBBA, the stepped-up basis treatment for inherited property is preserved, and the estate tax exemption was permanently set at $15 million per individual / $30 million per couple — though that's a separate topic.
1031 exchanges defer recapture; they don't eliminate it. When you do a 1031 like-kind exchange, both your capital gain and your recapture liability roll into the replacement property's basis. The clock keeps ticking. If you ever sell out of real estate entirely without an exchange, all that deferred recapture comes due at once — potentially at higher rates if you're in a high-income year. Investors who plan to do serial 1031 exchanges should think carefully about how aggressive a depreciation posture they want to take, because every dollar of bonus depreciation today is a dollar of future ordinary-income recapture (or future deferred liability) tomorrow.
The recapture trap is worst for short-hold investors. If you buy a property, do a cost seg study, take $150,000 of bonus depreciation in year one, and then sell in year three — you've recaptured most of that depreciation while only getting two extra years of tax deferral. The economics aren't disastrous, but they're meaningfully weaker than the “first-year deductions are amazing!” pitch implies.
The takeaway: bonus depreciation is genuinely powerful, but the recapture liability is real. The strategy works best for investors who plan to hold for the long term, who can absorb the year-of-sale tax bill in a planned way, or who plan to use 1031 exchanges or death basis step-up to defer or eliminate recapture entirely.
If you want a deeper read on coordinating real estate transactions with tax planning, we covered like-kind exchanges in 1031 Exchange Strategies for Hill Country Land Owners.
Coordination with Real Estate Professional Status
For many investors, the most important question about bonus depreciation isn't whether to take it — it's whether you can actually use the deduction in the year you take it.
The IRS classifies rental real estate as a “per se passive activity” under IRC Section 469. That means rental losses — including the big first-year losses generated by cost segregation and bonus depreciation — are generally treated as passive losses, deductible only against passive income from other sources. They can't be used to offset W-2 wages, business income from active businesses, or investment income.
For a couple in the 35% federal bracket with $400,000 of W-2 income and a rental that throws off a $150,000 paper loss in year one, that passive-loss limitation can be brutal. The deduction doesn't go away — it carries forward to future years and accumulates as a “suspended passive loss” — but the immediate tax savings the investor was expecting evaporate.
There are two main paths around the passive activity loss rules for rental real estate:
The $25,000 special allowance under Section 469(i) lets active participants in rental activities deduct up to $25,000 of rental losses against non-passive income. But the allowance phases out between $100,000 and $150,000 of modified AGI and is fully gone above $150,000 — which means it's effectively unavailable to most of the audience we work with.
Real Estate Professional Status (REPS) is the meaningful exception for higher-income investors. To qualify in a given year, the taxpayer (or, on a joint return, one spouse) must:
- Spend more than 750 hours during the tax year materially participating in real property trades or businesses, AND
- Spend more than 50% of their personal services in real property trades or businesses
If you can meet both tests, your rental activities can be treated as non-passive, and your rental losses — including bonus-depreciation-generated losses — can offset your other income directly.
The catch: most high-W-2-income investors can't meet test #2. If you're a physician working 2,200 hours a year as a physician, you can't reasonably claim to have spent more than 50% of your personal services in real estate, even if you also worked 1,000 hours on rentals. The 50% test is the gating issue for most professionals.
That's why REPS is most commonly used by:
- One spouse in a dual-earner household (the non-W-2 or part-time-W-2 spouse takes the REPS qualification)
- Retired professionals whose primary remaining occupation is managing their real estate portfolio
- Full-time real estate investors and developers
- People who have substantially scaled back outside work specifically to qualify
The hours requirement is also serious. 750 hours is roughly 15 hours per week, every week of the year. Property managers don't count toward your hours — only your own personal involvement. And the IRS is well aware that REPS claims are an audit flag, particularly for investors with substantial W-2 income elsewhere on the return.
A more detailed treatment of REPS qualification, including the substantiation requirements and how to plan around them, will be covered in [PLACEHOLDER LINK: Article #12 — Real Estate Professional Status]. For purposes of this article, the key idea is that the value of bonus depreciation depends heavily on whether you can put the resulting loss to work against active income, and that question turns on either passive income availability or REPS qualification.
If neither applies, bonus depreciation still has value — it just becomes a deferral mechanism. The losses suspend, carry forward, and eventually get used either when the property is sold (suspended passive losses are released on disposition) or against future passive income from other investments. The strategy still works; it just works on a longer timeline than the “huge first-year deduction” pitch suggests.
Watch-Outs for Serious Investors
A few additional issues that don't make the marketing brochures:
Basis tracking gets complicated fast. Every dollar of depreciation — bonus or otherwise — reduces your basis in the property. Lower basis means larger taxable gain on sale. Lower basis also means lower depreciation deductions on the same property in future years (since you can't depreciate below zero). If you're doing cost seg studies, 1031 exchanges, refinances, and gifting strategies across multiple properties, the basis recordkeeping becomes a real project. Mistakes here compound over time.
Section 163(j) interest deduction limits. OBBBA also restored the EBITDA-based calculation for adjusted taxable income under Section 163(j), which determines how much business interest is deductible. The interaction between accelerated depreciation, business interest deductions, and the Real Property Trade or Business (RPTB) election is complex. For most individual rental owners with modest debt, this isn't a meaningful issue. For investors with substantial commercial portfolios or partnership investments, the interaction matters and may even argue against taking maximum bonus depreciation in some years.
State non-conformity. Federal and state tax treatment of bonus depreciation often diverge. Texas has no state income tax, so this is moot for Texas-only investors. But many investors — including roughly half of our own client base — own real estate in other states or live in states with income taxes that don't conform to the federal bonus depreciation rules. California, for example, does not conform to federal bonus depreciation at all. If you own rentals in California, Pennsylvania, or other non-conforming states, your federal and state depreciation schedules will diverge, and you'll need to maintain two sets of basis records. This isn't a deal-breaker — but it's another piece of administrative complexity that gets glossed over in the pitch.
Interaction with QBI. Rental activities can sometimes qualify as a trade or business for purposes of the Section 199A Qualified Business Income deduction (under a safe harbor or facts-and-circumstances analysis). Aggressive bonus depreciation reduces net rental income — which can in turn reduce the QBI deduction. For investors with rental income that flows into QBI, the trade-off between front-loading depreciation and preserving QBI deductibility is a real one. We covered the broader QBI mechanics in QBI Deduction for Texas Business Owners: What OBBBA Changed.
Alternative Minimum Tax (AMT). Bonus depreciation is generally exempt from AMT adjustments under current law, but related considerations can come into play. Under OBBBA, the AMT exemption phaseout was modified starting in 2026, with the phaseout rate increasing to 50% within the phaseout range — creating effectively higher marginal rates within the bump zone (the phaseout starts at $500,000 of AMT income for single filers and $1,000,000 for joint filers in 2026). For investors approaching those AMT thresholds, the interaction of large depreciation deductions and AMT calculation needs to be modeled, not assumed.
Excess Business Loss limitation. OBBBA also made the excess business loss disallowance under Section 461(l) permanent, and reset the inflation-indexing baseline. For 2026, the threshold is $256,000 (single) / $512,000 (married filing jointly), indexed for inflation thereafter — notably lower than the 2025 threshold of $313,000 / $626,000, because OBBBA re-baselined the indexing. Business losses in excess of those amounts (plus business income) cannot be used against non-business income in the current year and instead carry over as a net operating loss. For an investor generating very large first-year losses through cost segregation and bonus depreciation, this limitation can defer the use of the deduction even when REPS qualification is met — and the lower 2026 ceiling means more investors will hit it than in prior years.
Audit profile. Big first-year deductions tied to cost seg studies, REPS claims, and aggressive basis allocations are visible to IRS systems. None of these strategies is illegitimate, but they are areas where documentation matters. Hire credentialed cost segregation engineers (look for ASCSP-certified professionals). Maintain time logs for REPS hours. Keep your CPA in the loop before, not after.
Elect-out flexibility. Bonus depreciation applies automatically. But for some investors in some years, it's actually preferable to elect out — particularly in years where bonus depreciation would generate losses that get suspended anyway (so there's no immediate tax benefit) but the depreciation would later be recaptured at ordinary-income rates. The election to opt out is made on a class-by-class basis. This is one of the under-discussed planning moves and should be on the table every year, not just assumed away.
What This Means for Texas Investors
For Texas real estate investors specifically — particularly the 45-to-65 demographic with W-2 income, a primary residence, 2-to-10 rental doors, and a tax bill that already feels too high — OBBBA's permanent 100% bonus depreciation reset is a meaningful planning opportunity. Several things make Texas a particularly good environment for the strategy:
No state income tax. The state non-conformity issue that complicates federal bonus depreciation in California, New York, and other high-income-tax states simply doesn't exist for in-state property. The federal deduction is the deduction. Texas franchise tax has its own rules but doesn't conform to or diverge from federal depreciation in a way that's meaningful for most individual rental owners.
Property tax structure rewards efficient ownership. Texas funds most of its government through property taxes rather than income taxes, which means rental property owners are already comfortable with the trade-off of high carrying costs. The federal income tax savings from cost seg and bonus depreciation help offset those carrying costs in a state where after-tax cash flow matters.
Strong real estate market dynamics. Growth across San Antonio, Austin, Dallas, Houston, and the suburbs and exurbs in between has produced a generation of investors who own appreciated property they didn't necessarily plan to depreciate aggressively. The look-back cost segregation opportunity — running a study on a property you've owned for several years and claiming missed depreciation in the current year via Form 3115 — is particularly relevant for many Texas investors who bought during the 2018-to-2024 run-up.
Family ownership patterns. Many Texas rental portfolios are held inside LLCs, family limited partnerships, and trust structures specifically designed to facilitate eventual estate transfer. The interaction between bonus depreciation (which reduces basis and creates recapture exposure on sale) and estate planning (which can step up basis on death) becomes important. The right answer often involves not just the federal income tax calculation but the long-term family transfer strategy.
Just as important: bonus depreciation is one piece of a coordinated tax strategy, not the strategy itself. The investors who get the most out of OBBBA's permanent restoration aren't the ones who maximize the deduction on every property. They're the ones who coordinate the deduction with their income picture, their REPS status (or lack thereof), their hold-period plans, their 1031 exchange strategy, their estate plan, and the broader business and W-2 income they're trying to manage. For business owners thinking through how this kind of coordination plays out across the years leading up to a major liquidity event, we wrote about that in Business Exit Planning: A 5-Year Timeline for Owners Who Want to Sell — different context, similar principle.
Real estate tax planning is one of the most leveraged forms of tax planning available to high-income households. But only if it's coordinated with the rest of your financial picture. The OBBBA reset turns 100% bonus depreciation from a sunset provision into a permanent feature of the code. For investors with the right circumstances, that changes what's possible. For investors without those circumstances, taking maximum bonus depreciation can actually create problems — suspended losses, recapture exposure, and complexity that costs more than it saves.
If you're a Texas investor trying to think through how OBBBA, cost segregation, REPS, and your broader financial plan fit together, that's exactly the kind of conversation we have with clients every week. We'd be glad to talk through your specific situation.