Cost Segregation and the One Big Beautiful Bill Act of 2025

The One Big Beautiful Bill Act of 2025 did something cost segregation professionals had waited years for: it made 100% bonus depreciation permanent. For commercial property owners, that turns a depreciation study from a nice-to-have into one of the most valuable moves available this year.

What the One Big Beautiful Bill Act of 2025 changed

The Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation under Section 168(k) of the Internal Revenue Code. Qualifying property that is both acquired and placed in service after January 19, 2025 can be fully expensed in year one, rather than written off slowly over decades.

This reverses a phase-down that had been quietly eroding the benefit. Under the prior schedule, bonus depreciation had already fallen to 60% in 2024 and was set to drop to 40% in 2025 and disappear by 2027. The Act eliminated that decline for qualifying property and locked the rate back at 100%. The IRS issued Notice 2026-11 to guide taxpayers in applying the permanent deduction.

Why this makes cost segregation more valuable, not less

Here is the part many owners miss. Bonus depreciation only applies to property with a recovery period of 20 years or less. A commercial building itself is depreciated over 39 years, so the building, on its own, receives none of this benefit.

Cost segregation is what unlocks it. An engineering-based study separates a building into its components and reclassifies the parts that genuinely wear out faster, the finishes, fixtures, equipment, and site improvements, into 5, 7, and 15-year lives. Those shorter-life components qualify for 100% bonus depreciation. In plain terms, cost segregation is the mechanism that converts a slice of your 39-year building basis into deductions you can take immediately. Without a study, those components stay buried in the 39-year schedule and the bonus rules never reach them.

A simple example

Consider a mixed-use retail property purchased for $2,150,000, with $1,720,000 allocated to the building and $430,000 to land. A study might reclassify roughly 28% of the building basis, about $481,600, into shorter-life property:

• 5-year property (fixtures, equipment): $214,300
• 7-year property (furnishings): $61,200
• 15-year property (site improvements): $206,100

Under 100% bonus depreciation, that entire $481,600 can be deducted in year one rather than spread across nearly four decades. These figures are illustrative; your actual result depends on your property and an engineered study.

Already own the building? The look-back still applies

You do not have to have bought this year to benefit. For property placed in service in earlier years, a cost segregation study can be paired with a Form 3115 change in accounting method, allowing a catch-up deduction under Section 481(a) for the depreciation you should have been taking, without amending your prior returns. Owners who have held a property for several years are often surprised by the size of that catch-up.

A word on depreciation recapture

Accelerating depreciation is not free of trade-offs. The deductions you pull forward can increase the amount of depreciation recaptured when you sell. For most owners, the time value of cash today, combined with the option to defer through a 1031 exchange, still comes out ahead, but not for everyone. A good study starts with an honest look at whether the benefit clears the cost, and your CPA should model your specific situation before you commit.

What to do now

The rate is permanent, so the window is not closing. But the value of acting is highest while you hold the property and while the deductions compound in your favor. The first step is simple and free: see what a study is likely to free up on your specific building before you spend a dollar.

Frequently asked questions

Is 100% bonus depreciation really permanent now?

Yes. The One Big Beautiful Bill Act of 2025 made 100% bonus depreciation under Section 168(k) permanent for qualifying property acquired and placed in service after January 19, 2025, ending the prior phase-down.

What property qualifies for bonus depreciation?

Property with a recovery period of 20 years or less, which includes the 5, 7, and 15-year components a cost segregation study identifies. The 39-year building shell itself does not qualify, which is exactly why the study matters.

Can I benefit if I bought my property years ago?

Often yes. A Form 3115 change in accounting method lets you claim a catch-up deduction for missed depreciation under Section 481(a), without amending prior returns.

Is this tax advice?

No. This article is general information. Basis Property Group is not a CPA or law firm. Your engineered study and your tax advisor determine the amounts you actually file.

Sources

» Internal Revenue Service, "One, Big, Beautiful Bill provisions," and Notice 2026-11 (guidance on the permanent additional first-year depreciation deduction), irs.gov
» Internal Revenue Code Section 168(k), additional first-year depreciation
» IRS Cost Segregation Audit Techniques Guide
» Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997)