Bonus Depreciation for Real Estate Investors

Accelerate deductions

Compound the difference

Accelerate eligible real estate depreciation to potentially reduce taxable income today and keep more of your capital available to reinvest and compound.

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How it works Our approach Is this right for you Applying the strategy FAQs

How Bonus Depreciation Works

Bonus depreciation allows investors to accelerate deductions on qualifying property rather than spread them over longer depreciation periods. In commercial real estate, a cost segregation study identifies eligible shorter-lived components. The strategy primarily changes when deductions are taken—not the total depreciation available over time.

Invest → Segregate → Deduct → Reinvest

Invest

Acquire or develop qualifying real estate.

Segregate

Use a cost segregation study to identify eligible shorter-lived property.

Deduct

Accelerate qualifying depreciation into earlier years.

Reinvest

Keep more capital available to invest when deductions reduce current taxes.

Investment First.
Tax Strategy Second.

A tax deduction can’t make a poor investment a good one.

Start with the asset, market, basis, cash flow, risk and expected return. Then evaluate whether bonus depreciation may improve the potential after-tax outcome.

Is Bonus Depreciation Relevant to You?

Bonus depreciation may be worth exploring if you:

Own or invest in qualifying commercial real estate

Are acquiring or developing new real estate investments

Have taxable income that eligible deductions may offset

Want to accelerate deductions into earlier years

Have a strategy for reinvesting potential tax savings

Understand how depreciation recapture may affect a future sale

The ability to use depreciation deductions varies by investor. Active versus passive income, real estate professional status and other tax limitations can materially affect the benefit.

The Opportunity Varies by Property

The potential benefit depends in part on how much of an investment can be classified as qualifying shorter-lived property.

More qualifying components → More potential accelerated depreciation

Hotels

Furniture, equipment, finishes and other qualifying components.

Specialized Real Estate

Certain property types may contain a greater proportion of shorter-lived assets.

Commercial Real Estate

Qualifying building components and land improvements may be identified through cost segregation.

The property matters. The cost segregation study determines what qualifies.

Applying the Strategy

Peachtree believes in understanding tax strategies through real investment experience.

We currently utilize bonus depreciation where appropriate within our own real estate investments. That firsthand experience informs how we evaluate tax-efficient strategies for future investor opportunities.

Learn More About Peachtree's Tax Strategies

Frequently Asked Questions

Is 100% bonus depreciation currently available?

Under current federal tax law, qualifying property may be eligible for 100% bonus depreciation.

Eligibility depends on the property, when it is acquired or placed in service and other applicable requirements.

How does a cost segregation study identify qualifying property?

A cost segregation study separates a property’s components according to their applicable depreciation periods. While land cannot be depreciated and the building structure is typically depreciated over a longer period, certain shorter-lived components may qualify for accelerated depreciation.

Does bonus depreciation create additional deductions?

Generally, bonus depreciation changes the timing of eligible deductions rather than creating additional depreciation.

The strategy accelerates deductions that otherwise would generally be recognized over longer periods.

What income can bonus depreciation offset?

That depends on the investor.

The ability to use depreciation deductions can be affected by whether income is active or passive, the investor’s participation in the investment, real estate professional status and other tax limitations.

Unused losses may potentially be carried forward, subject to applicable rules.

Do I need to be a real estate professional?

Not necessarily.

Real estate professional status can affect how certain real estate losses may be used, particularly against active income. Investors who do not qualify may still be able to use eligible passive losses against passive income, subject to applicable limitations.

What happens when the property is sold?

Some depreciation deductions may be subject to depreciation recapture when a property is sold.

For that reason, bonus depreciation should be considered across the full investment lifecycle rather than only for the potential first-year deduction.

Can bonus depreciation work with a 1031 exchange?

Potentially.

A qualifying 1031 exchange may allow an investor to defer eligible gain and depreciation recapture when investment real estate is sold and proceeds are reinvested into qualifying replacement property.

Each strategy has separate requirements and should be evaluated with appropriate tax and legal advisors.

Can investors in a partnership benefit from bonus depreciation?

Potentially. Eligible depreciation generated by a partnership may be allocated to investors.

An individual investor’s ability to use those deductions depends on the investment structure, income type and applicable tax rules and limitations.

Does Peachtree provide tax advice?

No. Peachtree provides educational information about tax-efficient investment strategies but does not provide individual tax or legal advice.

Investors should work with their own tax, legal and financial advisors to determine whether bonus depreciation and related deductions are appropriate for their circumstances.

Looking upward between tall modern skyscrapers against a partly cloudy blue sky.

Keep More Capital Working Today

The timing of a tax deduction can affect how much capital remains available to invest and compound.

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For Use by Accredited Investors Only

Summary of Important Risks and Tax Considerations

General Investment and Private Placement Risks

Private real estate and alternative investment strategies are speculative, illiquid and involve a high degree of risk, including possible loss of principal. There can be no assurance that any investment objective, distribution target, capital preservation goal or tax result will be achieved. This summary is not complete and should be read together with the applicable offering documents, subscription materials and governing agreements.

Interests are generally not registered under the Securities Act of 1933 or listed on any exchange; no public market is expected to develop.
Investors may have limited liquidity and significant restrictions on transfer, redemption or resale.
Performance may be affected by real estate market conditions, interest rates, financing availability, leverage, tenant or borrower credit, operating costs, property values and sponsor execution.
Fees, expenses, selling commissions, broker-dealer compensation and sponsor affiliates may create conflicts of interest and reduce investor returns.
Past performance, targets, projections and examples are not guarantees of future results.

DST and 1031 Exchange Considerations

A DST may be structured to qualify as replacement property for Section 1031 purposes, but tax treatment depends on transaction structure and each investor’s facts.
Investors must satisfy strict exchange requirements, including identification and exchange deadlines, use of a qualified intermediary and avoidance of actual or constructive receipt of proceeds.
Debt replacement, cash boot, property qualification and timing issues may cause partial or full gain recognition, including depreciation recapture.
DST investors generally have no direct management control and limited ability to influence financing, leasing, refinancing, sale timing or property-level decisions.
A future step-up in basis depends on current estate tax rules and each client’s estate plan; tax law may change.

Qualified Opportunity Zone Considerations

QOZ benefits require eligible gain, timely investment, proper election and ongoing compliance by the investor, QOF, QROF and/or QOZ business.
Pre-2027 and post-2026 QOZ rules differ; rural QROF benefits, zone designations and effective dates should be reviewed with tax counsel.
Tax benefits may be reduced or lost if holding-period requirements are not satisfied or if the fund fails to maintain QOF/QROF or QOZ property requirements.

QOZ Development and Tax Risks

Development and redevelopment strategies involve entitlement, zoning, permitting, construction, environmental, leasing, valuation, financing, operating and exit risks.
Tax-free appreciation and depreciation recapture treatment require satisfaction of statutory and regulatory requirements and may depend on the sale structure.
Investors may owe tax on deferred gain before receiving liquidity from the investment.
Tax reporting obligations may include Form 8949, Form 8997 and other filings; penalties or inclusion events can arise if requirements are not met.

Roth Conversion and Retirement Account Considerations

Roth conversions generally create taxable income in the conversion year and may affect marginal tax rates, estimated taxes, state taxes, Medicare premiums, credits and deductions.
Tax offsets from real estate depreciation, deductions or losses are not guaranteed and may be limited by passive activity, at-risk, basis, UBTI/UBIT, plan, custodian or other rules.
Private real estate investments held by IRAs require an appropriate custodian and careful compliance with prohibited transaction, valuation, liquidity and reporting requirements.
Roth conversion planning should be coordinated with RMD timing, estate planning, beneficiary designations and the client’s liquidity needed to pay taxes from outside assets.

No Offer

This material is for discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Any offering may be made only through definitive offering documents provided to eligible investors. Peachtree Group and its affiliates do not provide tax or legal advice. Investors should consult their own tax, legal and financial advisors before investing.