How 100% Bonus Depreciation Transforms Real Estate Returns

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Bonus depreciation is once again at 100%, and its return is reshaping the economics of commercial real estate investing. By allowing owners to accelerate depreciation into the first year of ownership, this provision can significantly improve after-tax returns—without changing the underlying fundamentals of an asset. For many investors, it’s one of the most powerful tools in today’s tax landscape.

In a recent Peachtree Point of View episode, Peachtree Group CEO Greg Friedman, CFO Jatin Desai, and DST program president Tim Witt unpack how bonus depreciation works, where it is most effective, and why this renewed incentive matters for investors.

What Bonus Depreciation Does

Bonus depreciation allows investors to deduct a large portion of qualifying property in year one, rather than spreading those deductions over 27.5 or 39 years. While the building itself doesn’t qualify, many components—such as equipment, fixtures, and certain building systems—can be identified through cost segregation and eligible for immediate deduction.

With the tax bill restoring 100% bonus depreciation, investors can now fully expense these qualifying components in the first year, restoring a meaningful advantage for both direct owners and passive investors.

Why It Matters

Accelerating depreciation can dramatically lower taxable income in the early years of ownership while investors continue to collect cash flow and participate in appreciation. This isn’t tax forgiveness, it’s tax deferral. But the timing advantage, combined with potential tax rate arbitrage, creates real economic value.

For investors who integrate bonus depreciation with long-term strategies, including 1031 exchanges, these timing benefits compound, making it a cornerstone of tax-efficient real estate planning.

Where It Shows Up Most Clearly

Single-tenant net lease assets such as convenience stores, gas stations, and car washes, tend to produce the strongest first-year deductions due to their shorter recovery lives. Many investors can deduct a substantial portion of the purchase price in year one, even when using leverage.

Hotel developments also benefit. Through cost segregation, new hospitality projects often support first-year deductions representing 30–40% of total project cost, creating meaningful early-year tax efficiency.

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Three Key Takeaways from the Episode

1. Bonus depreciation is powerful but misunderstood.
It accelerates deductions, it does not eliminate taxes. Investors should view it as a timing tool that enhances, not replaces, strong underwriting.

2. Asset type matters.
Net lease properties and hospitality developments can unlock significant first-year deductions, making them ideal for investors seeking tax-efficient income.

3. Integration is everything.
When paired with long-term strategies like 1031 exchanges, bonus depreciation becomes part of a multi-year tax planning framework that supports wealth creation.

Listen to the full conversation on the Peachtree Point of View podcast.

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