Get Ready for Epic Tax Savings: Huge Depreciation Bonus Making a Comeback!

Real estate investing is not just a way to build wealth; it’s a smart tax strategy that can propel your financial future forward. From bonus depreciation to opportunity zones and 1031 exchanges, investing in real estate offers a multitude of tax advantages that can help you grow your wealth tax-free or deferred. But with potential new changes in tax laws on the horizon, the landscape for real estate investors could drastically shift, making 2025 a pivotal year.

Here’s a breakdown of the key insights shared by CPA Brandon Hall on the potential tax changes for real estate investors in 2025:

1. Bonus Depreciation Phase-Out: Bonus depreciation has gradually been tapering off, reaching 40% this year, with further reductions planned in the future. Despite this, conducting a cost segregation study for properties remains valuable, creating immediate tax deductions and savings for investors.
2. Consider Timing for Cost Segregation Studies: When to perform a cost segregation study depends on individual circumstances. While there’s an expectation of bonus depreciation extension, waiting to capitalize on it might be a strategic move for some investors.
3. Passive Losses in Cost Segregation: Utilizing cost segregation studies for passive losses may vary based on your passive income sources. Being a real estate professional can unlock additional tax benefits by offsetting passive losses against active income.
4. The Aspect of Partial Asset Dispositions: Overlooked by many investors, partial asset dispositions can significantly reduce the tax burden by deducting costs for replaced components of the property.
5. Potential Tax Law Extensions: Discussions around extending provisions of the 2017 Tax Cuts and Jobs Act hint at retaining policies like bonus depreciation, QBI deductions, and salt cap limits, among others.
6. Renewed Focus on Qualified Opportunity Funds: The reemergence of qualified opportunity funds could offer real estate investors a valuable opportunity, particularly if tax incentive benefits are reintroduced.
7. Key Strategies for 2025: Keep an eye on bonus depreciation, monitor potential policy changes closely, and explore opportunities within qualified opportunity zones for optimal tax benefits.

Looking ahead to 2025, real estate investors need to stay informed, adapt their strategies, and remain agile in navigating potential tax reforms. By leveraging tax advantages and staying ahead of legislative changes, investors can position themselves for continued success in real estate.