Five Essential Cost Segregation Updates for Tax Year 2025

The One Big Beautiful Bill Act (OBBBA) has brought sweeping changes to the real estate tax landscape. There is a great deal of opportunity right now – some of which is time-sensitive.

Prepping for Tax Year 2025 means considering all potential options currently on the table. Whether you’ve completed renovations, acquisitions, or strategic exchanges, understanding the new tax updates will open channels to new opportunities that will assist in maximizing tax deductions and improving cash flow.

Key Takeaways

• The One Big Beautiful Bill Act (OBBBA) reintroduces 100% bonus depreciation for various property types starting January 20, 2025, enhancing the benefits of cost segregation and significantly increasing first-year tax savings for qualified properties. Sec. 179 expensing is still in play – with increased expensing limitations – and taxpayers should consider potential Sec. 179/bonus depreciation interplay. 

• The new Qualified Production Property (QPP) designation allows for 100% bonus depreciation on specific industrial facility portions used for production, but this is available only for a limited time, emphasizing the need for timely action to capitalize on this opportunity.

• While the 179D Deduction and incentives for wind and solar projects have sunset dates, their phased withdrawal offers strategic planning opportunities, including increased Sec. 179 expensing limits, requiring taxpayers to make informed decisions to optimize tax benefits through cost segregation.

Permanent Reinstatement of 100% Bonus Depreciation

The OBBBA permanently reinstated 100% bonus depreciation from the Tax Cuts and Jobs Act (TCJA) for qualified property acquired and placed in service on or after January 20, 2025:

• Acquisitions: Written Binding Contract must have been signed on/after 1/20/2025
• New construction: Physical work must have begun on/after 1/20/2025 (10% safe harbor may exist)

If neither of the above is true, the property would only be eligible for bonus depreciation under TCJA-era rates (40% for 2025, 20% for 2026). 

Bonus-eligible property includes 5 and 7-year personal property, 15-year land improvements, and 15-year qualified improvement property (for entities that do not have a real property trade or business election in place). 

The return to 100% bonus depreciation enhances cost segregation benefits, often more than doubling first-year tax savings.

Qualified Production Property (QPP) Established

The OBBBA established a new property category, exclusive to industrial facilities. QPP is defined as any portion of US non-residential real property that a taxpayer directly uses for a qualified production activity. The qualifying property is only the portion of the manufacturing facility used for production; office spaces, storage areas, and similar areas do not qualify as QPP.

For a limited time, QPP is eligible for 100% bonus depreciation. This is tremendously significant – for the first time, base building assets are eligible for full, immediate expensing. However, several criteria must be met:

If the conditions in the table are satisfied, 100% bonus depreciation may be recognized on QPP, further enhancing the benefit in a manufacturing cost segregation study.

Note that while 100% bonus depreciation on tangible personal property has been permanently reinstated, 100% bonus depreciation on QPP is available for a limited time only, so the time to consider this opportunity is now.

179D Deduction Scheduled to Sunset

The 179D Deduction is an excellent complement to cost segregation, as it permits the immediate deduction of energy-efficient improvements that are not eligible for accelerated depreciation. For years, thoughtful taxpayers have used these strategies in tandem to great success, but that may soon come to an end.

Under the OBBBA, the 179D Deduction has been assigned a sunset date of 6/30/2026. If construction begins before 6/30/2026, the deduction can still be claimed.

The next 6 months are a crucial time period – if you can break ground before 6/30/2026, you can still claim the full benefit. Timely decisions are key to leveraging this benefit while it’s still on the table.

Wind and Solar Incentives Sunset with a More Generous Timeline

Under the OBBBA, taxpayers have a longer window to claim the Investment Tax Credit and Clean Electricity Investment Credit. If small wind and solar projects are placed-in-service by 12/31/2027, the Credit can be claimed. Additionally, if construction begins on/before 7/4/2026, taxpayers have up to 4 years from the beginning of construction to place the system into service.

Solar arrays, in particular, are a common add-on to a cost segregation study, and the additional time this incentive has been granted enables more taxpayers to take advantage of stacking the benefits.

179 Expensing Limits Raised

The OBBBA doubled the overall expensing limitation under Sec. 179, boosting it from $1.25M to $2.5M. The phase-out threshold also increased to $4.0M.

Now that bonus depreciation has been restored to 100%, many taxpayers won’t consider 179 expensing. However, Sec. 179 expensing has its own strategic utility, and taxpayers are encouraged to discuss the bonus/179 balance with their tax professionals.

The OBBBA has opened up a great deal of opportunity, and the key to maximizing returns in TY 2025 is selecting the right opportunities. The EisnerAmper team is here to help you create a tax plan that fits your goals and maximizes your benefit. Reach out to us for guidance.