One Big Beautiful Bill - Cost Segregation Changes

The OBBBA’s Effect on Cost Segregation

The One Big Beautiful Bill Act (OBBBA) has changed the game for business owners and real estate investors in a significant way. The scale of the bill is staggering, and one provision stands out for its immediate financial implications: the restoration of 100% bonus depreciation—and this time, it’s permanent.

If you own commercial or industrial property, and in some cases residential rental property, this update could significantly improve your cash flow. We break down the important aspects of this section of the bill below.

Bonus Depreciation – What it is.

Bonus depreciation allows businesses to fully expense qualifying assets in the year they are placed in service, rather than taking a smaller annual depreciation expense over a set period of time based on the asset classification. Assets that may qualify for cost segregation include machinery, equipment, and many types of building components.

As a result of the Tax Cuts and Jobs Act of 2017, bonus depreciation was being reduced by 20% each year…from 100% in 2022 down to 0% in 2027. It removed a key element to incentivizing investment by business owners. The OBBBA reverses this drawdown, restoring 100% bonus depreciation for assets placed in service after January 19, 2025, and making it permanent.

Cost Segregation is Vital

Cost segregation is a strategic tax tool that identifies all the components of a building that can be placed into shorter depreciation categories. Assets like electrical systems, flooring, millwork, security and fire protection systems, A/V systems, cabinetry and countertops can all qualify for accelerated depreciation.

Now that the OBBBA has restored 100% Bonus Depreciation, performing a cost segregation study is even more beneficial than before. Property owners can:

Reclassify assets into 5-, 7-, or 15-year categories
Immediately expense those assets using bonus depreciation
Unlock substantial first-year tax savings

Qualified Improvement Property (QIP) is Now Eligible

The OBBBA also states that Qualified Improvement Property (QIP) remains eligible for bonus depreciation. In order to take advantage of this, a property owner should perform a cost segregation study if they have completed interior renovations to their commercial building.

Increased IRS Scrutiny – Why Quality and Compliance Matter

As a result of the OBBBA, the IRS is expected to increase their scrutiny of cost segregation studies. Building owners should contract ONLY with companies that offer Engineering Based Cost Segregation studies. We highly recommend working with a firm that employs licensed and certified engineers and has extensive experience. Building owners must be sure that they have:

High-quality documentation – Our robust deliverable stands up to IRS scrutiny and includes a vast amount of information to substantiate the study’s findings.
Defensible asset classifications – Our team of engineers is highly experienced and uses industry leading software to correctly identify each applicable asset.
Experienced advisors are more important than ever – Our team has performed over 40,000 cost seg studies.

At Eagle Advisory Partners, we specialize in delivering audit-ready studies that maximize your tax savings while minimizing risk.

What Should You Do Now?

If you’re planning capital improvements or placed a property in service after January 19, 2025, you should consider a Cost Segregation Study. Strategic planning around cost segregation, bonus depreciation, and other incentives can make a significant impact on your bottom line.