IRS Confirms 100% Bonus Depreciation for 2025
The IRS issued new guidance confirming that 100% bonus depreciation remains available for qualifying property placed in service before the end of 2025. This allows real estate investors to accelerate significant tax deductions from capital improvements or through cost segregation studies. Further guidance clarified rules for depreciating capital improvements under recent legislation.
- A cost segregation study can identify property components—like carpeting, specialty lighting, or landscaping—with shorter useful lives (e.g., 5, 7, or 15 years), allowing an investor to deduct the entire cost of those items in the first year under 100% bonus depreciation. - As of the third quarter of 2025, the Chicago multifamily market has shown strong fundamentals, with a low vacancy rate of 4.7% and average cap rates around 6.7%. Annual rent growth reached 3.4%, significantly outperforming the national average. - Investment opportunities in Chicagoland are shifting, with growth focused on suburban infill projects in Lake and DuPage Counties and office-to-multifamily conversions, driven by higher land costs and lengthy entitlement processes in the city's core. - For investors considering publicly traded real estate, listed REITs have historically outperformed private real estate, with one study showing REITs generated average net returns of 10.9% from 1998 to 2021, compared to 8.6% for private real estate. - To transition into a real estate investment firm, professionals must develop strong skills in financial modeling (Excel), property valuation, market analysis, and risk assessment. Networking and the ability to source deals are also highly valued. - Key publications for staying current on the Midwest commercial real estate market include *Crain's Chicago Real Estate Daily*, *Bisnow Chicago*, and *Midwest Real Estate News* (REJournals). - Beyond depreciation, investors often use 1031 exchanges to defer capital gains taxes by selling a property and reinvesting the proceeds into a "like-kind" property within a specific timeframe. - While 100% bonus depreciation is a permanent federal incentive, most states have not fully conformed to the federal law, which can require different tax treatments on state returns.
