For most of the last three years, bonus depreciation was a fading benefit. It dropped from 100% in 2022 to 80% in 2023, then 60% in 2024, and was on a scheduled glide path to zero by 2027. Investors who had structured acquisitions around its full power were watching it erode.
That changed on July 4, 2025.
The One Big Beautiful Bill Act (OBBB) permanently restored 100% bonus depreciation, effective for qualified property acquired and placed into service after January 19, 2025. It is no longer a temporary provision on a countdown clock. It is now a permanent feature of the tax code.
For investors acquiring NNN commercial real estate, this is one of the most consequential tax developments in years. Here is what it means, how it works alongside a cost segregation study, and why the combination of NNN ownership and 100% bonus depreciation represents one of the more tax-efficient investment structures available to high-net-worth investors today.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax advisor regarding your specific circumstances before making any investment or tax decision. Tax outcomes vary based on individual facts, filing status, income, and applicable IRS rules.
Key Takeaways
- ▸The One Big Beautiful Bill Act permanently restored 100% bonus depreciation, effective for qualified property placed into service after January 19, 2025
- ▸Bonus depreciation allows investors to deduct the full cost of qualifying assets upfront in the year they are placed in service, rather than spreading deductions across a 39-year commercial depreciation schedule.
- ▸A cost segregation study is the mechanism that maximizes bonus depreciation on a commercial real estate acquisition by reclassifying building components into shorter-lived asset categories.
- ▸NNN properties are particularly well-suited for this strategy because the investor owns 100% of the asset, capturing 100% of the depreciation benefit with none of the operational complexity.
- ▸Tax outcomes, including the ability to use paper losses against active or passive income, depend heavily on individual circumstances including Real Estate Professional Status (REPS). Always consult a qualified CPA.
What Is Bonus Depreciation and Why Does It Matter to NNN Investors?
Under the standard tax code, commercial real estate is depreciated over 39 years. That means if you acquire a $3 million commercial property, you deduct roughly $77,000 per year over nearly four decades. The cash came out of your pocket at closing. The tax benefit trickles back at a fraction of that amount per year.
Bonus depreciation fundamentally changes that math. It allows investors to accelerate the depreciation of qualifying assets, taking a large portion of the total depreciation benefit in the first year of ownership rather than waiting decades to recover it. When paired with a cost segregation study, a meaningful portion of a commercial acquisition can be reclassified into asset categories that qualify for 100% first-year write-off.
The result: an investor who acquires a qualifying NNN property in 2026 may be able to generate substantial paper losses in year one, losses that, depending on their tax situation, can offset significant taxable income.
The OBBB made this permanent. There is no phase-down schedule. No sunset provision. Investors and their advisors can now plan around 100% bonus depreciation as a stable, long-term feature of the tax code rather than a provision they need to race to use before it expires.
How Did Bonus Depreciation Rules Change Under the One Big Beautiful Bill Act?
The history matters here because it explains why the 2025 change is so significant.
Bonus depreciation was originally introduced under the Tax Cuts and Jobs Act of 2017 at a rate of 100% for eligible property placed into service by December 31, 2022. After that, it began phasing down: 80% in 2023, 60% in 2024, and was scheduled to continue declining at 20% per year until it disappeared entirely in 2027.
For investors who had built tax strategies around bonus depreciation, the phase-down created urgency and, eventually, disappointment. The benefit they had used in prior acquisitions was shrinking with each passing year.
The OBBB reversed that entirely. As of July 4, 2025, 100% bonus depreciation is back and it is permanent. Any qualified property acquired and placed into service after January 19, 2025, is eligible for the full deduction in year one. There is no expiration date, no phase-down, and no legislative cliff to plan around.
For investors who were on the sidelines waiting for greater certainty before committing capital to commercial real estate, this permanence changes the planning calculus significantly.
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What Is a Cost Segregation Study and Why Is It the Key to Maximizing Bonus Depreciation?
Bonus depreciation applies to qualifying assets. The problem is that a commercial building, as a whole, does not qualify. Under standard depreciation rules, the entire structure is treated as a single 39-year asset.
A cost segregation study solves this by breaking a commercial property down into its individual components and reclassifying those components into shorter-lived asset categories that do qualify for accelerated depreciation. This is not an aggressive tax maneuver or a loophole. It is an IRS-sanctioned process that recognizes that a building is made up of many different types of assets, each with its own useful life.
The reclassification works like this: components of a commercial building are separated from the 39-year structure and moved into 5-year, 7-year, or 15-year property categories. Assets in those categories qualify for 100% bonus depreciation under the current rules. The 39-year structure itself does not qualify for bonus depreciation, but everything that can be reclassified out of it does.
In practical terms, for a commercial NNN property, cost segregation typically reclassifies a meaningful portion of the building’s total value into qualifying categories. The specific percentages depend on the property type, construction, and the individual cost segregation analysis. A medical office building, a quick-service restaurant, or an automotive service center each has a different component breakdown. The segregation study determines exactly what qualifies and at what allocation.
The result is a first-year depreciation deduction that can be substantially larger than anything available through the standard 39-year schedule. One Custom Capital investor unlocked $830,000 in cost segregation depreciation on a single acquisition. That figure is illustrative of what is possible in the right circumstances; it is not a typical result and should not be read as a promise of similar outcomes. Individual results depend on the property, the study, the investor’s tax situation, and applicable IRS rules.
Why Are NNN Properties Particularly Well-Suited for Bonus Depreciation?
Not all commercial real estate investments deliver the same tax outcome, even when the same bonus depreciation rules apply. The structure of ownership matters enormously.
In a syndication or fund, depreciation flows through to investors proportionally based on ownership percentage. If you own 10% of a syndication’s deal, you receive 10% of the depreciation benefit. The operator keeps or allocates the rest. For a high-net-worth investor deploying $500,000 into a $5 million syndication deal, the depreciation available is a fraction of what they would receive as the 100% owner of a comparable asset.
NNN direct ownership changes that entirely. When you own 100% of a $3 million NNN property, you capture 100% of the depreciation benefit from that property. Every dollar of accelerated depreciation identified in the cost segregation study flows to you. There is no operator taking a portion, no split, and no dilution of the tax benefit.
This is one of the structural reasons high-net-worth investors who are serious about tax efficiency gravitate toward direct NNN ownership rather than syndications or funds. The cash flow story is compelling. The control story is compelling. But the tax story, particularly for investors in high income brackets where depreciation deductions have the most impact, is often what makes the economics decisive.
NNN properties have an additional structural advantage in the context of cost segregation. Because the tenant covers operating expenses under the NNN lease structure, the investor has no ongoing capital outlay for maintenance, repairs, or replacements. The property generates depreciation paper losses without generating offsetting capital requirements. The tax benefit is clean.
How Does Real Estate Professional Status Interact With Bonus Depreciation?
This is where the tax story becomes significantly more powerful for some investors and significantly more nuanced for others.
Under the passive activity loss rules, the paper losses generated by commercial real estate depreciation are generally considered passive losses. For most investors, passive losses can only offset passive income, not active income like W-2 wages, business income, or professional earnings. The depreciation is still valuable, it shelters rental income and reduces taxable gains, but it cannot be used to offset a physician’s salary or a business owner’s ordinary income without specific qualifying conditions being met.
Real Estate Professional Status (REPS) changes this. An investor who qualifies as a real estate professional under IRS rules can treat real estate losses as non-passive, allowing those losses to offset active income. For a high-income professional with $500,000 or more in W-2 or business income, this can translate into a significant reduction in income taxes in the year of acquisition.
To qualify for REPS, an investor must meet two requirements: they must spend more than 750 hours per year in real estate activities, and those real estate activities must represent more than 50% of their total working time. Spouses can qualify separately, and importantly, if one spouse qualifies for REPS, real estate losses may be used against the household’s combined income depending on how the activities are structured and documented.
This is a significant planning opportunity, but it is also one that requires careful documentation, IRS compliance, and guidance from a CPA who understands the rules in depth. The 750-hour threshold is not a goal to approximate. It is a requirement to meet and document. Investors who claim REPS without proper substantiation face audit exposure.
For investors who do not meet the REPS threshold, depreciation losses still shelter passive income and reduce or eliminate tax on the NNN property’s rental income. They accumulate and can be used when the property is sold. They are valuable. They are simply not available to offset active income without REPS qualification.
This section is for educational purposes only. REPS qualification requirements are complex and highly fact-specific. Consult a qualified tax advisor to determine whether REPS applies to your situation before making any investment decision based on expected tax outcomes.
What Does the Bonus Depreciation Math Look Like on a NNN Acquisition?
To make this concrete, consider an illustrative example. This example is for educational purposes only and does not reflect a specific transaction. Actual outcomes vary materially based on property type, cost segregation results, financing structure, tax situation, and individual circumstances. This is not tax advice.
Illustrative scenario:
An investor acquires a $3,000,000 NNN commercial property with a corporate tenant on a 15-year absolute NNN lease. They commission a cost segregation study at closing.
The study identifies that approximately 25% to 35% of the property’s components can be reclassified into 5-year, 7-year, or 15-year asset categories. At 30%, that represents $900,000 in reclassified assets.
Under 100% bonus depreciation, all $900,000 of those reclassified assets may be deducted in year one of ownership.
At a 37% marginal federal income tax rate, $900,000 in depreciation deductions has a potential tax value of $333,000 in year one, before state tax considerations. The actual tax impact depends entirely on the investor’s ability to use those deductions, which depends on their passive income levels, REPS status, and overall tax picture.
The remaining $2,100,000 in building value continues to depreciate over the standard 39-year schedule, generating approximately $53,800 in annual depreciation deductions for the life of that schedule.
The 15-year assets reclassified in the cost segregation study that do not qualify for the 100% first-year bonus (a portion of the 15-year category that may not qualify under specific rules) continue on their respective schedules.
This illustrative example is not typical. Cost segregation reclassification percentages vary widely by property type. Some asset types produce higher reclassification percentages; others produce lower. A cost segregation study on the specific property you are considering is the only way to understand what the actual depreciation profile looks like.
Should You Always Take 100% Bonus Depreciation?
The short answer is: not necessarily. This is a discussion to have with your CPA before you close.
100% bonus depreciation produces a large deduction in year one. For investors with significant taxable income in the year of acquisition, and the ability to use those deductions against that income, the immediate benefit is clear. But for investors who anticipate higher income in future years, it may sometimes make more tax sense to spread the depreciation benefit over time rather than front-loading it in a year when its marginal value is lower.
The OBBB creates an interesting planning variable here. Because 100% bonus depreciation is now permanent, investors are not forced to maximize it in a single year due to fear of losing the provision. There is now a genuine choice: take 100% upfront, or elect a different treatment to preserve deductions for years when they may be more valuable.
The right answer depends on the investor’s income trajectory, existing tax position, passive loss carryforward situation, and long-term hold strategy. This is a planning decision that your tax advisor should model across multiple scenarios before you finalize your acquisition structure.
How Does Bonus Depreciation Fit Into the Full NNN Return Picture?
One of the ways Custom Capital frames the return potential of NNN acquisitions is through what we describe as an aggregated return on equity: the combination of cash-on-cash yield, tenant-driven loan paydown, potential appreciation, and tax benefits considered together rather than in isolation, which all vary by deal.
Bonus depreciation lives in the tax benefits component of that return. For investors in high income brackets who are able to use the depreciation effectively, the tax benefit layer can add meaningfully to the total return profile in the year of acquisition, in ways that are not visible in a cap rate or a cash-on-cash yield calculation alone.
This is why many Custom Capital investors describe the tax outcome as what made the economics “decisive” for them. The property produced cash flow from month one. The tenant paid down the loan. And the depreciation created a tax benefit in year one that either sheltered the property’s income or, for those with REPS qualification, offset income from other sources.
The full picture is what matters. A NNN cap rate of 6.0% does not tell the same story as a 6.0% cap rate plus depreciation shelter plus 100% bonus depreciation in year one plus tenant loan paydown plus potential appreciation over a 10-year hold. For qualified investors running the full numbers, the economics of direct NNN ownership in a 100% bonus depreciation environment can be a meaningful factor in the overall economics.
All investment returns referenced above are illustrative and subject to deal-specific terms, financing conditions, tenant performance, tax outcomes, and market conditions. They are not guarantees. Consult your tax and financial advisors before making any investment decision.
Want to Understand What Bonus Depreciation Could Mean for Your Specific Situation?
Custom Capital sources, structures, and closes NNN acquisitions as a merchant sponsor that are designed to deliver cash flow, tenant-driven loan paydown, and tax benefits within the investor’s stated goals.
If you want to understand how bonus depreciation and cost segregation interact with a specific type of NNN acquisition, and how that might fit your tax picture, the starting point is a direct conversation with our team.
We will walk you through how the economics work, what the typical cost segregation profile looks like for the asset types we source, and whether your situation is a fit for the type of acquisitions we pursue.
We are not tax advisors. All investors should consult a qualified CPA before making any investment decision based on expected tax outcomes.
Frequently Asked Questions
What is 100% bonus depreciation?
100% bonus depreciation is a provision of the U.S. tax code that allows investors to deduct the full cost of qualifying business assets in the year they are placed in service, rather than spreading the deduction across a standard multi-decade depreciation schedule. It was permanently restored under the One Big Beautiful Bill Act, signed into law on July 4, 2025, and applies to qualifying property placed into service after January 19, 2025.
Does commercial real estate qualify for bonus depreciation?
The commercial building structure itself does not qualify for bonus depreciation; it remains on a 39-year depreciation schedule. However, components of a commercial building that are reclassified through a cost segregation study into shorter-lived asset categories (5-year, 7-year, and 15-year property) do qualify for 100% bonus depreciation. This reclassification is the central purpose of the cost segregation study on a commercial acquisition.
What is a cost segregation study?
A cost segregation study is an IRS-sanctioned engineering and tax analysis that breaks a commercial property down into its individual components and assigns each component to its appropriate depreciation category. Components that can be reclassified from the 39-year building category to 5-year, 7-year, or 15-year property categories become eligible for 100% bonus depreciation under current rules. The study is typically commissioned at or shortly after closing and conducted by a qualified cost segregation firm.
Can I use bonus depreciation losses to offset my W-2 income?
In general, real estate depreciation losses are considered passive and can only offset passive income for most investors. To use real estate losses against active income such as W-2 wages or business income, an investor typically needs to qualify as a Real Estate Professional under IRS rules, which requires meeting specific hour and participation thresholds. REPS qualification is complex and highly individual. Consult a qualified CPA before assuming depreciation losses will offset your active income.
Is bonus depreciation permanent now?
Yes. The One Big Beautiful Bill Act made 100% bonus depreciation a permanent feature of the tax code rather than a temporary provision with a scheduled phase-down. This removes the prior uncertainty around whether the benefit would be available in future years and allows investors and their advisors to plan around it as a stable long-term tool.
How does bonus depreciation work differently in NNN direct ownership versus a syndication?
In a syndication or fund, depreciation benefits flow to investors proportionally based on their ownership percentage. A 10% interest in a syndication produces 10% of the available depreciation. In direct NNN ownership, the investor captures 100% of the depreciation benefit because they are the 100% owner of the asset. For high-net-worth investors deploying significant capital, this structural difference can produce a materially larger tax benefit from the same dollar amount invested.
Conclusion
Bonus depreciation was a powerful tool when it was first introduced in 2017. It became less useful as it phased down. Its permanent restoration under the OBBB changes the tax planning environment for commercial real estate investors in a way that has not existed since 2022.
For NNN investors specifically, the combination is particularly strong: a single-tenant NNN asset with low operational complexity, owned 100% by the investor, producing a cost segregation-driven depreciation benefit that can be taken in full in year one of ownership, permanently, under current law.
The returns from NNN investing are not just a cap rate story. They are a cash flow story, a loan paydown story, a potential appreciation story, and a tax story. With 100% bonus depreciation now a permanent fixture of the tax code, the tax chapter of that story is more compelling than it has been in years.
Talk to your CPA. Run your numbers. And if you want to understand how a specific NNN acquisition might fit into that picture, click here to learn more about our process or click the button below to apply to speak to one of our investment associates.
