Bonus Depreciation Is Back: How to Maximize Write-Offs on Your Next Renovation

The reintroduction of 100% bonus depreciation under the One Big Beautiful Bill Act (OBBB) is shifting renovation planning into high gear for commercial property owners and managers. With the right strategy, improvements to HVAC systems, parking lots, and building technology can trigger major first-year deductions—if executed and categorized correctly. These aren't minor tax tweaks. This is about structuring renovation schedules and asset classifications to legally accelerate depreciation in ways that directly affect cash flow, asset valuation, and tax timing.

Too many operators are still treating bonus depreciation as a general tax perk. The ones who will come out ahead in 2025 are those who understand how to align it with engineering-based cost segregation studies, current IRS depreciation guidance, and the Business Provisions Tax amendments that are part of the same legislative wave. If you're considering six-figure upgrades—or even low seven figures—you need more than a CPA. You need a plan that starts with the end-of-year tax return and works backward into construction scheduling, procurement, and invoicing.

Let’s walk through how to get it right.

100% Bonus Depreciation Is Not Retroactive—But It Is Time Sensitive

Under the OBBB Act, the restoration of 100% bonus depreciation applies only to qualified property placed in service during tax years 2025 through 2026. After that, unless new legislation extends the provision, the rate phases down again. That puts a two-year window in front of operators, and the clock is already ticking.

Assets need to be in service—not just purchased—by year-end to qualify. That single distinction eliminates a lot of half-finished renovations from eligibility. The HVAC chiller sitting in a staging area in December won’t count. Nor will the access control system still waiting on software commissioning.

This is where coordination with general contractors and subcontractors becomes a tax strategy, not just a logistics decision. Completion certificates, commissioning documents, and mechanical sign-offs all matter when you’re pushing an install into Q4. The tax code doesn’t recognize "substantially complete" as a benchmark. It wants placed-in-service, and that has a very narrow meaning.

Cost Segregation: The Catalyst for Bigger Deductions

The best way to leverage bonus depreciation is to start with a cost segregation study, even for renovations. Property managers sometimes skip this step under the assumption that it's only for newly acquired assets. That’s a mistake—especially now.

A proper engineering-based cost segregation study can identify which components of your renovation qualify as short-lived assets (5, 7, or 15-year property), which are eligible for bonus depreciation. This is particularly important for items like low-voltage wiring, HVAC distribution, exterior lighting, security systems, and parking lot paving. These often get buried in 39-year property if left unsegregated.

Let’s say you're resurfacing a parking lot and adding LED lighting with timers and motion sensors. Without a study, the full cost gets lumped into the building and depreciated over nearly four decades. With a study, the lighting can go into 5-year property, and paving could qualify as 15-year land improvements—both now eligible for 100% first-year write-off. Same spend, drastically better tax outcome.

HVAC and Mechanical: The Hidden Goldmine

HVAC upgrades, particularly in office or multi-tenant retail environments, offer one of the best opportunities for aggressive depreciation. But not every component qualifies equally.

Rooftop units, split systems, ductwork, chillers, boilers, and control systems must be analyzed separately. Under the current MACRS (Modified Accelerated Cost Recovery System) guidance, some portions of a full system replacement—like thermostats, zone dampers, or smart control wiring—can be broken out as 5- or 7-year property.

The Business Provisions Tax update further clarified treatment for certain energy-efficient commercial building components. Section 179D still applies, but it's separate from bonus depreciation. When you’re upgrading HVAC with energy goals in mind, coordinate both deductions. It’s possible to claim 179D for the energy portion of the spend and still bonus-depreciate eligible components not covered under that credit.

And don’t overlook commissioning. ASHRAE compliance can determine whether a system qualifies under energy-efficient standards, which opens the door to parallel deductions.

Tech Infrastructure: Networking, Access Control, and Smart Building Systems

Another overlooked category: the building’s tech stack. In recent years, more property operators have invested in smart building infrastructure—access control, surveillance, smart thermostats, occupancy sensors, and networking gear. These assets, often depreciated incorrectly under 39-year property, are typically eligible for 5-year treatment.

The trick is correct classification at the procurement and install stages. If you allow your general contractor to bill tech hardware under “general electrical” or “building improvements,” the line-item data won't be specific enough to reclassify. Work with an accountant or cost segregation expert in advance to specify invoice language and asset categorization.

Be especially cautious with integrated systems. A security system that’s bundled with HVAC controls or elevator management can get stuck in long-life property if the vendor doesn’t break it out. Control the paperwork from the start to preserve eligibility.

Parking Lot and Site Improvements: Don’t Miss the 15-Year Window

Exterior improvements are frequently misclassified—and that’s a costly mistake. Parking lot expansions, curbs, sidewalks, lighting, drainage, signage, and even fencing all fall under 15-year land improvements. With bonus depreciation back at 100%, that means full expensing in the year the work is completed.

The key point is that the land itself is not depreciable, but improvements to the land are. Too many owners conflate the two. Work with vendors who can split their invoices between land and improvement components. A paving contractor who delivers a single lump-sum invoice for "site work" may limit your ability to accelerate depreciation, especially in an audit.

Also note that certain stormwater and drainage improvements—depending on your local jurisdiction and how they tie into the municipal system—can sometimes fall under different tax treatment. Have these reviewed in advance, especially if you're applying for local rebates or incentives tied to infrastructure development.

Grouping Renovation Spend for Maximum Effect

Timing renovations is not just about labor availability and weather conditions anymore. It's now a tax-advantaged sequencing exercise.

If you plan multiple projects—say, HVAC upgrades in Q1 and parking lot improvements in Q3—there’s an opportunity to group them into a single depreciation strategy. But this only works if the assets are placed in service within the same tax year.

Don’t assume your tax advisor will automatically catch this. Grouping works best when property owners or managers drive the strategy from the top down. You need coordination between the GC, accounting team, and any third-party cost segregation firm. Miss the timing, and you're locked into multi-year depreciation for a renovation that could have been fully deducted.

Also consider how you’ll fund the improvements. Financing via certain lease arrangements can affect ownership status of the asset at year-end. If you lease an HVAC system and the lessor maintains ownership, you can’t depreciate what you don’t own. Evaluate your procurement method before committing.

Legal Considerations Under the One Big Beautiful Bill Act

The OBBB Act introduced bonus depreciation alongside a few critical restrictions under the Business Provisions Tax section. There’s now more scrutiny on basis adjustments and the timing of asset reclassification, especially for real estate held in partnerships or pass-through entities.

If you're managing properties in a REIT structure or under a partnership with multiple LPs, be cautious of how bonus depreciation affects capital accounts. Aggressive deductions might trigger basis limitations or passive activity loss issues for some investors.

In particular, real estate professionals who materially participate in the operation of the property can often take full advantage of bonus depreciation, whereas passive investors might be subject to more limitations. Your tax structure matters more than ever under this new regime.

Final Thoughts

The return of 100% bonus depreciation creates a narrow but powerful tax planning opportunity. But it's not a plug-and-play strategy. Success depends on engineering precision, invoice-level detail, and strategic timing. Renovation plans should now start with tax implications—not finish there.

Whether you're resurfacing a parking lot, modernizing an HVAC system, or upgrading access control tech, every component needs to be reviewed, categorized, and placed in service with documentation that supports first-year deductions. Done right, these renovations can produce outsized tax savings that help fund the next round of capital improvements.

Real estate professionals who want to maximize the benefit of this two-year window should be assembling their teams now. Contractors, cost segregation specialists, and tax advisors all need to be on the same page. Don’t wait until Q4 to get started. That’s how you miss the placed-in-service deadline and leave money on the table.

2025 and 2026 may be the last years for full bonus depreciation at 100%. Use them wisely.

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