Soaring With The Big Beautiful Bill: Comprehensive Tax Strategies for Multifamily Nest Builders

Golden Feathers Return: 100% Bonus Depreciation Takes Flight Again

The One Big Beautiful Bill Act (OBBBA), signed in July 2025, has restored what property investors have been missing since 2022 — 100% bonus depreciation on qualifying assets. This powerful tax provision allows investors to immediately deduct the full cost of eligible property rather than spreading deductions over many years.

Historical Migration Patterns: The Journey to 100% Bonus

To understand today’s opportunity, we must look at the migratory path that brought us here:

• 2017-2022: The Tax Cuts and Jobs Act introduced 100% bonus depreciation, allowing immediate expensing of qualifying assets

• 2023: The deduction began phasing down, dropping to 80%

• 2024: Further reduction to 60%

• Early 2025: Continuing decline to 40%

• July 2025: The OBBBA permanently reinstated 100% bonus depreciation for qualifying property placed in service after January 19, 2025

This restoration represents a remarkable shift in the tax landscape, creating substantial opportunities for property investors who understand how to navigate the new terrain.

Timing Your Flight: Critical Acquisition Dates

Like migratory birds that must time their journeys precisely, investors must pay careful attention to acquisition dates:

• Placed in service after January 19, 2025: Eligible for 100% bonus depreciation

• Binding contract before January 20, 2025, but placed in service later: Not eligible for 100% bonus; defaults to previous rates (e.g., 40% in 2025)

• Acquired and placed in service before January 20, 2025: Subject to the phased-down rates

Why it matters for your nest: The difference between 40% and 100% bonus depreciation could mean hundreds of thousands in additional first-year deductions for a substantial multifamily acquisition. Timing your purchases correctly is essential for maximizing these benefits.

The Hidden Branch: Not All Assets Qualify for This Tax Perch

Here’s where careful observation reveals what many investors miss: only assets with a depreciable life of 20 years or less qualify for bonus depreciation. Residential buildings themselves (27.5 years) and commercial buildings (39 years) remain outside this golden nest.

Understanding Recovery Periods: Different Twigs for Different Purposes

The IRS assigns different “recovery periods” (depreciable lives) to different types of assets:

• 5-year property: Includes appliances, carpets, furniture in rental units

• 7-year property: Office equipment, furniture used in common areas

• 15-year property: Land improvements like sidewalks, parking lots, landscaping

• 27.5-year property: Residential rental buildings

• 39-year property: Commercial buildings

Only the 5-year, 7-year, and 15-year categories qualify for 100% bonus depreciation. The building structures themselves do not.

What this means for your finances: When purchasing a $10 million apartment complex, you might initially think the entire purchase (minus land) qualifies for bonus depreciation. However, only the components with recovery periods of 20 years or less qualify—typically 15-30% of the improvement value. Understanding this distinction is critical for accurate financial planning.

Building Your Nest Strategically: Cost Segregation Takes Flight

This is where cost segregation studies become essential tools for the tax-savvy investor. Like cardinals carefully selecting materials for different parts of its nest, smart investors use Cost Segregation Studies to reclassify building components into shorter-lived asset categories eligible for 100% bonus depreciation.

The Anatomy of a Cost Segregation Study

A proper cost segregation study involves:

1. Physical inspection of the property by qualified engineers

2. Detailed analysis of architectural drawings, construction documents, and costs

3. Identification and valuation of building components with shorter recovery periods

4. Documentation that substantiates the classifications to withstand IRS scrutiny

5. Calculation of accelerated depreciation benefits

Components Typically Reclassified

A thorough cost segregation study often identifies numerous components eligible for shorter recovery periods:

5-Year Property (100% Bonus Eligible)

• Kitchen appliances (refrigerators, stoves, dishwashers)

• Carpeting and removable floor coverings

• Cabinetry and countertops

• Window treatments

• Specialized electrical wiring (dedicated to specific equipment)

• Security systems and fire alarms

• Decorative lighting fixtures

7-Year Property (100% Bonus Eligible)

• Office furnishings in management spaces

• Fitness center equipment

• Laundry room equipment

• Maintenance equipment

• Common area furnishings

15-Year Property (100% Bonus Eligible)

• Parking lots and driveways

• Sidewalks and walkways

• Landscaping and irrigation systems

• Outdoor lighting

• Swimming pools and recreational facilities

• Site utilities (water, sewer, gas lines)

• Fencing and retaining walls

Why it matters for your nest: Without cost segregation, you depreciate these components over 27.5 or 39 years. With proper segregation and 100% bonus depreciation, you can deduct their full cost immediately, potentially creating millions in first-year tax savings.

The Cost Segregation Process: Step by Step

Like a cardinal building its nest in careful stages, here’s how to implement a cost segregation strategy:

1. Select a qualified provider with engineering and tax expertise

2. Time your study properly – ideally before filing the tax return for the year of acquisition

3. Provide detailed property information including purchase documents, improvement details, and construction plans

4. Review the draft report and discuss findings with your tax professional

5. Implement the findings on your tax returns

6. Maintain documentation for future IRS inquiries

Costs vs. Benefits: Is the Flight Worth the Energy?

Cost segregation studies typically cost between $5,000 and $30,000 depending on property size and complexity. However, the potential tax benefits often dwarf this expense:

For a $10 million multifamily property, a cost segregation study might identify:

• $1.5 million in 5-, 7-, and 15-year property eligible for 100% bonus

• At a 37% tax rate, this creates $555,000 in first-year tax savings

• Compared to a study cost of perhaps $15,000, that’s a 37x return on investment

For your nest: Even for smaller properties, the benefits typically far outweigh the costs. The general rule of thumb is that properties worth $1 million or more usually justify a professional cost segregation study.

Feathering Your Nest: Detailed Property Examples

Let’s examine how these strategies play out across different multifamily property scenarios:

Example 1: $10 Million Suburban Garden-Style Apartments

Purchase details:

• Purchase price: $10 million

• 100 units in 10 buildings

• Year built: 2015

• Location: Suburban Atlanta

Cost segregation findings:

• Land: $1,500,000 (not depreciable)

• Building structure: $6,000,000 (27.5 years, not bonus eligible)

• 5-year property: $800,000 (appliances, carpeting, etc.)

• 7-year property: $200,000 (clubhouse furnishings, fitness equipment)

• 15-year property: $1,500,000 (site improvements, parking, landscaping)

First-year depreciation without cost segregation:

• Building: $6,000,000 ÷ 27.5 years = $218,182

• Total first-year deduction: $218,182

First-year depreciation with cost segregation and bonus:

• Building: $6,000,000 ÷ 27.5 years = $218,182

• 5-year property with 100% bonus: $800,000

• 7-year property with 100% bonus: $200,000

• 15-year property with 100% bonus: $1,500,000

• Total first-year deduction: $2,718,182

Tax savings at 37% rate:

• Without segregation: $80,727

• With segregation and bonus: $1,005,727

• Additional first-year tax savings: $925,000

Example 2: $5 Million Urban Mixed-Use Property

Purchase details:

• Purchase price: $5 million

• 20 residential units with ground-floor retail

• Year built: 1980, renovated 2023

• Location: Urban core

Cost segregation findings:

• Land: $1,000,000 (not depreciable)

• Residential structure: $2,250,000 (27.5 years)

• Commercial structure: $750,000 (39 years)

• 5-year property: $400,000

• 7-year property: $100,000

• 15-year property: $500,000

First-year depreciation without cost segregation:

• Residential: $2,250,000 ÷ 27.5 years = $81,818

• Commercial: $750,000 ÷ 39 years = $19,231

• Total: $101,049

First-year depreciation with cost segregation and bonus:

• Residential: $2,250,000 ÷ 27.5 years = $81,818

• Commercial: $750,000 ÷ 39 years = $19,231

• 5, 7, and 15-year property with 100% bonus: $1,000,000

• Total: $1,101,049

Tax savings at 37% rate:

• Without segregation: $37,388

• With segregation and bonus: $407,388

• Additional first-year tax savings: $370,000

What this means for your finances: These examples illustrate how cost segregation combined with 100% bonus depreciation can create dramatic first-year tax savings, significantly improving cash flow and return on investment. Like a bird that discovers an abundant food source, investors who leverage these strategies can accelerate wealth building and portfolio expansion.

Section 179: Bonus Depreciation’s Helpful Nestmate

While bonus depreciation soars high, Section 179 expensing flies alongside it as a complementary strategy. This provision lets you expense qualifying personal property up to $2.5 million (phasing out at $4 million) in 2025 — ideal for smaller operators or as a supplement to bonus depreciation.

Key Differences Between Bonus Depreciation and Section 179

These two provisions, while similar, have important distinctions:

Strategic Applications of Section 179

Like birds that use different techniques for different situations, here’s when Section 179 might be preferable to or used alongside bonus depreciation:

1. When purchasing used property that doesn’t qualify for bonus depreciation

2. For smaller acquisitions under the $2.5 million threshold

3. When bonus depreciation would create excess losses that might be limited

4. For certain qualified improvement property to commercial interiors

For your nest: While bonus depreciation is often the primary strategy for large multifamily acquisitions, Section 179 provides flexibility in specific situations and can be an important part of your overall tax strategy.

The REPS Flight Path: Real Estate Professional Status

If you or your spouse qualify as a Real Estate Professional and materially participate in your rental activities, your paper losses can offset active W-2 income — a powerful migration pattern in tax strategy. Without REPS status, these losses only offset passive income.

Qualifying for the Real Estate Professional Designation

To achieve this valuable status, you must:

• Spend more than 750 hours annually in real estate activities

• Dedicate more than half of your total working time to real estate

• Materially participate in each rental activity (or elect to group activities)

Documentation: The Essential Nest Material

The IRS scrutinizes REPS claims carefully. You must maintain:

• Contemporaneous time logs

• Calendar entries with detailed descriptions

• Communications related to real estate activities

• Travel records for property visits

• Documentation of decisions and management activities

Case Study: The Power of REPS + Bonus Depreciation

Consider a married couple with the following financial profile:

• W-2 income: $500,000 combined

• New multifamily acquisition: $3 million property

• Cost segregation identified: $600,000 in bonus-eligible components

• First-year depreciation: $600,000 from bonus plus $87,273 from regular depreciation

Without REPS status:

• $687,273 in real estate losses

• Limited to offsetting only passive income

• If no other passive income exists, losses are suspended

With REPS status:

• $687,273 in real estate losses

• Can offset any income, including W-2 earnings

• At 37% tax rate: $254,291 in tax savings

What this means for your finances: REPS status can transform “paper losses” from depreciation into powerful shields for your other income, potentially saving tens or even hundreds of thousands in taxes annually. Like a bird that discovers a protected nesting site, investors with REPS status enjoy unique tax advantages that significantly enhance returns.

Common REPS Pitfalls: Avoiding Predators

Be careful of these common mistakes that can invalidate REPS status:

• Inadequate time documentation: Maintain detailed, contemporaneous logs

• Counting investor activities: Only count development, management, and operations time

• Failing to materially participate: Ensure you meet one of the seven material participation tests

• Not making grouping elections: Consider grouping properties to meet material participation thresholds

• Spouse confusion: Only one spouse needs to qualify, but proper election must be made

For your nest: REPS status combined with cost segregation and bonus depreciation creates one of the most powerful tax strategies available to real estate investors. However, strict documentation requirements make it essential to work with knowledgeable advisors.

A Full Flock of Tax Strategies: Beyond Bonus Depreciation

Like wise birds that employ multiple techniques to protect and grow their nests, strategic multifamily investors utilize several additional tax-saving approaches:

1031 Exchanges: Migrating Without Taxation

Section 1031 allows investors to defer capital gains taxes when selling investment property and reinvesting the proceeds in “like-kind” property. This powerful strategy enables portfolio growth without immediate tax consequences.

The Exchange Process: A Step-by-Step Migration

1. List and sell your relinquished property

2. Identify replacement properties within 45 days of sale

3. Complete the purchase of replacement property within 180 days

4. Use a qualified intermediary to hold proceeds between transactions

5. Reinvest all proceeds (to defer all gain)

6. File Form 8824 with your tax return

Example: Building Wealth Through Serial Exchanges

Consider an investor who started with a $500,000 duplex in 2015:

• 2018: Exchanged into a $1.2 million fourplex, deferring $300,000 in gain

• 2022: Exchanged into a $3 million 12-unit building, deferring $800,000 in gain

• 2025: Exchanged into a $7 million 30-unit complex, deferring $1.5 million in gain

By deferring taxes at each step, the investor preserved capital for reinvestment, dramatically accelerating wealth accumulation. The $2.6 million in deferred taxes remained working capital rather than going to the IRS.

Common 1031 Pitfalls: Navigating Safely

• Missing deadlines: The 45-day identification and 180-day closing requirements are strict

• Boot: Receiving cash or debt relief can trigger partial tax liability

• Property use: Replacement property must be held for investment or business use

• Equal or up: Replacement property should equal or exceed the value of relinquished property to defer all gain

Why it matters for your nest: 1031 exchanges allow your real estate wealth to compound without tax erosion, significantly accelerating portfolio growth. Like birds that efficiently migrate to new territories with minimal energy loss, 1031 investors preserve their capital for continued expansion.

Opportunity Zone Nests: Tax-Advantaged Territories

Permanently extended in 2025, the Opportunity Zone program offers three significant tax benefits:

1. Temporary deferral of capital gains reinvested in Opportunity Zones

2. Partial reduction of the deferred gain (10% if held 5 years)

3. Permanent exclusion of gains on the Opportunity Zone investment if held 10+ years

Qualifying for OZ Benefits: Building in the Right Territory

To qualify:

• Invest eligible capital gains into a Qualified Opportunity Fund (QOF)

• Complete investment within 180 days of realizing the original gain

• Substantially improve the property (doubling basis excluding land)

• Hold the investment for at least 5 years (for 10% reduction) or 10 years (for exclusion of new gains)

Example: Maximizing OZ Benefits

Imagine selling stock for a $1 million gain in 2025:

Traditional approach:

• Pay $238,000 in capital gains tax (23.8% rate)

• Invest remaining $762,000

• After 10 years at 8% growth: $1,646,000

• Sell and pay $211,000 in tax on new gains

• Final value: $1,435,000

Opportunity Zone approach:

• Defer tax and invest full $1 million in QOF

• After 5 years, pay reduced tax of $214,200 (10% reduction)

• After 10 years at 8% growth: $2,159,000

• Sell with zero tax on new gains

• Final value: $1,944,800

Net benefit: $509,800 additional wealth created

For your nest: Opportunity Zones offer extraordinary tax advantages for patient capital, particularly when combined with the operational benefits of bonus depreciation. Like birds that thrive in protected habitats, investors can find exceptional returns in these designated areas while contributing to community development.

Low-Income Housing Tax Credits: Feathering Your Nest While Helping Others

The LIHTC program offers dollar-for-dollar tax credits for developing affordable housing. With expanded access under 2025 reforms, this program provides substantial tax benefits while addressing critical housing needs.

How LIHTC Works: Building Beneficial Nests

• 9% credits for new construction without federal subsidies

• 4% credits for acquisition/rehabilitation or federally subsidized projects

• Credits claimed annually over a 10-year period

• Total credits typically equal 70% (9% credit) or 30% (4% credit) of qualified basis

Example: LIHTC Economics

For a $10 million affordable housing development:

• Qualified basis: $8 million (excluding land)

• 9% credit generates approximately $720,000 in annual credits for 10 years

• Total credits: $7.2 million

• Typically syndicated to investors at $0.85-$0.95 per dollar of credit

• Investor might pay $6.1-$6.8 million for the credits

What this means for your finances: LIHTC investments provide substantial tax benefits while supporting essential community development. Like birds whose nesting activities inadvertently benefit the broader ecosystem, LIHTC investors achieve financial returns while creating social value.

Qualified Business Income Deduction: A 20% Reduction in Taxable Perch

The QBI deduction offers a 20% write-off on qualifying pass-through and REIT rental income. Made permanent and with improved thresholds in 2025, this provision can significantly reduce the taxable income from your real estate investments.

QBI Mechanics: Reducing Your Taxable Branch

• 20% deduction from qualifying business income

• Subject to income limitations and phase-outs for higher earners

• Real estate rental activities generally qualify with proper structuring

• No deduction for capital gains or investment income

Example: QBI Impact

For a real estate investor with:

• $300,000 in net rental income

• 20% QBI deduction: $60,000

• At 37% tax rate: $22,200 tax savings

For your nest: The QBI deduction effectively reduces your tax rate on real estate income by 20%, creating substantial annual savings for active investors. Like birds that find efficient ways to conserve energy, QBI helps preserve your capital for continued investment.

Energy-Efficient and Historic Credits: Green Feathers for Your Nest

Various tax credits reward environmentally conscious and historic preservation investments:

Energy-Efficient Building Credits

• Section 179D Commercial Buildings Energy Efficiency Tax Deduction: Up to $1.88 per square foot for energy-efficient improvements

• Section 45L New Energy Efficient Home Credit: Up to $5,000 per unit for energy-efficient multifamily construction

• Solar Investment Tax Credit: 30% of solar installation costs

Historic Rehabilitation Tax Credit

• 20% credit for certified historic structures

• Dollar-for-dollar reduction in tax liability

• Can be combined with bonus depreciation for non-historic components

Example: Combined Green Strategy

For a 50-unit multifamily property with solar installation:

• $500,000 solar installation cost

• $150,000 tax credit (30%)

• Bonus depreciation on remaining basis

• Additional $5,000 per unit ($250,000 total) in 45L credits for energy-efficient design

• Total tax benefits: $400,000 in credits plus depreciation benefits

Why it matters for your nest: These credits directly reduce tax liability (not just taxable income) while enhancing property value and reducing operating costs. Like birds that build sustainable, efficient nests, smart investors leverage these incentives to create properties with lasting environmental and financial benefits.

Cardinal’s Counsel: Advanced Tax Strategies

Preparing for Migration: Plan for Recapture

Like cardinals who prepare multiple nesting sites, wise investors plan for depreciation recapture upon sale. When property is sold, previously claimed depreciation is “recaptured” and taxed at a maximum rate of 25% (for real property).

Recapture Planning Strategies

1. 1031 Exchange: Defer recapture by exchanging into another property

2. Installment Sale: Spread recapture tax over multiple years

3. Opportunity Zone Reinvestment: Defer and potentially reduce recapture tax

4. Cost Segregation Timing: Consider remaining depreciable life when planning exit

5. Hold Until Death: Heirs receive stepped-up basis, eliminating recapture liability

For your nest: Proper exit planning is as important as acquisition strategy. Model potential tax impacts years before anticipated sale to implement the most advantageous approach.

Regional Considerations: Not All Branches Are the Same

Some states don’t conform to federal bonus depreciation rules. Check your local territory before calculating after-tax returns.

State Tax Conformity Map

States generally fall into three categories:

1. Full Conformity States: Automatically adopt federal bonus depreciation rules (e.g., Alabama, Colorado)

2. Partial Conformity States: Allow some bonus depreciation with modifications (e.g., Florida)

3. Decoupled States: Require separate depreciation calculations (e.g., California, New York)

What this means for your finances: State tax impacts can significantly affect overall returns, particularly in high-tax states that don’t conform to federal bonus depreciation. Like birds that must adapt to local conditions, investors should tailor strategies to their specific tax environments.

Debt Strategy: Leveraging Your Nest

Strategic use of debt can enhance tax benefits while amplifying returns:

Interest Deductibility Under Section 163(j)

• Deduct more interest with an EBITDA-based formula starting in 2025

• Particularly beneficial for highly leveraged deals

• Real estate businesses can elect out of the limitation by using ADS depreciation

Debt Refinancing Considerations

• Cash-out refinancing provides tax-free access to equity

• Unlike sales, refinancing doesn’t trigger depreciation recapture

• Can be used to fund additional acquisitions while maintaining depreciation benefits on the original property

Why it matters for your nest: Strategic debt can multiply the impact of tax benefits while providing capital for continued growth. Like birds that use existing structures to support their nests, investors can use leverage to build wealth more efficiently.

Entity Structuring: Building the Right Nest

The right entity structure is crucial for maximizing tax benefits:

Common Real Estate Entities and Tax Implications

For your nest: Most multifamily investors benefit from LLC structures with partnership taxation, which maximize flexibility for distributing both cash flow and tax benefits. Like birds that select the right type of tree for their nests, choosing the appropriate entity is fundamental to tax efficiency.

The Cardinal’s Comprehensive Flight Plan

For your nest, implement these strategies in concert:

Pre-Acquisition Strategy

✅ Structure investments properly: Form appropriate entities and operating agreements
✅ Create REPS documentation systems: Begin tracking time and activities methodically
✅ Analyze state tax implications: Understand regional differences in tax treatment
✅ Model after-tax returns: Project cash flows with and without advanced tax strategies

Acquisition Strategy

✅ Time purchases strategically: Ensure qualification for 100% bonus when possible
✅ Plan cost segregation early: Engage specialists before year-end
✅ Consider OZ or LIHTC options: Evaluate tax-advantaged investment territories
✅ Optimize debt structure: Balance leverage with interest deductibility
✅ Document everything: Maintain comprehensive records from day one

Operational Strategy

✅ Maintain REPS documentation: Continue detailed activity logs
✅ Consider energy improvements: Evaluate credits for property upgrades
✅ Implement QBI optimization: Structure operations to maximize the 20% deduction
✅ Plan future acquisitions: Use tax savings to expand portfolio
✅ Regular tax planning meetings: Review strategy quarterly with advisors

Exit Strategy

✅ Model recapture scenarios: Project tax impacts of various exit strategies
✅ Prepare for 1031 opportunities: Identify potential replacement properties early
✅ Consider OZ reinvestment: Evaluate deferral of gains through OZ investment
✅ Timing analysis: Optimize sale timing for tax efficiency
✅ Estate planning integration: Consider inheritance implications for highly appreciated properties

Taking Flight: The Bottom Line

The “Big Beautiful Bill” has created powerful new tax winds, but only the most observant birds will catch them fully. The true opportunity isn’t in treating the entire building as one nest, but in recognizing the different materials that make it up and applying the right tax strategy to each component.

When economic winds shift unpredictably, strengthen your financial nest with strategic tax planning. That’s how you turn tax “catches” into competitive advantages — and let Uncle Sam help fund your next property acquisition.

Investors who combine federal tax incentives, strategic compliance, and proactive portfolio planning can meaningfully compound wealth while minimizing annual tax drag on multifamily investments. Like cardinals who thrive through changing seasons by adapting their behaviors, successful real estate investors will prosper by mastering the complex but rewarding landscape of tax strategy.

What’s your reaction to the return of 100% bonus depreciation? Reply and let’s chirp about your tax strategy!