How the Big Beautiful Bill (OBBBA) Revived 100% Bonus Depreciation and What That Means for Recapture

Cost segregation remains a powerful tax strategy for real estate owners—but with the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, there are some important updates that could affect how you plan, depreciate, and recapture assets.

This blog breaks down what cost segregation recapture is, how it works, and what has changed (or stayed the same) under the OBBBA. If you're investing in commercial property, this is a critical piece of your tax planning puzzle.

What is Cost Segregation?

Cost segregation is a tax strategy used by real estate owners to classify components of a property into categories that allow for accelerated depreciation periods. By breaking down elements such as electrical installations, plumbing, and fixtures, property owners can depreciate parts of their property over 5, 7, or 15 years, instead of the standard 27.5 or 39 years.

What the OBBBA Means for Cost Segregation

The One Big Beautiful Bill Act, signed into law on July 4, 2025, includes one of the most impactful updates for property owners using cost segregation: the permanent return of 100% bonus depreciation.

We’ll say it again: 100% Bonus Depreciation is now permanent!

Any qualified property placed in service on or after January 19, 2025 is now eligible for full first-year expensing. This includes short-lived assets identified in a cost segregation study—like specialty lighting, plumbing, electrical components, and flooring.

Key highlights:

• No more phase-down: The previous bonus depreciation schedule (which dropped to 40% in 2025 and was set to phase out completely by 2027) has been repealed.
• 100% expensing is permanent for qualifying MACRS property with a recovery period of 20 years or less.

This change gives property owners long-term clarity and an even stronger incentive to conduct cost segregation studies when placing new property in service.

What’s the Catch? The Concept of Recapture

Recapture is essentially the IRS’s way of balancing the scales if you sell a property for more than its depreciated value. It ensures that any tax benefits gained through accelerated depreciation are accounted for if the property appreciates in value or is sold at a profit. When assets that have been depreciated over an accelerated schedule are sold, a portion of the gain is taxed as ordinary income, to the extent of the depreciation claimed, rather than the lower capital gains rates.

When Does Recapture Occur?

Recapture occurs upon the sale or disposal of a property that has undergone cost segregation. This might happen when:

• A property is sold at a gain.
• A change of use occurs, affecting the components that were segregated.
• The IRS challenges the classifications made during the cost segregation study and deems that certain depreciations were overstated.

Calculating Recapture

The amount of recapture can vary depending on several factors, including the original cost of the property, the amount of depreciation taken, and the sale price of the property. While straight line depreciation is also subject to recapture, it is taxed at the capital gains rate, while accelerated depreciation taken is taxed at ordinary income rate. 

Strategies to Minimize Recapture Impact

1. Timing: Consider the timing of the sale. If possible, plan the sale when it can be offset by other deductions or losses.
2. Reinvestment: Utilize strategies such as a 1031 exchange, which allows you to defer capital gains taxes by reinvesting the proceeds from the sale into a new property.
3. Accurate Segregation: Ensure your cost segregation study is performed by qualified professionals who can accurately classify components and defend their classifications if audited by the IRS.

Long-Term Planning

Incorporating cost segregation into your long-term real estate strategy requires a thorough understanding of both its benefits and implications, including recapture. It's advisable to consult with tax professionals who can provide guidance tailored to your specific situation, ensuring compliance and optimizing your tax benefits.

Conclusion

Cost segregation continues to be one of the best ways to unlock early tax savings from real estate. But as always, those savings come with long-term considerations—especially now that 100% bonus depreciation is back under the Big Beautiful Bill.

By understanding how recapture works, and how new legislation affects your depreciation timeline, you can optimize both your current returns and your exit strategy.

Have questions about cost segregation, bonus depreciation, or recapture under the OBBBA?

Book a call with TaxTaker. Our experts can help you build a custom strategy that fits your property and your goals.