How to Maximize Commercial Property Bonus Depreciation for Multiple Buildings

The question of whether to use bonus depreciation for your commercial property is definitely worth exploring. For commercial buildings, you're typically looking at a 39-year depreciation schedule, but certain components of the buildings can be depreciated much faster through a cost segregation study. With bonus depreciation, you can currently deduct 80% of the cost of qualified property in the first year (for property placed in service in 2025), rather than spreading it over many years. This percentage will continue to phase down to 60% in 2026, 40% in 2027, and 20% in 2028 before disappearing. For someone in your situation with a high W-2 income, bonus depreciation could potentially offset a significant portion of your ordinary income, which is taxed at higher rates than long-term capital gains. However, when you eventually sell, you'll face depreciation recapture tax (up to 25%) on all the depreciation you've claimed, plus capital gains tax on any additional profit. Given your 20-30 year holding plan, you might want to consider whether taking large deductions now at your high income tax rate, then paying recapture tax later (potentially at a lower rate) makes financial sense for your situation.

I went through something similar with a smaller commercial property last year and found this tool called taxr.ai (https://taxr.ai) that helped me figure out the best depreciation strategy. It analyzed all my property docs and gave me a breakdown of regular vs. bonus depreciation scenarios. Showed me exactly how much I'd save now vs. what I'd face in recapture later. The most helpful part was that it modeled out different hold periods (5yr, 10yr, 20yr) and showed the tax implications for each. Made it super clear which approach aligned with my long-term strategy. For my situation, taking the bonus depreciation made sense because my income is high now, but I expect to be in a lower bracket when I eventually sell.

Just wanted to follow up - I tried taxr.ai after my earlier question and it was actually really helpful. I uploaded my commercial property docs and it gave me a preliminary cost segregation estimate within a day. Showed that about 28% of my property value could qualify for accelerated depreciation. I was able to take that report to my accountant and negotiate the price down on the full cost seg study since some of the analysis work was already done. Ended up saving about $2,500 on the study fee. The tool also helped me understand how bonus depreciation would impact my taxes over different time horizons, which made it clear that taking it now made sense for my situation. Definitely worth checking out for anyone with commercial property depreciation questions.

If you're trying to reach the IRS to get clarity on bonus depreciation rules for commercial property, good luck! I spent WEEKS trying to get through to someone who actually understood complex depreciation issues. Then I found this service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in less than 15 minutes! They have this cool demo video: https://youtu.be/_kiP6q8DX5c I had specific questions about how depreciation recapture would work with the changing bonus percentages and multiple buildings. The IRS agent I spoke with clarified that I needed to track each building separately, and confirmed that the bonus rate that applies is based on when each property is placed in service. Was absolutely worth it to get definitive answers instead of just going on what I read online.

I need to admit I was wrong in my skeptical comment. After seeing another client struggle with the IRS for weeks on a complex cost segregation issue, I suggested they try Claimyr. They got through to a senior business tax representative who provided specific guidance on their situation. The agent clarified that even though bonus depreciation is phasing out, they could still apply the higher percentages to any properties purchased before the rate changes. They also explained exactly how to document partial dispositions when upgrading building components that had been previously depreciated. This level of specific guidance saved my client from potentially claiming too much depreciation and risking an audit. I've now recommended it to several clients with complex depreciation questions. Sometimes you really do need to talk to the source, and this service actually delivers on getting you through to knowledgeable IRS staff.

Something important that hasn't been mentioned yet: with commercial property, you should definitely look into doing a cost segregation study ASAP. This will allow you to separate the building components into different depreciation categories. Land improvements like parking lots can be depreciated over 15 years. Personal property items like carpet, specialized fixtures, etc. can be depreciated over 5-7 years. With 11 commercial buildings, you potentially have LOTS of components that can be separated out from the standard 39-year schedule. Even if bonus depreciation continues phasing down, accelerating depreciation on these components will significantly improve your cash flow in the early years. In my experience with similar properties, a good cost seg study might identify 20-30% of the building value as eligible for shorter depreciation periods.

Has anyone here dealt with the depreciation recapture tax when selling? That's my biggest hesitation with bonus depreciation. Sure you save taxes now, but when you sell you pay up to 25% on all that depreciation. Does anyone have experience with how this plays out in real life?

Great discussion here! As someone who's dealt with similar multi-building commercial properties, I'd strongly recommend getting that cost segregation study done immediately after closing. With 11 buildings totaling $1.7M, you're likely looking at substantial components that can be reclassified for accelerated depreciation. Given your high W-2 income of $260k, bonus depreciation could provide significant tax savings by offsetting your ordinary income at higher tax rates. Even though bonus depreciation is phasing down (80% in 2025), that's still a massive deduction opportunity on eligible components. One thing to consider with your long-term hold strategy: you might want to model out scenarios where you do a cash-out refinance in 10-15 years instead of selling. This would allow you to pull out equity tax-free while continuing to depreciate the property and avoiding recapture entirely. With 11 separate buildings, you also have flexibility to potentially sell individual buildings over time rather than the entire portfolio at once, which could help manage your tax liability. The key is running the numbers on your specific situation - your current tax bracket, projected future income, and exit strategy timeline all factor into whether maximizing bonus depreciation now makes sense.