We know that a concept called depreciation is one of the ways real estate helps owners build their net worth and pay less in taxes. For residential rental properties, like the ones many of my clients buy, the IRS allows real estate investors to depreciate a home over a 27.5-year period.
Back in 2017, the Tax Cuts and Jobs Act introduced “bonus depreciation” which allowed real estate investors to accelerate the depreciation of certain aspects of a property, like the flooring, appliances and more, and depreciate 100% of the value of those items in the first year. This provided much greater tax savings upfront.
The catch was that 100% bonus depreciation was set to phase out at the end of 2022, decreasing to 80% in 2023, only 60% in 2024 and eventually going away altogether in 2027.
In a recent development, the US House of Representatives recently passed legislation to reinstate 100% bonus depreciation for qualified property placed in service between December 31, 2022, through the end of 2025. The bill received strong bipartisan support (357-70) in the house and is now in the Senate. If approved, this bill would make buying and owning investment real estate in 2024 even more advantageous!
