Bonus Depreciation Sunset: What Multifamily Investors Must Do Before Year End 2025

Bonus depreciation was once a universal 100% write-off for qualified property. The 2025 calendar now delivers two distinct realities for apartment buyers. Contracts that close on or after 19 January 2025 enjoy a renewed 100 percent deduction revived by the One Big Beautiful Bill Act (OBBBA). Assets placed in service on or before that date remain under the original Tax Cuts and Jobs Act schedule, permitting only a 40 percent first-year expense. The split leaves investors at a tactical cross-road: lock in the larger benefit by timing closing dates, or press ahead and capture what remains of the sunset window.

Rewind to the TCJA start-up.

The incentive arrived in late 2017 and held at 100% through the 2022 tax year. It then stepped down - 80% for 2023, 60% for 2024 - with a glide to 40% in 2025, 20% in 2026, and elimination in 2027. Many syndicators built equity raises around that path, expecting a stark reduction in twenty-five

Congress changed the script this summer.

OBBBA restored the full deduction for acquisitions after the mid-January cut-off and introduced a transition election so taxpayers may retain the partial rate when that aligns with cash-flow targets or passive-loss limits. Planners now juggle two rate tracks, each carrying distinct filing positions, taxable-income effects, and partnership-agreement tweaks.

Property placed in service	TCJA rate	OBBBA default	OBBBA election*
On / before 19 Jan 2025	40%	40%	-
After 19 Jan 2025 → 31 Dec 2025	-	100%	40%
2026 (projected)	20%	100%**	20%

Election applies deal-by-deal; partnerships may vary the choice.*OBBBA language makes 100% permanent for qualifying assets placed in service after the cut-off.

Why Timing Alone is Not Enough

An apartment complex is more than walls and a roof. Break out electrical, flooring, parking lots, or landscape lighting into five, seven, or fifteen-year buckets and bonus depreciation springs to life. Cost-segregation studies often reclassify 25-35% of basis. A $10 million renovation can move roughly $3 million into short-life categories, pushing a large deduction into the very first filing season. One CPA highlighted a client who saved $1.8 million at a study cost of about $10,000 - an 18,000% return on professional fees.

Year-End 2025 Multifamily Checklist

• Commission a cost-segregation study before Thanksgiving. Engineers face seasonal backlogs; an early slot avoids filing-extension strain.

• Evaluate partial asset dispositions. Write off old roofs, HVAC units, or carpet removed during upgrades to harvest ordinary loss sooner.

• Run Section 163(j) sensitivity models. Accelerated deductions can amplify the interest-expense limitation; model EBITDA coverage in advance.

• Model the new election. Compare 40% and 100% paths for every partnership tier, GP, LP, co-invest - to find the optimal cash-tax mix.

• Refresh partner capital-account language. Large non-cash deductions can distort capital percentages if agreements reference book basis without curative language.

Tax-Savings Snapshot - $10 Million Acquisition, Placed 20 Jan 2025

Scenario	Short-life basis (30 %)	Bonus rate	First-year deduction
No study	-	0%	≈ $0
Cost seg + TCJA election	$3M	40%	$1.2M
Cost seg + OBBBA default	$3M	100%	$3.0M

Even with the 40% election, the study delivers a meaningful shield. Moving to the 100% track more than doubles that shield, often turning taxable profit into a loss that can offset passive income elsewhere in the portfolio.

Financing Backdrop

Tax benefits matter little if the capital stack erodes distributable cash.

Agency coupons sat near the 6.4% mark in the July 2025 Fannie Mae outlook, with SOFR-based construction credit roughly 275 basis points above that level. A front-loaded deduction can soften the bite of higher debt service by pushing additional after-tax cash into reserve accounts right out of the gate.

The 2025 sunset is not a binary on-off switch; it is two sets of rules weaving through one calendar year. By blending closing-date strategy, asset re-classification, and new election mechanics, sponsors can still turn the deduction dial to eleven. Move early - deals, studies, and legal updates all require lead time. Waiting until the final quarter may leave valuable tax shelter on the table and tilt the internal-rate-of-return math against limited partners.

Talk with a qualified CPA and an engineer today, line up the study, and pick the rate track that suits your balance sheet. December 31 is closer than it appears.

Credit: (The Tax Adviser, Grant Thornton, Plante Moran, Business Insider, Fannie Mae)

No Offer or Solicitation

This communication is intended solely for informational and educational purposes. It does not constitute, and shall not be construed as, an offer, invitation, or solicitation to purchase, acquire, subscribe for, sell, or otherwise dispose of any real estate investments, securities, or related financial instruments. Nothing contained herein should be interpreted as a recommendation or endorsement of any specific investment strategy or opportunity. Furthermore, this communication does not represent, and shall not be deemed to constitute, the issuance, sale, or transfer of any real estate interests in any jurisdiction where such actions would be in violation of applicable laws, regulations, or licensing requirements.

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