Published · Loren Wernette
No matter which side of the proverbial political aisle you sit on, the One Big Beautiful Bill offers incentives that simply cannot be overlooked by serious real estate investors. Whether your focus is on short-term cash flow or long-term equity growth, the tools in this legislation can make a material difference in your bottom line.
The recently passed One Big Beautiful Bill (OBBB) is making waves across the real estate investment community — and for good reason. This sweeping legislation restores and extends key tax incentives that can significantly boost after-tax cash flow, particularly for those acquiring or improving income-producing properties. If you’re investing in the Southeast, and especially the growing Raleigh, NC market, this bill opens up tactical opportunities that are worth revisiting with your CPA.
In this post, we’ll break down the bill’s most relevant provisions for experienced real estate investors, model the numbers, and share what to watch for when planning your next move.
The Return of 100% Bonus Depreciation
Perhaps the biggest win for dealmakers is the restoration of 100% bonus depreciation for property placed in service after January 19, 2025. This allows you to write off the entire cost of qualifying assets in year one, dramatically reducing your taxable income.
This isn’t just for big-box syndicators — solo investors and partnerships can benefit just as much. In fact, let’s look at a typical Raleigh rental property deal and compare the before and after impact.
Sample Pro Forma – Raleigh Rental Property
Let’s say you’re acquiring a $500,000 rental home with $400,000 of it allocated to depreciable building value. You rent it for $3,500/month and operate with $12,000 in annual expenses. Here’s how your numbers might shake out, comparing the deal without versus with bonus depreciation:
- Purchase Price: $500,000 in both scenarios.
- Land Value (non-depreciable): $100,000 in both scenarios.
- Building Value (depreciable basis): $400,000 in both scenarios.
- Loan Amount (75% LTV): $375,000 in both scenarios.
- Down Payment: $125,000 in both scenarios.
- Gross Annual Rent: $42,000 in both scenarios.
- Annual Expenses: $12,000 in both scenarios.
- Net Operating Income: $30,000 in both scenarios.
- Year 1 Depreciation: $14,545 straight-line without bonus vs. $120,000 with bonus depreciation.
- Taxable Income: $15,455 without bonus vs. -$90,000 with bonus depreciation.
- Federal Tax: $5,718 without bonus vs. $0 with bonus depreciation.
- Year 1 Cash Flow (after tax): $24,282 without bonus vs. $30,000 with bonus depreciation.
- Remaining Bonus Deduction: $0 without bonus vs. $90,000 with bonus depreciation.
Note: Assumes a 37% marginal tax rate. Simplified for illustration.
What Can You Use That $90,000 Deduction For?
1. Offset Other Passive Income. If you’re a typical real estate investor (i.e., not a Real Estate Professional for tax purposes), then that $90,000 can be used to offset:
- Rental income from other properties
- K-1 income from passive real estate syndications
- Income from limited partnerships or passive business investments
2. Carry It Forward Indefinitely. If you don’t have enough passive income to use it all in the current year, you can carry forward the unused deduction indefinitely — building up a “loss bank” for future years, and offsetting income in years when you sell and have big gains.
3. Offset Active Income (if you qualify as a Real Estate Professional). If you (or your spouse) qualify as a Real Estate Professional (REP) under the IRS rules, then you may be able to use that $90,000 deduction to offset:
- W-2 income
- Business income
- Capital gains from non-passive activities
4. STR (Short-Term Rental) Loophole. If the property generating the bonus depreciation is a short-term rental (average stay under 7 days) and you materially participate, the IRS may allow you to treat that income as non-passive — and therefore use those losses to offset active income.
Strategic Implications for SE Investors
1. Boosting After-Tax Cash Flow. As the numbers show, using bonus depreciation in year one can eliminate your federal tax burden on rental income — and even create passive losses you may carry forward. This unlocks more deployable capital for additional acquisitions or improvements.
2. Raleigh’s Edge. North Carolina conforms to federal depreciation schedules. While not all states do, this alignment means Raleigh investors can fully benefit from this provision at both state and federal levels — unlike some Northeastern or Western states.
3. Interest Deductibility Bonus. The bill also redefines the interest deduction limit based on EBITDA (earnings before interest, taxes, depreciation, and amortization), rather than EBIT. This is especially favorable to value-add investors using leverage — now you can deduct more interest, even if you’re depreciating aggressively.
Risks and Unknowns
While the bill offers real opportunity, it’s not without caveats:
- Sunset Dates: Bonus depreciation and interest deductibility provisions are set to expire by 2030, meaning your window to act is limited unless Congress acts again.
- Federal Deficit Pressures: The bill is projected to add ~$3 trillion to the deficit, which could push up interest rates over time and impact cap rates.
- State Decoupling: Some states may decouple from these provisions — always check with your tax advisor on how North Carolina treats federal provisions (currently NC conforms, but this could change).
What to Do Now
Whether you’re planning to scale your portfolio or restructure for efficiency, this is a moment to get proactive:
- Run cost segregation studies early for best ROI.
- Work with a knowledgeable CPA who understands real estate-specific depreciation planning.
- Have conversations with your attorney or legal team around deal structures, especially if using LPs or syndications.
Final Thoughts
While the One Big Beautiful Bill may be politically charged, the fact remains — it has been signed into law. As investors, it’s not only our right but our responsibility to leverage every tool available to build resilient and profitable businesses. Navigating the ever-evolving legislative landscape is part of that work.
The OBBB provides real opportunities to amplify returns on well-underwritten deals and potentially offset the impact of today’s higher borrowing costs. It’s no silver bullet — but it’s a powerful tool to keep in your investment arsenal.
Disclaimer: This article is for informational purposes only and should not be considered tax or legal advice. Consult with your CPA or attorney regarding your specific investment and entity structure.