What is Bonus Depreciation in Real Estate?


Do you want to maximize the profits coming from your investments? Is it possible to do that AND pay less taxes at the same time?

Bonus depreciation could be the answer to unlocking tax savings and increased cash flow.

This tax incentive allows taxpayers like you to deduct the assets that they’re investing in faster than they normally would.

If you want to learn more about bonus depreciation, what it is, and how you can get it, keep reading. 


tax benefits Bonus depreciation


As you likely already know, one of the biggest reasons people invest in real estate is because of the tax benefits, one of the most notable is bonus depreciation. 

Let me tell you a little bit more about what this means.  

Bonus depreciation is a tax incentive that allows taxpayers to deduct the assets that they’re investing faster than they normally would. 

Normally we depreciate properties on a 27-year timetable, but there’s different parts of the property that are able to be depreciated faster. 

We can depreciate things like fixtures, carpeting, refrigerators, and other appliances at a quicker pace because all of them have a shorter lifespan than 27 years. 

By doing bonus depreciation, we can use that shorter lifespan to create a bigger tax benefit for our investors. 

This is possible because the IRS allows rental property appliances owned by an investor to be depreciated over the course of 5 years, which increases your tax write-off in the first few years of ownership. 

Additionally, bonus depreciation allows the cost of appliances to be written off in year one, which may allow investors like you to report a net loss for tax purposes. Pretty cool right?

And for a lot of investors, taxes are their biggest expense annually. This strategy is a huge deal and can actually allow them to write off huge amounts against their passive income every year. 

For many people who invest with us, they’re writing off 50% to 80% of their initial investment in year one. 

That’s HUGE! And means big savings for investors. 

What is Bonus Depreciation in Real Estate?


Not every real estate investing firm takes advantage of these tax benefits. But here at Nighthawk, we are able to capture bonus depreciation on the deals we do.

On every single deal we have done and will do, we always engage a cost segregation engineering firm to go off of the property and do a full audit of all the different aspects of the property.

Through that, we provide a report that allows us to aggressively but accurately provide that deduction for the investors. 

It depends on the specific property, but as I said before we can usually get 50% to 80% of investors’ initial investment as a tax loss for their tax statement in the year one of the deal.

This has been incredible in the past 5 years, but it might not always be the case moving forward. Why is that? 

Unfortunately, bonus depreciation is getting sun setted – it’s getting phased out. But that doesn’t mean it’s going away within the next couple months. Here’s what I mean:

So this past year, 2022, was the last year of full bonus depreciation. 

This year it goes down to 80 percent and next year in 2024 it’ll go down to 60 percent. 

So the tax savings are very powerful right now, but they will become a little bit less powerful in the future. That’s all the more reason to start taking advantage of these tax laws right now. 

If you’re looking for alternate forms of entirely passive income, consider investing with us. We’ll get you everything I talked about today and so much more. 

To learn more about the benefits of real estate investing, please schedule a call by visiting nighthawkequity.com/join. 

Or try reading one of our other articles here: LINK

Thanks so much and I’ll see you in the next article.

nighthawk equity