We’re excited to share a guest article from one of our industry partners that highlights key opportunities and considerations for investors in today’s evolving tax and real estate landscape.
Commercial real estate owners and investors often leverage multiple strategies to optimize their overall tax liability. Two strategies commonly used in tandem are 1031 exchanges and Cost Segregation Studies (CSS). By performing a CSS on the replacement property upon purchase, taxpayers add accelerated depreciation to the multiple benefits conveyed by the 1031 exchange.
The recent One Big Beautiful Bill Act (OBBBA) restored 100% bonus depreciation – permanently. 100% bonus depreciation allows for a qualifying asset — defined as having a Modified Accelerated Cost Recovery System (MACRS) depreciable class life of less than 20 years — to essentially be written off entirely in the year it is placed into service.
The return of 100% bonus depreciation “super-charges” the cost segregation study, maximizing tax savings As such, a 1031 exchange/cost segregation combination has become all the more powerful.
Under the Tax Cuts and Jobs Act (TCJA), used assets became eligible for bonus depreciation, and this remains the case under the OBBBA. Therefore, qualifying assets in an acquisition are eligible for 100% bonus.
These recent changes have created a climate in which 1031 and CSS may be employed simultaneously, each adding its own unique economic benefit. The use of CSS may in fact offset the potential tax liability generated by the exclusion of personal property from a 1031 exchange.
Consider an example. Multifamily property MP was acquired as part of a 1031 exchange:
- Placed-in-service September 2025
- Under OBBBA – 100% bonus depreciation in play
- New basis: $2.059M, including 16.1% land
- New depreciable basis: $1.727M (excluding land)
- Engineers moved:
- 4% to 5-year personal property
- 9% to 15-year land improvements
- First Year Tax Savings from the CSS: $148,292
The typical process for incorporating a CSS into a 1031 exchange begins after closing on the replacement property. An estimate of benefit is prepared, demonstrating the savings possible through a CSS. If the benefits are worthwhile, the CSS report can be completed in a timely fashion to coordinate with the desired filing date. In addition to the immediate benefits, a CSS also documents the data required to support future tax strategies, including energy incentives, partial asset disposition, and expensing decisions under the Tangible Property Regulations.
By including a CSS in a 1031 exchange under the OBBBA, taxpayers can boost immediate benefit while teeing themselves up for future savings. These strategies truly are, “better together.”
Bruce can be reached at (215) 855-7510 or bjohnson@capstantax.com to answer any questions you might have.
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