Impact Growth Capital Newsletter

 This week at IGC: The Tax Edition
IGF offers extra depreciation to its investors, Trump Administration on bonus depreciation, and residential vs commercial cost segregation.

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Join Us In Solving The Affordable Housing Crisis 

Tax season is here, and over the next two weeks, we will cover tax strategies that you can leverage to keep more of your hard-earned capital. One of the greatest benefits of investing in real estate, beyond cash flow and appreciation, is its powerful tax advantages. Through depreciation and other deductions, investors can significantly reduce their taxable income while still generating strong returns.

That’s why we’re pleased to offer an increased share of depreciation. We’re allocating up to 80% of the GP-side depreciation to our IGF investors, maximizing your ability to offset taxable income. It’s a powerful tax benefit that makes an already strong investment opportunity even more compelling.

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Tax Season

Trump Administration Plan to Reinstate 100% Bonus Depreciation

In a recent address to Congress, President Donald Trump unveiled a comprehensive tax reform agenda aimed at stimulating economic growth and reinforcing domestic industries. Central to this plan is the reinstatement of 100% bonus depreciation, a provision initially introduced in the Tax Cuts and Jobs Act (TCJA) of 2017 but subsequently phased out.The current bonus depreciation rate stands at 60% for 2024 and is slated to decrease to 40% in 2025. The proposed restoration to 100%, potentially applied retroactively, is designed to incentivize businesses to accelerate capital investments by allowing immediate expensing of qualified property, thereby reducing taxable income. ​

Additionally, the administration seeks to revitalize innovation by permitting the immediate deduction of research and development (R&D) expenses in the year they are incurred. Under the TCJA, starting in 2022, businesses were required to amortize R&D expenses over five years, a shift that some argue dampened investment in innovation. By reverting to immediate expensing, the administration aims to lower the after-tax cost of R&D activities, encouraging companies to intensify their research efforts and maintain a competitive edge in the global market. ​

These proposed tax reforms underscore the administration's commitment to fostering a business environment conducive to growth and competitiveness. By enhancing capital cost recovery and supporting R&D initiatives, the policies are anticipated to stimulate economic activity, promote technological advancement, and solidify the United States' position in the international economic landscape

Cost Segregation: Residential vs Commercial

Cost segregation is a tax strategy that allows real estate investors to accelerate depreciation deductions, reducing taxable income and improving cash flow. The approach differs between residential and commercial properties due to variations in depreciation timelines and asset classifications. Residential rental properties depreciate over 27.5 years, but a cost segregation study can reclassify certain components—such as flooring, appliances, and landscaping—into shorter depreciation periods, creating immediate tax benefits. While the scope of these studies is typically narrower for residential properties, they can still yield significant savings, especially for high-value properties or those undergoing renovations.

Commercial real estate, which includes office buildings, retail centers, and industrial facilities, follows a 39-year depreciation schedule. However, commercial properties often have a broader range of specialized components—such as HVAC systems, lighting, and parking structures—that qualify for accelerated depreciation. As a result, cost segregation studies for commercial properties tend to generate higher tax savings than those for residential properties. Given the complexity and potential financial impact, real estate investors in both sectors can benefit from consulting tax professionals to maximize their depreciation strategies and enhance overall investment returns.