How Proposed Tax Law Changes Could Affect Cost Segregation Studies
On May 12, 2025 proposed tax law changes were released. As your Cost Segregation partners, we wanted to share how, if passed, they would affect Cost Segregation Studies. Please understand, these proposed changes have not yet passed Congress. This is just an exercise in preparation if they do.
If you have any questions, please contact our team: 877.410.5040
The main areas to note:
- 100% bonus for property acquired after 1/19/25 and before 1/1/2030
- Acquisition date is earlier of date actually acquired or date of written binding contract for the acquisition
- Depreciation no longer reduces adjusted taxable income for business interest expense limitation purposes
- Effective for taxable years beginning after 12/31/24 and before 1/1/2030
- New Section 168(n) would create a new class of property called “Qualified Production Property”
- 100% expensing
- Any portion of nonresidential real property:
- Used as an integral part of a qualified production activity (QPA),
- The original use commences with the taxpayer,
- Or, if the acquired property was not used in a qualified production activity by any person at any time during the period beginning 1/1/21, and ending on 5/12/25, and the taxpayer acquired it after 1/19/25 & before 1/1/2029.
- Acquisition subject to written binding contract rules
- Construction began after 1/19/25 & before 1/1/2029,
- Is placed in service before 1/1/2033, &
- Taxpayer elects application of this provision.
- Shall not include that portion of any nonresidential real property which is used for offices, admin services, lodging, parking, sales activities, research activities, software engineering activities, or other functions unrelated to manufacturing, production, or refining of tangible personal property.
- “Qualified Production Activity” means the manufacturing, production, or refining of a qualified product.
- Manufacturing, production, or refinement activities must result in a substantial transformation of the property comprising the product.
- “Production” only includes agricultural or chemical production
- “Qualified Product” means any tangible personal property
- We aren’t given further definitions for QPA’s, so hopefully there will be Treas. Regs.
- Qualified Production Property does not include property to which bonus depreciation or ADS applies
- QPP is a separate class of property for purposes of making the election out of bonus or to voluntarily use ADS
- Recapture:
- 10-yr compliance window starting on in-service date
- Trigger: property ceases to be used in a QPA and is used by the taxpayer in a productive use that is not a QPA
- Ordinary income recapture under Sec. 1245
- Effective date: property placed in service after the date of enactment of Sec. 111101 of the tax bill (or whatever it’s finally denominated)
- Sec. 179 (not to be confused with Sec. 179D)
- For 2025, the maximum amount of the 179 deduction was $1,250,000 (as adjusted for inflation), and the investment limitation was $3,130,000.
- If the draft proposal passes, for 2025 the deduction will increase to $2,500,000 and the investment limitation will be $4,000,000. These amounts will be indexed to inflation for future tax years.
- While not the biggest deal, this could be useful to taxpayers who acquired/placed in service assets outside of the qualifying window discussed below for 100% bonus depreciation. Additionally, QIP, roofs, HVAC property, fire protection and alarm systems, and security systems are “Qualified Real Property” under 179(e). Keep in mind, all QRP must have been placed in service after the building was first placed in service.
Again, these changes have not yet passed, they have just been presented. We will continue to monitor the situation and provide updates as they become available.
