As we move into 2026, commercial real estate investors are navigating a shifting landscape shaped by evolving market conditions, legislative changes, and new opportunities to optimize their tax positions. Understanding how recent and upcoming tax policy changes affect your portfolio, and how to leverage proven strategies like cost segregation, can make a significant difference in your bottom line.
The Commercial Real Estate Landscape in 2026
The commercial real estate market continues to adapt to post-pandemic realities. While certain sectors face headwinds, others present compelling opportunities:
- Industrial and logistics properties remain strong as e-commerce continues to drive demand for warehouse and distribution facilities
- Multifamily housing shows resilience in many markets, supported by demographic trends and housing shortages
- Office space is undergoing transformation as companies refine their workplace strategies
- Retail properties are finding new life through adaptive reuse and experience-driven concepts
For investors, this environment demands both strategic vision and tactical financial planning, particularly when it comes to tax efficiency.
Major Tax Developments Reshaping the Commercial Real Estate Landscape
The OBBBA Reinstates 100% Bonus Depreciation
As many now well know, the One Bill Big Beautiful Act (OBBBA) has reinstated 100% bonus depreciation for assets acquired or placed in service after January 19, 2025. This represents a dramatic reversal from the scheduled phase-down that would have reduced bonus depreciation to just 20% in 2026.
What This Means:
- Properties and qualifying improvements acquired or placed in service after January 19, 2025, can now qualify for immediate, full expensing of eligible assets
- Investors can deduct 100% of the cost of qualifying property improvements in the year they’re placed in service
- This creates one of the most compelling tax incentives for commercial real estate investment in recent years
The Phase-Down That Was Avoided
Prior to the OBBBA, bonus depreciation was scheduled to continue its decline under the Tax Cuts and Jobs Act (TCJA):
- 2023: 80% bonus depreciation
- 2024: 60% bonus depreciation
- 2025: 40% bonus depreciation (prior to OBBBA)
- 2026: 20% bonus depreciation (scheduled, now superseded)
- 2027 and beyond: 0% (previously scheduled)
The reinstatement of 100% bonus depreciation fundamentally changes the calculus for commercial real estate investors and creates unprecedented opportunities for tax savings.
Section 179D Sunset: Act Before June 30, 2025
The OBBBA has also established a sunset date of June 30, 2025, for Section 179D energy-efficient building deductions. This creates an urgent, time-sensitive opportunity for property owners and developers currently undertaking energy-efficient improvements.
Current Section 179D Benefits:
- Deductions of up to $5.81 per square foot for qualifying energy-efficient improvements
- Available for both new construction and renovations that meet energy efficiency standards
- Applicable to commercial building owners, developers, and in some cases, designers of government buildings
Critical Deadline: To qualify for Section 179D deductions, properties must be placed in service by June 30, 2025. After this date, the deduction will no longer be available, making the first half of 2025 the final window to capture this benefit.
For investors with energy-efficient projects currently in progress or planned for early 2025, expediting completion to meet the June 30 deadline could result in substantial tax savings that will no longer be accessible after mid-year.
Maximizing Tax Benefits Through Cost Segregation
With the return of 100% bonus depreciation, cost segregation has become even more powerful as a tax strategy for commercial real estate investors. This engineering-based approach analyzes building components to identify assets that can be depreciated over shorter periods, typically 5, 7, or 15 years instead of the standard 27.5 or 39 years for real property.
How Cost Segregation Works
A comprehensive cost segregation study conducted by qualified engineers and tax professionals:
- Performs a detailed engineering analysis of your property, reviewing construction documents, blueprints, and on-site conditions
- Identifies and reclassifies building components that qualify for accelerated depreciation
- Produces an audit-defensible report that documents the methodology and supports the tax position
- Enables immediate tax savings by front-loading depreciation deductions
The Impact with 100% Bonus Depreciation
The combination of cost segregation and 100% bonus depreciation creates exceptional value:
Without Cost Segregation: A $5 million commercial property might depreciate over 39 years at approximately $128,000 per year.
With Cost Segregation and 100% Bonus Depreciation: That same property might have $1.5 million in assets reclassified to shorter-life categories. With 100% bonus depreciation, that entire $1.5 million could be deducted in year one—representing a first-year deduction more than 11 times larger than standard depreciation alone.
This approach:
- Dramatically reduces current-year tax liability, freeing up substantial capital for reinvestment
- Maximizes cash flow in the critical early years of ownership
- Accelerates the return on investment by reducing tax drag
- Provides immediate liquidity that can be deployed into additional acquisitions or improvements
Strategic Timing for 2026
The reinstatement of 100% bonus depreciation makes 2026 an exceptional year for strategic action:
- Properties acquired after January 19, 2025 can immediately benefit from 100% bonus depreciation on reclassified assets
- Planned acquisitions in 2026 should incorporate cost segregation analysis into the investment underwriting
- Recent purchases (post-January 19, 2025) can still benefit from retroactive studies
- Properties acquired before January 19, 2025 may still qualify for catch-up depreciation through IRS Form 3115, though at the lower bonus depreciation rates in effect at the time
The window for maximum benefit is now—particularly for investors with near-term acquisition plans or recently completed purchases.
Who Should Consider Cost Segregation in 2026?
With 100% bonus depreciation in effect, cost segregation delivers exceptional value across virtually all commercial real estate scenarios:
- New acquisitions: Properties being purchased in 2026 represent the highest-value opportunity
- Major renovations or improvements: Significant capital investments in existing properties can qualify for immediate expensing
- New construction: Buildings completed after January 19, 2025, or under development in 2026
- Recent purchases: Properties acquired after January 19, 2025, that haven’t yet had a cost segregation study
- Portfolio optimization: Investors looking to maximize cash flow and reduce tax liability across multiple properties
The financial impact can be substantial regardless of property type—office buildings, retail centers, industrial facilities, multifamily properties, hospitality assets, and more.
Taking Action: A Conservative, Compliance-First Approach
Tax strategies are most effective when they’re built on a foundation of accuracy, defensibility, and compliance. When evaluating cost segregation or other tax benefits:
- Work with experienced professionals who use engineering-based methodologies and understand IRS guidelines
- Prioritize audit safety by ensuring every claim is thoroughly documented and defensible
- Focus on long-term value rather than aggressive positions that may not withstand scrutiny
- Act strategically to align acquisitions and improvements with maximum tax benefit opportunities
At CSSI Services, we’ve completed over 60,000 studies over more than 23 years, building a track record of delivering meaningful tax savings while minimizing risk. Our engineering-first approach ensures that every study is grounded in detailed analysis and designed to withstand IRS review.
Looking Ahead: Positioning for Success in 2026 and Beyond
The return of 100% bonus depreciation makes 2026 one of the most favorable tax environments for commercial real estate investment in recent memory. While the sunset of Section 179D closes one opportunity, the expansion of bonus depreciation opens a significantly larger one for the vast majority of commercial property investors.
Now is the time to:
- Review your acquisition pipeline to identify properties that will benefit from cost segregation and 100% bonus depreciation
- Analyze recent purchases (after January 19, 2025) for immediate tax-saving opportunities
- Evaluate planned improvements to existing properties that may qualify for accelerated depreciation
- Assess any remaining Section 179D opportunities for energy-efficient projects that can be completed before June 30, 2025
- Explore R&D credits if you’re actively engaged in innovation-related activities
The tax landscape has shifted dramatically in investors’ favor. By taking a proactive, informed approach, you can maximize cash flow, reduce tax liability, and position your portfolio for long-term success.
