With the election results just finalized, the potential impacts on economic policy are top of mind for investors. With Donald Trump being named our 47th President, shifts in key provisions, such as bonus depreciation—a vital tax incentive—is under scrutiny. Originally introduced through the Tax Cuts and Jobs Act of 2017, bonus depreciation allowed investors to accelerate deductions on eligible assets in the year of acquisition, fueling small business growth and economic activity. However, since 2022, this benefit has been phasing out by 20% each year, with a full reduction scheduled for 2027 unless extended by new legislation. Now, as post-election priorities emerge, investors are closely watching how these changes may alter bonus depreciation and influence broader investment strategies in the coming years. This article explores how the election results will impact bonus depreciation and shape investment strategy.
Understanding Bonus Depreciation
Bonus depreciation allows investors to offset passive income on their taxes, reducing overall tax liability. Through cost segregation, real estate investors can analyze an asset’s purchase price or construction cost to determine how much can be depreciated over 5, 7, or 15 years instead of the standard 27-year schedule.
Benefits of Cost Segregation
- Enhanced Cash Flow: Defers tax liability so investors can reinvest savings immediately into new opportunities.
- Time Value of Money: Speeds up asset depreciation, enabling faster returns that can fuel growth, reinvestment, or debt reduction.
- Lower Tax Burden: Provides additional passive losses to offset income, lowering taxable income and boosting tax savings.
Election Outcomes and Policy Scenarios
As the election unfolds, the power distribution in Congress will shape potential outcomes depending on which party gains control. With Donald Trump in office, the balance of power between the House and Senate will play a crucial role in policy direction. The Trump campaign has made several promises, including:
- Make expiring TCJA individual income tax cuts permanent.
- Eliminate taxes on tipped wages, overtime, and Social Security payments.
- Vice presidential nominee JD Vance has suggested expanding the child tax credit to $5,000.
- Trump advisers have pushed to keep the cap on the SALT deduction.
What this Means for Multifamily Investors
Donald Trump’s platform includes restoring key business tax provisions from the Tax Cuts and Jobs Act (TCJA), notably reinstating 100% bonus depreciation as of January 2026. If enacted, this change would allow investors to fully write off the cost of eligible assets in the year of purchase, a powerful tool for those focused on maximizing cash flow, accelerating returns, and reducing taxable income.
For multifamily investors, 100% bonus depreciation would open significant opportunities. Enabling investors to deduct large portions of property value upfront enhances cash flow, providing the capital needed to reinvest, expand portfolios, or reduce debt more aggressively. This approach can dramatically improve after-tax returns and support the compounding growth essential for building passive income streams and long-term wealth.
Though details on other proposed tax policies remain unclear, this commitment to bonus depreciation benefits multifamily investors who use tax advantages strategically to amplify portfolio growth. For investors anticipating potential policy shifts, aligning their current tax and investment strategies with these possible changes could be critical to maximizing future gains.
Investor Implications and Strategies
The presidential transition will delay the implementation of new policies, and investor strategy must account for this timeline. As we near the end of 2024, bonus depreciation remains at 60%, with no guarantee of change. Investors should consider this might be the highest bonus depreciation available moving forward, making now an opportune time to offset passive income through this tax benefit.
All signs indicate that the phase-out schedule will continue, dropping bonus depreciation to 40% in 2025. If Trump’s proposed legislation doesn’t pass, bonus depreciation could phase out entirely by 2027—though bipartisan support suggests the bill may eventually be enacted.
Preparing for Possible Outcomes
Tax planning and collaborating with a CPA have never been more important. Election years bring policy uncertainties that can dramatically alter tax strategies, positively and negatively affecting your financial outcomes. Strategic tax planning becomes essential to adapt to these shifts, especially for investors, business owners, and families who may be impacted by changing deductions, credits, and tax rates.
This year, both parties appear aligned on several taxpayer relief measures, including increases to the child tax credit, tax exemptions for tipped wages, and targeted assistance for the working class. These areas of agreement suggest that certain tax benefits may persist, providing some predictability in planning for families and middle-income earners.
However, the two parties also diverge on several key tax issues, particularly around corporate tax rates, capital gains, and deductions for business expenses. These points of contention reflect different economic philosophies but also create a system of checks and balances. Any proposed changes to tax policy will require a majority in Congress, ensuring that impactful shifts are carefully reviewed and debated. This process helps reduce the likelihood of extreme measures, as bipartisan support—or at least some compromise—will likely be necessary for the most significant changes to move forward.
As potential tax changes unfold, proactive planning with a qualified CPA becomes invaluable. By staying informed on proposed legislation and anticipating shifts in tax law, your CPA can help identify opportunities to protect wealth, maximize deductions, and create flexible strategies. This approach enables you to adapt quickly, taking advantage of today’s tax benefits while preparing for tomorrow’s changes. A robust, adaptable tax strategy is essential in an unpredictable tax environment to minimize risk and optimize your financial position.
Conclusion
With the new election outcome, investors should closely examine proposed tax policies and proactively adjust their investment strategies. If bonus depreciation returns to 100%, investors gain significant long-term benefits. However, with no guarantee, it’s essential to leverage the current 60% bonus depreciation to maximize returns and reduce tax liability. To explore Viking Capital’s current investment opportunities, book a call with our team and lock in the 60% depreciation benefit before the year ends!
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