In the commercial real estate world, conversations about property upgrades often center on rising material costs, tenant demands, and construction timelines. But CRE professionals and property owners should focus their discussion on a single, potent line of the IRS tax code: Section 179.
As year-end approaches, those conversations naturally shift toward capital expenditures and budget allocations. Smart brokers and asset managers are using the power of Section 179 to frame property improvements, whether a drab lobby renovation or an HVAC system overhaul, not as a sunk cost but as an immediate, deductible expense. This strategic approach transforms a cap-ex deduction into a tax-planning opportunity, offering a reason to push those qualifying upgrades through before the clock runs out on December 31.
Why Section 179 matters
Imagine purchasing a significant asset for your building, like a new suite of high-end lobby furniture or a state-of-the-art lighting system. Under traditional accounting rules, you can’t deduct the entire cost in the year you buy it. Instead, you must depreciate that cost over a period of years (typically 5, 7, or 15). The tax benefit trickles in slowly, long after the cash has left your bank account.
Section 179 flips the script.
The U.S. government created this incentive to encourage businesses to invest in themselves. Specifically, Section 179 of the IRS Tax Code permits a business to deduct the full purchase price of qualifying equipment and software placed into service during the tax year. In other words, you can claim the entire deduction this year, significantly lowering your taxable income and — more importantly — increasing your cash on hand, even if you financed the purchase and plan to pay it off over time.
For a CRE owner, manager, or investor, the ability to front-load these deductions creates a cash-flow catalyst. It immediately reduces the net cost of the improvement, making expensive, necessary renovations financially viable now. This ability is a critical factor when balancing the need to modernize assets against the pressure to maintain healthy operational budgets.
The fine print: What qualifies
To leverage this tool effectively, you need to understand the distinction between what qualifies for immediate expensing and what doesn’t.
The general rule? Section 179 is designed for tangible property (items you can literally move) and certain improvements to real property. The deduction applies to qualifying furniture, fixtures, and equipment (FF&E) and can include nearly anything a tenant or visitor interacts with on a daily basis.
- Lobby/common area assets: Seating, tables, reception desks, area rugs, decorative lighting fixtures, and other finished goods.
- System upgrades: New HVAC units, security systems, fire suppression systems, and technological infrastructure.
- Interior improvements: Thanks to legislative changes, Section 179 now often applies to qualified improvement property (QIP) — non-structural improvements to a non-residential building’s interior, provided that those improvements were placed into service after the building was first used. Think new ceiling tiles, interior doors, and some specialized lighting.
The big exclusion
Here’s the caveat: Structural construction generally doesn’t qualify for Section 179 and must continue to be depreciated over the long, traditional 39-year life of a building. If a project involves modifying the building’s core structure, such as load-bearing walls, adding an elevator, or modifying the roof structure, that portion of the cost will remain on the long depreciation schedule.
So, for example, when you’re scoping a $500,000 renovation, you must work with your accountant to segregate the costs: the quickly deductible FF&E/QIP from the slowly depreciated structural work. This cost segregation analysis is the foundational work that unlocks the real power of Section 179 and bonus depreciation.
Limits and the bonus boost
Section 179 is a pretty powerful tool but it includes annual limitations. For the 2025 tax year, the deduction limit is significant. While you should always consult current IRS publications or your tax advisor for specific numbers, the ceiling for the maximum amount a business can expense is high. There’s a substantial threshold for the total amount of equipment purchased before the deduction starts to phase out.
Some brokers have been using the availability of up to $2.5 million in qualifying upgrades as a way to start talking about refreshing large commercial spaces before December 31. As long as your total qualifying investment remains within the threshold, you can reap the maximum benefit.
Bonus depreciation
In many cases, an asset that qualifies for Section 179 also qualifies for bonus depreciation; the two often work together to provide substantial first-year deductions. Although Section 179 has a dollar limit and cannot create a business loss (the deduction can’t exceed your business income), bonus depreciation doesn’t have those income limits. It allows businesses to immediatel ydeduct a percentage of the cost of qualifying assets. In recent years, that percentage has been 100%.
While the 100% bonus depreciation is phasing down for assets placed in service after 2022 (it’s 60% for assets put into service in 2024 and phases down further in subsequent years), it remains a huge benefit. In practice, a property owner will typically:
- Use Section 179 to take a deduction up to the limit, covering all or part of a qualifying investment.
- Use bonus depreciation to deduct the remaining cost of the qualifying assets, potentially up to 60% of that balance in 2024.
The result? A combined deduction that dwarfs traditional depreciation methods.
Traditional vs. turbocharged depreciation
Let’s look at how these rules translate into real dollars and cents. For this example, we assume a combined federal and state corporate tax of 30%. The following table shows the difference in immediate cash savings for three different levels of investment in qualifying FF&E/QIP.
| Investment tier | Qualifying cost (FF&E/QIP) | Traditional depreciation (Year 1 deduction) | Section 179/ Bonus depreciation (Year 1 deduction) | Estimated Year 1 tax savings (30% rate) – traditional | Estimated Year 1 tax savings (30% rate) – 179/bonus | Immediate cash flow advantage (179/bonus) |
| Small project | $50,000 | ~$3,500 | $50,000 | $1,050 | $15,000 | $13,950 |
| Medium project | $250,000 | ~$17,500 | $250,000 | $5,250 | $75,000 | $69,750 |
| Large project | $1,000,000 | ~$70,000 | $1,000,000 | $21,000 | $300,000 | $279,000 |
Note: Traditional depreciation assumes a 15-year MACRS schedule with a typical ~7% deduction in Year 1. Section 179/bonus depreciation assumes 100% expensing for simplicity of comparison, a common outcome for FF&E/QIP. Actual figures may vary based on 2024 bonus depreciation phase-down rules.
This table clarifies the reality: a $1 million qualifying investment under Section 179 and bonus depreciation yields nearly $300,000 in immediate tax savings. You can reinvest this money back into the business or building rather than waiting 15 years to realize the full benefit.
A hypothetical case study
We can apply this framework to a tangible project: a comprehensive $500,000 lobby upgrade in a multi-tenant office building. This example highlights why cost segregation is non-negotiable.
The project breakdown
Total project cost: $500,000. After a thorough cost segregation analysis, the spending is categorized like this:
| Category | Cost | Tax Classification | Depreciation Life (Traditional) |
| Structural | $100,000 | Non-qualifying structural | 39 years |
| FF&E (furniture, artwork) | $150,000 | Qualifying personal property (179/bonus) | 5-7 years |
| QIP (lighting, finishes, HVAC modifications) | $250,000 | Qualified improvement property (179/bonus) | 15 years |
| Total project cost | $500,000 | ||
| Total qualifying for immediate deduction | $400,000 | ||
Now let’s look at the financial impact in Year 1 under the two scenarios.
Scenario A: Traditional depreciation schedule
This scenario relies on the Modified Accelerated Cost Recovery System (MACRS) without using Section 179 or bonus depreciation.
| Asset type | Cost Basis | Depreciation Life (Yrs) | Year 1 Depreciation Rate (approx) | Year 1 Deduction |
| Structural | $100,000 | 39 | 1.28% | $1,282 |
| FF&E/QIP | $400,000 | ~15 (weighted ave.) | 7.00% | $28,000 |
| Total Year 1 Deduction | $29,282 | |||
| Estimated Year 1 Tax Savings (@ 30%) | $8,785 | |||
With a traditional approach, the owner gets a modest $8,785 in tax savings, which helps offset the $500,000 outlay but only minimally impacts the cash flow.
Scenario B: Leveraging Section 179 and bonus depreciation
The owner uses Section 179 (which is available for this level of investment) and the remaining allowance for bonus depreciation to achieve maximum expensing on the $400,000 qualifying portion.
| Asset type | Cost Basis | Deduction Method | Year 1 Deduction |
| Structural | $100,000 | Traditional MACRS (39 years) | $1,282 |
| FF&E/QIP | $400,000 | Section 179/Bonus expensing | $400,000 |
| Total Year 1 Deduction | $401,282 | ||
| Estimated Year 1 Tax Savings (@ 30%) | $120,385 | ||
The immediate impact? $120,385 in tax savings vs. $8,785.
Leveraging the immediate expensing provisions offsets this $500,000 project by over 24% of its cost through tax savings alone. This cash injection reduces the renovation’s cost, improves ROI metrics, and minimizes the strain on liquidity.
This financial mechanism makes Section 179 a critical tool for strategic CRE asset management. It allows owners to complete needed upgrades, such as improving a building’s attractiveness, functionality, and value, without seriously depleting their capital.
A strategic imperitive for CRE success
The world of tax codes is labyrinthian at best, but the message of Section 179 is simple and direct: immediate investment unlocks immediate savings.
This knowledge offers a competitive advantage to CRE professionals. According to George Chicolo, senior associate of business development at Focus Studio, property owners can expense up to $2.5 million in qualifying upgrades completed before year-end. Imagine shifting the conversation from cost control to strategic asset enhancement and accelerated tax optimization.
Whether you want to attract a new anchor tenant, improve retention rates through common area, or ensure your property meets modern operational standards (like high-efficiency HVAC), the ability to deduct a higher percentage of the expense in Year 1 is a robust incentive.
The takeaway is clear. While structural work depreciates over 39 years, you can deduct the high-impact aesthetic and functional elements immediately. If your asset needs a refresh, finalize those qualified purchases now and get them placed into service. Don’t let valuable tax savings stay trapped in a 39-year amortization schedule. Work with a qualified tax advisor to segregate your costs and maximize your Section 179 and bonus depreciation allowances, if you’re planning a property upgrade.
Are you a commercial real estate investor or seeking a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from over 90 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
