Transcription
It's official. 100% bonus depreciation is back, and this time it's permanent.
When 100% bonus depreciation was brought back the last time in 2017 as part of the Tax Cuts and Jobs Act, real estate boomed between 2018 and 2022. High-income earners who took advantage of it saved hundreds of thousands, sometimes even millions of dollars on taxes. They then leveraged those tax savings to grow their portfolios even faster and rode the wave of one of the hottest real estate markets in US history.
And what's going to happen with 100% bonus depreciation coming back? Obviously, I don't have a crystal ball, but I think the return of 100% bonus depreciation is going to spark another real estate boom. And if you missed the last one, you're not going to want to miss it again.
In today's video, I'm going to break down exactly what this means for you, starting with how 100% bonus depreciation works, why I think it's going to trigger the next real estate boom, and what you need to do right now to get ahead. Because here's the truth. Investors who understand how to use 100% bonus depreciation will be the ones who will grow their wealth faster while everyone else plays catch-up. Whether you're just getting started or already own several properties, now is your chance to get in early and gain a serious edge in this next market cycle.
For those of you who aren't familiar with bonus depreciation, here's what it means in simple terms. 100% bonus depreciation lets real estate investors write off a large portion of a property's value in the first year of ownership and create a big tax shelter. This means you can lower your tax bill significantly, freeing up cash to reinvest into more properties and grow your real estate portfolio faster. Stick around because later in this video, I'll walk you through an example of how you can turn a single property into a tax shelter that can offset hundreds of thousands of dollars of income.
If you're new here, I'm Kenji from Semi-retired MD. I've been investing in real estate for over 25 years and have lived through multiple market cycles, both ups and downs. My wife Leighty and I became financially free through real estate and today we help high-income earners do the same using proven strategies like bonus depreciation to build profitable portfolios and shelter their high incomes.
Now, if you've never taken advantage of bonus depreciation or don't fully understand what makes it such a powerful strategy, this video is for you. Let's dive in.
Let's rewind to 2017 when the Tax Cuts and Jobs Act was signed into law. One of the biggest wins for real estate investors in that bill was the return of 100% bonus depreciation. Now, here's what that meant in plain English. You could deduct the value of things like appliances, flooring, and even landscaping immediately in year 1 instead of spreading those deductions out over many years. 27 1/2 years for residential properties and 39 years for commercial properties. This supercharged the tax benefits that come with real estate investing.
Here's an example to show you what this looks like. Imagine you bought a property and using a cost segregation study, you identified $100,000 worth of depreciable assets. Instead of waiting five, seven, or 15 years to realize those tax benefits, you can write them off right away in year one. For investors, especially high-income earners, this was huge. Real estate really took off. People took the equity that they had built up in their properties, and started buying bigger properties. This is especially important for high-income earners because those bigger properties are what you need to shelter your high income. We did the same. Between 2017 and 2023, we sold 10 of our smaller properties. We took the equity in those properties and bought bigger properties, a 16-unit, a 32-unit, a 42-unit, and a 160-unit property.
But the party didn't last forever. The Tax Cuts and Jobs Act made 100% bonus depreciation temporary. It started phasing out in 2023, dropping to 80%, then 60% in 2024, 40% in 2025, 20% in 2026, and zero in 2027.
The impact of 100% bonus depreciation on the real estate industry between 2018 and 2022 is undeniable. It created a frenzy in the market. 2021 was one of the hottest years for real estate. Home prices surged to record highs. I remember working with our students of our real estate course and teaching them strategies for how to win deals in a hot market. We told them, "You're getting Olympic level training. If you learn how to buy deals in this market, you're going to be able to buy them competitively in any market."
And now that it's back, we expect to see the same thing we saw last time, a massive wave of activity. And the winners are going to be the investors who jump in early and know how to buy those great deals. In just a minute, I'll share what you can start doing now to get ahead of that wave. But first, let's talk about how today's market could be primed for another breakout.
Since the phase-out began in 2023 and interest rates climbed, we've seen a slowdown. We've seen a major shift from a seller's market to a buyer's market. This means there aren't a lot of buyers. So, if you're a buyer in this type of market, you have the advantage and as a result, you can get better deals. Sellers, on the other hand, are at a disadvantage. So, if they want to sell their properties, they need to offer buyers bigger discounts. While some sellers are selling for a discount, many are sitting on their properties. We've been doing the same with our properties. The result? Real estate prices have cooled off a bit with significantly less activity and fewer buyers in the market, as well as fewer properties to buy.
But with 100% bonus depreciation back, I believe the real estate market will start to heat up. Why is that? Because both sellers and buyers now have a very compelling reason to act. First, on the seller side, with 100% bonus depreciation, sellers will have an incentive to sell. By selling, they can unlock the equity that they built up in their properties and reinvest it in larger deals that reset the depreciation clock and create a large tax shelter. For example, imagine you bought a $200,000 duplex a few years ago, fixed it up, and raised rents. And let's say that with the improvements you made and the higher income it generates, the property is now worth $350,000. It's cash flowing, sure, but you've already taken most of your depreciation deductions, so it's no longer useful as a tax shelter. With the return of 100% bonus depreciation, selling that property suddenly makes sense. You can use the $200,000 in equity to trade up into an $800,000 property, and through 100% bonus depreciation, create a $200,000 tax shelter. And that's how this cycle restarts. So, as sellers sell and start to scale up again, competition will intensify, especially for larger commercial properties and multifamily units.
Next, on the buyer side, you can expect the same dynamic. There are probably a lot of investors who've been sitting on the sidelines, but with 100% bonus depreciation, I think this will nudge them back in and start buying again. And we haven't even talked about new buyers entering the market. Let's go there next.
It's not just existing investors who will be capitalizing on 100% bonus depreciation. New investors will also be encouraged to enter the market. With 100% bonus depreciation, the idea of creating large tax shelters becomes even more attractive. From 2018 to 2022, after the Tax Cuts and Jobs Act brought back 100% bonus depreciation, we saw a surge in investor interest. Real estate conferences filled up. Online real estate communities exploded. More high-income professionals started asking, "How do I build wealth outside of my job and save on taxes?" Why? Because 100% bonus depreciation made real estate even more attractive, especially for people earning multiple six figures a year.
Here's a stat that puts how important these tax benefits are to a high-income earner in perspective. The top 10% of earners are responsible for 76% of all income taxes paid. That's a huge incentive for high-income earners to find legal, ethical ways to reduce their tax burden. Real estate investing and leveraging tools like bonus depreciation is one of the only ways for high-income earners to legally shelter a significant portion, if not all, of their income. It's how we paid zero in federal income taxes on our multiple six-figure incomes for 7 years in a row. If you want to check out how we did that, watch this video here.
Now that 100% bonus depreciation is back and here to stay, I predict we're going to see a repeat of that behavior and maybe even more aggressively this time. Here's what I expect. Investors who've been sitting on the sidelines will start buying again. They now have a powerful incentive to act and to act fast. Sellers who've been holding off on selling will list their properties because they know they can exchange into something larger and restart the depreciation clock and get the maximum tax benefit. And I think we'll see a return to a highly competitive market, especially in multifamily and the commercial space. Cap rates will compress, prices will rise, real estate will take off, and those who are prepared to take advantage of this real estate boom will win big.
But here's the key. Those who haven't built the skills or relationships to operate in a hot market will struggle. We're heading back into a seller's market. That means fewer deals, more competition, and higher prices. Now, if you're not ready, this could feel like a bloodbath.
Now, here's what most people don't realize. This shift won't happen overnight. It's going to take time for sellers to start listing their properties and for buyers, especially those who've been sitting on the sidelines, to feel confident enough to jump back in. And what about new investors? They'll need to see some momentum before they even start paying attention. Then they'll need time to learn, build confidence, and get comfortable making offers. Which means right now, this moment is a window of opportunity. If you're watching this video, you're already ahead of the curve. This is your chance to learn, to build relationships, and to get crystal clear on what a great deal looks like, and to lock up those great deals before the rest of the market wakes up.
The winners in this next cycle won't be the ones who wait and react only after the market heats up. They'll be the ones who move early, build confidence, and get positioned while everyone else is hesitating. And that's exactly why we tell our students to start laying the foundation now. Use this window to learn how to find great deals, build relationships with investor-friendly agents, and sharpen your ability to evaluate properties. And of course, with the return of 100% bonus depreciation, this is the time to sharpen your understanding of real estate tax strategies because the more you know, the more of your hard-earned income you can legally shelter. That's exactly what we focus on inside of our community. We help our students take action, build lasting skills, and learn how to invest in real estate the right way, whether the market is hot or cold.
And this next part is important. If you think you're going to be able to scale quickly using just your own capital, think again. In a hot market, you'll run out of capital fast. That's why creative financing becomes so important. In our own community, we're already seeing more collaboration. Pooling funds through tenants in common or TIC deals, sharing off-market deals, raising capital for experienced operators to buy bigger properties. In fact, we recently acquired a 240-unit deal through a partnership with other investors, as well as an 86-unit property that we bought with six community members as a TIC, and before that, a 40-unit TIC with seven community members. I think this kind of collaboration is going to become more common now that bonus depreciation is back because the incentive is just too compelling to ignore.
And don't forget, bonus depreciation isn't just about reducing taxes in the short term. It's a strategy that can unlock long-term compounding. When you reinvest the money you save on taxes back into real estate, that capital starts working for you immediately. You're not just deferring taxes, you're accelerating your portfolio growth.
So, what should you do now? First, educate yourself. If you haven't already watched my full breakdown of how cost segregation and bonus depreciation work, I've linked a video below. It's essential viewing, especially if you're a high-income earner who's paying too much in taxes. Second, start building your team. You'll need investor-friendly agents, access to off-market deals, a strong lender, and a cost segregation provider you trust. Third, connect with a community. Investing is a team sport, and in this new environment, having the right people around you will give you a competitive edge. And if you want to go deeper, check out our Zero to Freedom course. We walk high-income professionals through what you need to know to be successful. Finding deals, reducing taxes, building a scalable portfolio, all step by step with coaching, community, and support.
To wrap up, 100% bonus depreciation is back, and it's permanent. This is one of the most significant tax advantages available to real estate investors, and it's going to shift the market significantly. If you want to build long-term wealth, now is the time to learn, prepare, and take action. Thanks for watching. If this was helpful, I'd appreciate it if you'd hit like, subscribe, and drop your biggest takeaway in the comments.