Commercial property owners in Florida can use depreciation to help them acquire valuable deductions from the taxes associated with property ownership. But these deductions are not applied automatically; property owners need to understand the tax strategies behind them, and performing a Florida cost segregation study can help elucidate exactly what needs to be done. Once all of the qualifying components are identified, some of them can be depreciated over shorter periods of time, which might result in a much bigger first-year deduction.
Let’s take a closer look at how this strategy works, and how the current rules for bonus depreciation come into play.
What Do The Numbers Say?
Consider a Florida investor who acquires a nonresidential commercial property for $4,200,000, of which $700,000 is allocated to land, leaving a depreciable building basis of $3,500,000. The investor separately purchases $95,000 of furniture, fixtures and equipment. The property is placed in service in January.
Without a cost segregation study, the building is depreciated over 39 years and the first-year deduction under the mid-month convention is $86,135; the separately purchased FF&E receives 100% bonus depreciation of $95,000 whether or not a study is performed, for a total of $181,135.
With a study, $455,000 is reclassified to five-year personal property and $385,000 to 15-year land improvements, giving $840,000 of accelerated basis eligible for 100% bonus depreciation. The remaining $2,660,000 stays on the 39-year schedule and produces $65,463 in year one. Adding the $95,000 of FF&E, the first-year deduction is $1,000,463.
The study’s incremental contribution is $819,328, which at a 37% marginal federal rate defers roughly $303,151 of tax.
Tax Savings Can Help Investors Remain Flexible
One of the biggest benefits of generating a higher first-year depreciation deduction is that the capital gained from such a deduction can be put towards other projects. This can directly translate into greater and faster flexibility for investors.
Property improvements, reduction of other debts, or any other sort of opportunity can be seized. But it is important to note that depreciation is not a cash generator; it is only able to reduce or defer taxes until a later time.
How to Tell Which Assets May Qualify for Accelerated Depreciation Treatment
The types of assets that are often able to be classified separately are those that might see more wear and tear than others or that have been upgraded. Things like electrical systems, flooring, plumbing, interior build-outs or other site improvements are all commonly accelerated.
It can be difficult to know what qualifies, which is exactly what makes cost segregation in Florida an important service for property owners to undertake.
Being Aware of the Passive Activity Rules
These deductions are not automatically usable. Under IRC Sec. 469, rental real estate is generally a passive activity, and passive losses offset only passive income; unused losses are suspended and carried forward until the taxpayer has passive income or disposes of the activity in a fully taxable transaction.
A taxpayer who qualifies as a real estate professional under Sec. 469(c)(7) and materially participates may treat the losses as non-passive. Separately, a rental with an average guest stay of seven days or less is not a rental activity under Reg. Sec. 1.469-1T(e)(3)(ii)(A), so material participation alone can make the losses non-passive without real estate professional status.
Using Depreciation Recapture Correctly
Accelerated depreciation is a deferral, not forgiveness. On a taxable sale, depreciation claimed on the five- and 15-year property a study reclassifies is recaptured under IRC Sec. 1245 as ordinary income to the extent of depreciation taken, potentially at rates up to 37%, rather than the 25% maximum applying to unrecaptured Sec. 1250 gain on the building itself. A study therefore shifts part of future gain from Sec. 1250 to Sec. 1245 treatment.
The net benefit depends on the time value of the deferral and the expected holding period, and is generally weaker for property expected to be sold within a few years.
Following the OBBBA Law
The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, made the 100% first-year bonus depreciation rate under IRC 168(k) permanent for qualifying property acquired and placed in service on or after January 20, 2025. Before that change the rate was phasing down on a fixed schedule of 80%, 60%, 40%, 20% and then 0%.
Property acquired before January 20, 2025 remains subject to the phase-down percentage in effect at the time of acquisition.
The Corporate Add-Back Changes the Picture in Florida
Florida imposes no personal income tax, so an individual investor’s benefit is measured entirely at the federal level. C corporations are treated differently.
Florida requires an add-back of federal bonus depreciation for corporate income tax purposes, and the treatment of qualified improvement property is harsher than the standard add-back: QIP bonus depreciation added back does not qualify for the seven-year recovery mechanism available to other bonus depreciation add-backs, so the corporate-level deferral is lost rather than spread. Entity choice therefore materially changes the outcome in Florida.
Cost segregation in Florida can provide substantial depreciation deductions, especially for commercial property owners.
