If you own rental or commercial property in Texas, real estate depreciation might be your favorite tax break you’ve never actually thought about.
It quietly chips away at your taxable income every year, lowers your tax bill, and keeps more cash in your pocket.
You don’t have to sell anything, reinvest anything, or do anything risky to get it. You just have to own the property and file your taxes correctly.
Here’s what you need to know about depreciation if you’re a Texas investor in 2025, including how the rules changed this year and how to take full advantage.
Depreciation is a tax deduction that lets you write off the cost of your building over time, even if your property is gaining value.
The IRS sees buildings as wearing down over the years, so they let you gradually write off the value. For residential rentals, that’s 27.5 years. For commercial property, it’s 39.
Say you buy a rental house in Fort Worth for $300,000. After subtracting the land value, you’re left with a $240,000 building. Divide that by 27.5 years and you’re deducting almost $9,000 a year. No extra effort required.
Even if the home appreciates and your rental income is strong, depreciation still helps reduce your tax bill in the background.
In July, Congress brought back 100 percent bonus depreciation for certain assets placed in service after January 20, 2025.
That means you may be able to write off qualifying items in full the year you buy or improve the property, instead of spreading the deductions out.
This includes things like new appliances, interior finishes, HVAC systems, and other assets that have a shorter useful life. If you time your renovations right, you could take the whole deduction upfront.
Bonus depreciation is scheduled to stick around through the end of 2029, but we don’t recommend waiting. The rules can change again and timing matters.
If you own a higher-value property or plan to buy one, a cost segregation study can help you take advantage of bonus depreciation.
This process breaks your property into categories like five-year, seven-year, and fifteen-year assets, instead of treating the whole building as one big deduction over 27.5 or 39 years.
When you use cost segregation along with bonus depreciation, you can front-load thousands or even hundreds of thousands of dollars in deductions.
That might mean:
But it needs to be done correctly. Not every property qualifies, and not every provider documents it the right way. This is an area where working with the right team makes a big difference. (Hint, hint.)
Here’s the part that catches a lot of people off guard.
Depreciation reduces your taxable income now, but when you sell the property, the IRS wants to “recapture” that benefit.
That’s called depreciation recapture. It’s typically taxed at 25%, and it applies to all the depreciation you’ve taken while you’ve owned the property.
But there are ways to delay or avoid it.
One of the most common is using a 1031 exchange, which lets you roll the gain and depreciation recapture into another investment property. As long as you follow the rules, you won’t owe tax on the sale until you eventually cash out.
Read our latest blog about the 1031 exchange here
There’s also the step-up in basis rule. If you pass your property to your heirs, the cost basis gets reset to the fair market value at the time of your death.
That can wipe out both the capital gain and the depreciation recapture, legally and completely.
Yes, absolutely.
Depreciation is one of the most reliable and generous tax breaks available to real estate investors. It works automatically in the background, and with the bonus rules in 2025, it can be even more powerful when paired with cost segregation or strategic upgrades.
At Adam Traywick, we help investors in Fort Worth and across Texas figure out how depreciation fits into their tax picture.
Whether you’re buying, renovating, or thinking about selling, the right strategy can save you thousands in taxes.
If you’re planning a property purchase or upgrade this year, let’s talk before the deal closes. Once the building is placed in service, your options may be more limited.
You can book a quick call using our calendar here.
We’ll help you make sure you’re getting every tax break real estate has to offer.
Until next time.
