100% Bonus Depreciation for NNN Investors: What Changed and How to Use It

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) became law and permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025. For NNN investors who own buildings, that changes the first-year tax math on an acquisition, especially when paired with a cost segregation study. This guide explains what changed, how the numbers work under stated assumptions, which NNN properties benefit and what limits apply.

What Changed: From Phase-Down to Permanent

Under the 2017 Tax Cuts and Jobs Act, 100% bonus depreciation applied to qualified property placed in service through 2022 and then phased down by 20 points a year:

The OBBBA restored 100% bonus depreciation permanently for qualified property acquired after January 19, 2025. Qualified property generally means property with a recovery period of 20 years or less, such as 5- and 7-year personal property, 15-year land improvements and qualified improvement property. A 39-year commercial building does not qualify, and land is never depreciable. The OBBBA also raised the Section 179 expensing limit to $2.5 million, with the phase-out starting at $4 million, although Section 179 is often limited or unavailable for passive landlords, including under the noncorporate lessor rules.

How Cost Segregation Works With Bonus Depreciation

When you buy an NNN property you own, you acquire a set of components with different tax lives: the building (39 years), site improvements such as paving, curbing, lighting and landscaping (15 years), and some personal property (5 or 7 years). A cost segregation study, an engineering-based analysis, assigns the purchase price to those classes. The short-life portion qualifies for 100% bonus depreciation.

Without bonus depreciation, short-life property is still depreciated faster than the building but over several years. For example, 5-year property under the standard 200% declining balance method and half-year convention is deducted over six tax years, starting with 20% in the first year and 32% in the second, not in equal 20% slices. Bonus depreciation pulls all of it into the first year.

Two limits matter. A study can only classify what you own: on a ground lease you own only land, and equipment owned by the tenant is not yours to depreciate. And how much of a property is short-life varies widely by property type, age and site.

Illustrative Example: $2 Million NNN Retail Property

Assumptions: fee simple purchase in January 2026, land 20% ($400,000), building and improvements $1,600,000, and a hypothetical study that assigns 30% of that ($480,000) to 15-year site improvements. The remaining $1,120,000 is 39-year building placed in service in January (mid-month convention).

Building depreciation: basis divided by 39 years times 11.5 of 12 months. Fifteen-year property uses the 150% declining balance method and half-year convention (5% in year one). Simplified illustration; ignores state tax and acquisition costs.

Compared with the 40% bonus rate that would have applied in 2025, 100% bonus raises the bonus deduction in this example by 150% ($192,000 to $480,000) and the total first-year deduction by about 117%. A study on a property this size often costs from about $5,000 to $15,000, so the study can pay for itself many times over, but only if the investor can use the deduction.

The Acquisition Date Rule

To qualify for 100% bonus depreciation under the OBBBA, property must be acquired after January 19, 2025. Property acquired under a written binding contract entered into on or before that date is treated as acquired on the contract date and remains under the prior phase-down rates, even if it closes later. For 1031 exchanges, confirm that the replacement property contract is dated after the cutoff. There is also a transition election that lets a taxpayer apply a lower rate for the first tax year ending after January 19, 2025; ask your tax adviser whether it helps.

Which NNN Property Types Benefit Most

The benefit depends on how much short-life basis the buyer actually owns:

• Gas stations and convenience stores can be the strongest case: a building that qualifies as a retail motor fuels outlet (for example, 50% or more of gross revenue from petroleum sales, 50% or more of floor space devoted to petroleum marketing sales, or a building of 1,400 square feet or less) is 15-year property in its entirety. See the gas station depreciation guide.
• Car washes have heavy equipment and site work, but the equipment often stays with the operator. See the car wash depreciation guide.
• Quick service restaurants and auto service have extensive site work on pad sites; kitchen equipment and lifts usually belong to the tenant. Many restaurant tenants are franchisees, and several parent brands are rated below investment grade. See the QSR and auto service guide.
• Medical properties can include specialized landlord-owned buildout, but medical equipment is usually the tenant’s. See the medical depreciation guide.
• Dollar stores and pharmacies offer more modest benefits, mainly site improvements.
• Ground leases offer none, because the investor owns only land.

For the full comparison, see the NNN depreciation ranking.

Other Tax Provisions That Matter to NNN Investors

Qualified business income deduction. The Section 199A deduction (up to 20% of qualified business income from pass-through businesses) was made permanent. NNN owners should not assume it applies: triple net leases are excluded from the rental real estate safe harbor in Revenue Procedure 2019-38, so NNN rental income qualifies only if the owner’s activity rises to a trade or business, a facts-and-circumstances question for a CPA. REIT shareholders can generally deduct 20% of qualified REIT dividends.

1031 exchanges remain available for real property, allowing investors to defer gain, including real property depreciation recapture, when they reinvest in like-kind real property. Personal property does not qualify. See 1031 exchanges and bonus depreciation.

Long-term capital gains are taxed at 0%, 15% or 20% depending on income, plus the 3.8% net investment income tax for many investors, while depreciation recapture is taxed at higher rates.

Direct Ownership vs a REIT

Depreciation is one of the clearest differences between owning net lease real estate directly and owning it through a REIT. A REIT claims depreciation at the company level; its shareholders receive dividends taxed mostly as ordinary income, though some may be a return of capital or qualify for the 20% REIT dividend deduction. A direct owner claims depreciation on its own return, which can shelter part or, in some first years, all of the rent from current tax, if the deduction is usable. Worked examples are in Realty Income vs owning its buildings and NNN REIT vs direct ownership.

Action Steps for NNN Investors

• Confirm what you will own before modeling depreciation: fee simple or ground lease, and which improvements and equipment convey.
• Consider a cost segregation study on fee simple acquisitions where the expected short-life basis justifies the fee, using a qualified engineering firm whose study can be defended on audit.
• Model the deduction’s usability with your CPA, including passive loss rules, real estate professional status and state conformity; not all states follow federal bonus depreciation.
• Review existing holdings. If you never performed a study on a property you own, a look-back study filed through an accounting method change can capture missed depreciation without amending prior returns; the bonus rate available depends on when the property was placed in service.
• Coordinate 1031 timing so replacement property contracts are dated after January 19, 2025, and remember that carryover basis in an exchange limits new bonus depreciation.

This article is for informational purposes only and is not tax or legal advice. Consult qualified tax and legal professionals before making investment decisions.