Lower my taxes!
Every year around tax season, I hear the same sentence from readers across Florida:
“I wish there was something smart I could do about my tax bill.”
Most people assume taxes are fixed. You earn money, you write a check, and that is the end of the story. In reality, the tax code is full of incentives. Lawmakers reward certain behaviors such as investing in housing, businesses, and equipment by allowing accelerated deductions.
One of the most notable of these incentives is called bonus depreciation. It sounds technical, and it is. But the practical impact is straightforward. Under the right circumstances, investors may be able to generate significant upfront tax deductions while still owning income producing assets.
Let’s break it down in plain terms and walk through examples using a $500,000 investment in each case.
What Is Bonus Depreciation?
When you purchase real estate, the IRS allows you to deduct the cost over time because buildings wear out. Residential rental property is generally depreciated over 27.5 years. Commercial property is generally depreciated over 39 years.
Bonus depreciation, authorized under Internal Revenue Code Section 168(k), allows certain qualifying property with shorter useful lives to be deducted more rapidly. Through a cost segregation study, components such as appliances, flooring, lighting, and certain land improvements may be reclassified into shorter recovery periods such as 5, 7, or 15 years.
Under current law, bonus depreciation has been phasing down from its prior 100 percent level, so the percentage available depends on the year the property is placed in service. Your CPA should confirm the applicable rate for the year of investment.
The result may be a substantial first year deduction depending on circumstances.
Example 1: Passive Real Estate Syndication
Suppose a dermatologist in Sarasota invests $500,000 into a professionally managed apartment complex through a real estate syndication.
After closing, the sponsor completes a cost segregation study. A portion of the property is allocated to shorter life components eligible for accelerated depreciation. If, for illustration, $200,000 of the underlying assets allocated to this investor qualifies for accelerated treatment, a significant portion of that amount may be deductible in year one depending on the applicable bonus percentage.
On the investor’s Schedule K 1, this may show up as a large first year paper loss even if the property distributes positive cash flow.
If the dermatologist has other passive income from rental properties or real estate funds, the passive loss may offset that income, if eligibility requirements are met, under Internal Revenue Code Section 469. If not, unused passive losses generally carry forward to future years.
Example 2: Short Term Rental Property
Now consider a couple in Naples who purchase a $500,000 short term beach rental.
Short term rentals with an average rental period of seven days or less may be treated differently under the passive activity rules, depending on the level of participation and how the activity is structured. Treasury Regulation Section 1.469 1T provides guidance on these classifications.
With proper structuring and material participation, accelerated depreciation from a cost segregation study may create a significant upfront deduction tied to the $500,000 purchase.
If qualification requirements are met, those losses may offset other income. However, this area is technical and highly fact specific. Documentation and compliance are critical.
Example 3: Energy Partnerships
An investor allocates $500,000 into a domestic energy partnership engaged in drilling and development.
Certain programs allow for the deduction of intangible drilling costs in the year incurred under Internal Revenue Code Section 263(c). In some structures, a substantial percentage of the invested capital may be deductible in the first year, subject to program design and risk factors.
These investments are inherently higher risk and sensitive to commodity prices and operational outcomes. The tax deduction does not remove investment risk and investors may lose some or all of their capital.
Example 4: Equipment Leasing or Private Credit Funds
An investor places $500,000 into a fund that acquires business equipment with shorter depreciable lives.
Equipment with 5 or 7 year recovery periods may qualify for accelerated depreciation under the Modified Accelerated Cost Recovery System outlined in IRS Publication 946.
If a portion of that equipment qualifies for bonus depreciation, the investor may receive allocated deductions proportionate to their ownership interest in the fund.
As with real estate, the structure determines how and when those deductions may be used.
Important Guardrails
Depreciation is generally tax deferral, not tax elimination.
When property is sold, prior depreciation may be subject to recapture under Internal Revenue Code Section 1250 for real property and related provisions. Depreciation recapture can be taxed at rates up to 25 percent for certain real estate gains.
Passive losses generally offset passive income. They do not automatically offset W 2 wages or portfolio income unless specific exceptions apply, such as real estate professional status under Section 469(c)(7).
The investment must stand on its own merits. Location, underwriting, leverage, cash flow projections, and exit strategy matter more than the deduction.
Why This Matters in Florida
Florida residents benefit from no state income tax. However, federal tax planning remains essential, especially for business owners, physicians, consultants, and retirees with substantial investment income.
If you can legally reduce current taxable income while owning income producing assets, you may improve capital efficiency. More capital may remain invested and compounding rather than being lost to unnecessary taxation.
Used thoughtfully, bonus depreciation and other accelerated deduction strategies may enhance a long term wealth plan.
Used carelessly, they create complexity without meaningful benefit.
As a reminder, before implementing any of these strategies, check with your financial planner and CPA to confirm that the approach suits your specific investment plan, tax situation, and long term goals. These strategies involve complex tax rules and may not be appropriate for all investors.
Taxes may be inevitable. Overpaying them often is not.
Evan R. Guido, Senior Wealth Advisor, is the Founder of Aksala Wealth Advisors LLC, a 2026 Forbes Best in State Wealth Advisor, a 2018 Forbes Top Next-Gen Advisors award recipient. Evan heads a team of financial strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 Aksala.com eguido@aksalawealth.com 6260 Lake Osprey Dr. Lakewood Ranch, FL 34240. Securities offered through Cetera Wealth Services, LLC member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity. The views and opinions presented in this article are those of Evan R. Guido and not of Cetera or its subsidiaries. These opinions are based on Evan’s observations and research and are not intended to predict or depict performance of any investment. These views are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities and purely for education and entertainment. Past performance does not guarantee future results. The Top Next Gen list includes 250 rising advisors who help manage over $490 billion in client assets. Each advisor was nominated by their firm, then vetted and ranked by SHOOK Research. The rankings, developed by SHOOK Research, are based on an algorithm of qualitative criterion, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors who are considered have a minimum of four years' experience and the algorithm weighs factors like revenue trends, assets under management, compliance records, industry experience and those that encompass the highest standards of best practices. The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative data, rating thousands of wealth advisors with a minimum of seven years' experience and weighing factors like revenue trends, assets under management, compliance records, industry experience, and best practices learned through telephone and in-person interviews. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receive a fee in exchange for rankings. Listings in these publications and/or awards are not guarantees of future investment success. These recognitions should not be construed as endorsements of the advisor by any clients. No compensation was provided directly or indirectly by the recipient for participation or in connection with obtaining or using these third-party ratings or award.