- 01SALT deduction cap rises from $10K to $40K — huge relief for high-tax state residents in NJ, NY, CA
- 02At $250K income, the SALT increase alone saves $6,000-8,000 in federal taxes
- 03100% bonus depreciation is back — front-load deductions on rental properties acquired this year
- 04The QBI deduction (Section 199A) gets extended — rental income still qualifies for the 20% pass-through deduction
Show Notes
SALT Cap Increase: Who Benefits Most
The state and local tax deduction cap jumps from $10,000 to $40,000. If you live in New Jersey, New York, or California, you've been capped at $10K since 2018. A married couple in Bergen County paying $25,000 in state and local taxes used to deduct $10,000. Now they deduct $25,000. At a 32% marginal rate, that's $4,800 in federal savings. Push to $40,000 in SALT and you're looking at $9,600. For a $250,000 household in a high-tax state, the SALT increase alone means $6,000–8,000 back in your pocket. Redirect that and you've got a down payment on a rental in 2–3 years.
Bonus Depreciation for Rental Investors
The Big Beautiful Bill restored 100% bonus depreciation for qualified property placed in service after January 2025. For the squeezed middle, here's the play: buy a rental this year and front-load your depreciation on qualified improvements. A $300,000 duplex with $80,000 in value-add work — new roof, HVAC, kitchen upgrades — gets you $80,000 in bonus depreciation in year one. That wipes out a chunk of your NOI for tax purposes. Your cash flow stays in your pocket while the IRS sees a paper loss.
Cost segregation is the tool. A standard appraisal lumps everything into the 27.5-year bucket. A cost-seg study reclassifies carpet, appliances, and fixtures into 5- or 15-year property — and those qualify for 100% bonus depreciation. A $250,000 acquisition might have $40,000 in short-life property. That's $40,000 in bonus depreciation this year. The property has to be placed in service before year-end.
QBI Deduction and Rental Income
Section 199A — the 20% pass-through deduction — gets extended. Rental income from a properly structured LLC or partnership still qualifies. If your rental NOI is $30,000 and you're in the 32% bracket, that 20% deduction saves about $1,920. Not the main event, but it stacks. Combined with depreciation and the SALT fix, your effective tax rate on rental income drops. The IRS has been tightening rules on when rentals qualify — triple-net leases and certain management structures can disqualify you. If you're not sure, get a tax pro involved.
Your Action Plan
One: if you're in a high-tax state, recalculate your estimated taxes. The SALT increase might mean you're over-withholding. Two: if you're closing on a rental in 2025, get your cost segregation and 100% bonus depreciation dialed in. Three: if you're planning a 1031 exchange, the rules are unchanged — no cap on deferral. Lock in your identification and closing dates.
One more angle: if you're sitting on a property and thinking about trading up, the 1031 exchange is still your best tool for scaling. No dollar limit. No phase-out. Defer the capital gains tax on the full gain, recycle the capital, and keep building.
Resources Mentioned
- Financing Your Investment Property — loan types, qualification, and strategy for today's rate environment
- Deal Analysis Guide — the metrics framework behind NOI, cash flow, and depreciation analysis
- Tax Strategies for Real Estate Investors — depreciation, 1031 exchanges, and cost segregation explained
- Rental Property Calculator — run your own depreciation and cash flow projections with real numbers
- Freddie Mac Mortgage Rate Survey — weekly 30-year and 15-year fixed rate averages
Capital gains tax is the federal (and sometimes state) tax you owe when you sell an asset—like a rental property—for more than you paid for it.
Read definition →Depreciation is the IRS allowance that lets you deduct a rental property's building cost (minus land) over 27.5 years — a non-cash expense that lowers taxable income even when the property appreciates.
Read definition →A 1031 exchange (IRC Section 1031) lets you sell an investment property and defer capital gains and depreciation recapture by reinvesting the proceeds into a like-kind replacement property of equal or greater value, using a Qualified Intermediary to hold the funds.
Read definition →NOI (net operating income) is what a property earns from operations each year. Rental revenue minus vacancy loss and operating expenses. Before you subtract the mortgage, CapEx, or taxes.
Read definition →Cash flow is what's left in your pocket after a rental pays all its expenses — including the mortgage. NOI minus debt service. What actually hits your bank account each month or year.
Read definition →
