We buy income-producing real estate at a basis we can defend. We don’t buy tax deductions. That’s worth stating plainly, because the tax benefits described here are real but easy to oversell.

A tax strategy should never be the reason to make an investment. The investment has to stand on its own, with income that covers the debt and the building’s capital needs, at a basis that still pencils if the tax code changes tomorrow. Beyond that, a tax advantage is only a bonus. In our process, if a deal only works because of the deduction, it doesn’t work.

Bonus depreciation is permanent

The One Big Beautiful Bill Act, signed in July 2025, made 100% bonus depreciation a permanent part of the tax code for qualifying property acquired after January 19, 2025. It’s no longer a temporary incentive, so investors and managers can underwrite it. It applies to both existing buildings and new construction, so an acquired asset qualifies as long as the buyer hasn’t owned it before.

What a building is made of

The tax code depreciates a commercial building over 39 years, so an owner deducts only a small, even portion of its cost each year. But a building is a collection of parts, and many of them wear out faster than the structure. Parking lots, site lighting, dedicated electrical and plumbing, mechanical equipment, and interior finishes carry 5, 7, or 15-year lives. A cost segregation study identifies those components, and bonus depreciation lets their full cost be deducted in the year the property is acquired.

For investors, the benefit is the time value of money. Standard depreciation delivers small deductions spread over decades. With cost segregation and bonus depreciation, a meaningful share of the cost is deducted as an expense against income in year one. When an investor can use that deduction today, it leaves capital available to reinvest rather than pay in current taxes. Because depreciation is based on the full purchase price, including the portion financed with debt, that deduction can be large relative to the equity invested. Take a $10M property bought with $4M of equity and $6M of debt. Depreciation is calculated on the full $10M, less the value of the land, so the deductions are sized to the building rather than to the investors’ $4M of equity.

How much qualifies for accelerated depreciation comes down to how much of the cost went into site improvements, equipment, and specialized systems rather than the structure itself. Across the property types Ibis focuses on, that share can vary significantly.

  • Industrial. Warehouse and manufacturing buildings have simpler interiors, so less of the structure qualifies, but paving, loading dock equipment, and site lighting do.
  • Healthcare. Medical office, outpatient, and senior housing carry clinical build-outs with specialized plumbing and electrical, so a substantial portion of the building often qualifies.
  • Industrial outdoor storage. The value sits mostly in the land and its improvements. Land is never depreciable, but paving, fencing, lighting, and drainage typically qualify.
  • Self-storage and car washes. Much of the cost is site work, doors, and equipment, which puts both near the high end.

How the benefit reaches fund investors

Investing through a fund is different from owning a building directly, but the tax benefits are still maintained. Most private real estate funds are limited partnerships. Depreciation generated at the property level flows through the fund, is allocated under the partnership agreement, and is reported to each investor on a K-1, much as it would be under direct ownership. When each property is acquired, a cost segregation study is completed, and the property’s depreciation is tracked and reported up through the fund. Investors get the benefit of both the income and the depreciation expense.

What investors can expect

For an investor, the practical result can be cash distributions alongside substantial depreciation deductions, particularly in the early years as the fund acquires properties. Those deductions reduce the investor’s share of taxable income and may generate passive losses. How much an investor benefits, and when, depends on the portfolio and on the investor’s own tax position.

As a reference point, our modeling of a hypothetical diversified portfolio at approximately 60% leverage produced roughly 80 cents of depreciation deductions for every dollar invested over a five-year hold, most of it in the first year. That’s 80 cents of tax deductions, not cash.

For taxable investors, those losses are generally passive. They offset passive income first, and anything unused carries forward and can generally be used when the investment is sold. Even an investor who qualifies as a real estate professional will usually get passive treatment from a fund, because a limited partner rarely materially participates.

Using tax advantages strategically

Many family offices already own real estate that produces passive income, whether they hold it directly or through other funds and syndications. Depreciation losses from a fund can offset that income in the same year. Without other passive income, those losses would simply carry forward until the investment is sold.

Recapture comes when an asset is sold. At that point, the depreciation taken over the years is taxed, much of it as ordinary income. That later tax bill doesn’t erase the benefit, because the investor had the use of that capital in the meantime. A family office that keeps adding new investments keeps generating new deductions, and those can offset passive income across the portfolio, including capital gains when passive real estate is sold.

There’s real value here, but it’s only realized when it’s managed as part of the whole portfolio. The investment strategy comes first: how much real estate belongs in the portfolio, whether income is part of the goal, and whether the investment stands on its own merit. In a fund investment, the investor can work closely with the manager to get a view of coming deductions and potential sales, and the tax advisor lines those up against income and gains elsewhere, so the deductions land in the years they’re worth the most.

How Ibis applies it

We choose sectors for their income, and many of them come with a strong depreciation profile. Ibis Capital Fund I acquires existing, income-producing healthcare, industrial, and storage properties alongside experienced operators, which is the kind of property bonus depreciation applies to. We make sure a cost segregation study is completed on every acquisition to capture the deductions available, and we work closely with investors and their advisors so they can plan around both the deductions during ownership and the potential taxes at exit. The modeling referenced above reflects the type of allocation we’d use in Fund I.

Ibis Capital gives investors access to a diversified portfolio of income-producing real estate, including off-market deals they wouldn’t see on their own. The tax benefits of bonus depreciation still flow through to them, consolidated on a single K-1. If you or your advisors would like to talk through how it could fit your portfolio, we’d welcome the conversation.