The 2025 federal tax law, known as the One Big Beautiful Bill Act, made 100% bonus depreciation permanent. For the right NNN property, that can mean writing off a large part of the purchase price in the first year instead of over 39 years.
But it doesn’t apply to every property, every part of a property or every buyer. Here is how it works, which NNN properties benefit most, and what to plan for before you buy.
Tax disclaimer: We are commercial real estate brokers, not CPAs or tax advisors. This article is general information, not tax or legal advice. Bonus depreciation depends on your tax situation, how you hold the property and how you buy it, so verify and confirm everything here with your CPA before you buy.
What Changed in 2025
The 2017 tax law allowed 100% bonus depreciation but phased it down starting in 2023: 80%, then 60%, then 40%, heading to zero. The 2025 law reversed that. For qualifying property acquired after January 19, 2025, bonus depreciation is back to 100%, and it no longer phases out.
Two rules matter most:
- It only applies to shorter-life property. Bonus depreciation covers property with a recovery period of 20 years or less, such as 5-year equipment and 15-year site work. A standard commercial building is 39-year property and does not qualify.
- Used property qualifies. You don’t have to build new. Buying an existing property can qualify, as long as you didn’t use it before and didn’t buy it from a related party, such as a family member or a company you control.
Where Cost Segregation Comes In
When you buy a land & building NNN property, the price is split into three parts: land, which can’t be depreciated; the building, which is usually 39-year property; and everything else. A cost segregation study, done by an engineering or tax firm, separates out the “everything else”:
- 5- and 7-year property: equipment, certain electrical and plumbing for equipment, some interior finishes and fixtures.
- 15-year property: site work such as parking lots, curbs, sidewalks, drive-thru lanes, landscaping, site lighting and signs.
Those 5-, 7- and 15-year qualifying components can qualify for 100% bonus depreciation. The building itself stays on the 39-year schedule. Bonus depreciation does not apply to an entire commercial building, with the gas station exception below.
Which NNN Properties Benefit Most
The more of a property’s cost that isn’t a standard building, the bigger the first-year write-off. That makes some property types stand out.
Gas Stations: The 15-Year Rule
Gas stations get special treatment. Under IRS guidance, a convenience store with fuel sales can be treated as a 15-year “retail motor fuel outlet” if it meets any one of these tests:
- At least 50% of gross revenue comes from fuel sales, or
- At least 50% of the floor space is devoted to fuel sales, or
- The building is 1,400 square feet or smaller.
In all cases, the property must be substantially used to sell fuel at retail.
If it qualifies, the store building, the fuel canopy and the site work can all be 15-year property, which can qualify for 100% bonus depreciation. That is a big reason buyers have been paying close attention to land & building Circle K and 7-Eleven deals since the 2025 law passed.
Two cautions. Large travel centers with big food courts or dining areas may fail the floor space test. And many c-store deals, including most Wawa deals, are ground leases, where the tenant owns the building and the landowner gets no depreciation at all.
Car Washes and Quick-Lube Shops
Car washes and quick-lube shops like Take 5 and Jiffy Lube are equipment-heavy. A cost segregation study often moves a large share of the cost into 5-year equipment and 15-year site work.
One thing to check carefully: who owns the equipment? In many NNN sale-leasebacks, the tenant keeps the car wash tunnel equipment or service equipment. You can only depreciate what you buy, so confirm what is included in the sale before you count on the write-off.
A Simple Example
These numbers are for illustration only. Every property and study is different.
Step 1: How the Purchase Price Breaks Down
| Gas Station (Qualifies as 15-Year) | Retail Building (Standard) | |
|---|---|---|
| Purchase price | $3,000,000 | $3,000,000 |
| Land (not depreciable) | $900,000 | $600,000 |
| Depreciable cost | $2,100,000 | $2,400,000 |
| Bonus-eligible (5, 7 & 15-year) | About $2,100,000 | About $600,000 (25% from cost segregation) |
| Rest of the building (39-year) | About $0 | About $1,800,000 |
Step 2: Potential First-Year Tax Savings, Straight-Line vs. 100% Bonus
Here is the same example in tax dollars, assuming the top 37% federal tax bracket and that you can use the full deduction this year.
| Gas Station | Retail Building | |
|---|---|---|
| Straight-line (39-year, no cost segregation): first-year depreciation | About $54,000 | About $62,000 |
| Straight-line: potential first-year federal tax savings | About $20,000 | About $23,000 |
| 100% bonus depreciation: first-year depreciation | About $2,100,000 | About $646,000 |
| 100% bonus depreciation: potential first-year federal tax savings | About $777,000 | About $239,000 |
| Extra potential tax savings in year one | About $757,000 | About $216,000 |
In this example, bonus depreciation turns about $20,000 of potential first-year federal tax savings on the gas station into about $777,000. These are illustrative tax benefits, not guaranteed savings, because passive activity limits and other tax rules may apply.
Keep in mind:
- It is a timing benefit. Total depreciation over the life of the property is the same. Bonus depreciation moves it to the first year, so you have that money to use or reinvest now instead of spread over 39 years.
- Recapture comes later. When you sell, depreciation you took is generally taxed, unless you defer it with another 1031 exchange.
- Your results will differ. These figures are federal only, rounded, and ignore state taxes, timing rules in the first year and passive loss limits, all covered below.
The 1031 Exchange Catch
Many NNN buyers use a 1031 exchange. That changes the math.
When you exchange, the tax basis from the property you sold carries over to the new one. For a used replacement property, that carried-over basis generally does not qualify for bonus depreciation. Only the “excess basis” qualifies, which is generally the extra cost you add on top of the carried-over basis, such as new cash or a bigger loan.
So a buyer trading up into a gas station may get bonus depreciation on only part of the purchase, not all of it. How much excess basis you have depends on your adjusted tax basis in the property you sold and how the exchange is structured. It isn’t simply the difference between the two purchase prices, so have your CPA calculate it before you choose a replacement property.
Can You Actually Use the Deduction?
A large first-year deduction only helps if you can use it. A few things affect that:
- Passive activity rules: For most investors, NNN rental income is passive. Losses from bonus depreciation can generally offset passive income, but not wages or business income, unless you qualify as a real estate professional for tax purposes. Unused losses carry forward to future years.
- Recapture when you sell: Depreciation you take now is generally taxed when you sell, often at higher rates than capital gains. Another 1031 exchange can defer it, but the rules for the 5- and 7-year portions are more complicated.
- State taxes: Florida has no personal income tax. If you live in another state, check whether it follows the federal bonus depreciation rules. Several states do not.
- You can opt out: You can elect not to take bonus depreciation for a class of property if spreading it out works better for you.
What to Ask Before You Buy
- Is this a land & building deal or a ground lease? See Ground Lease vs. Land & Building.
- For a gas station, does the store meet one of the three 15-year tests?
- What equipment and improvements are included in the sale, and what does the tenant own?
- How much of the price is land? A high land value means less to depreciate.
- If you’re in a 1031 exchange, how much excess basis will you have?
- Can you use the deduction this year, or will it carry forward?
- Has your CPA reviewed the plan, and will you order a cost segregation study?
Common Questions
Is 100% bonus depreciation permanent?
Yes. The 2025 federal tax law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025, ending the phase-down from the 2017 law.
Can I take bonus depreciation on a NNN building?
Not on a standard 39-year commercial building. But a cost segregation study can identify 5-, 7- and 15-year parts of the property, such as equipment and site work, which can qualify. Gas station convenience stores that meet the 15-year tests are a major exception.
Does bonus depreciation apply to used property?
Yes. Buying an existing property can qualify, as long as you did not use the property before you bought it and did not buy it from a related party, such as a family member or a company you control.
Do gas stations qualify for 100% bonus depreciation?
Often, yes. A gas station convenience store can be treated as 15-year property if at least 50% of its revenue or floor space is tied to fuel sales, or if the building is 1,400 square feet or smaller, and the property must be substantially used to sell fuel at retail. That 15-year property can qualify for 100% bonus depreciation.
Can I take bonus depreciation in a 1031 exchange?
Partly. For used replacement property, the basis carried over from the property you sold generally does not qualify. The excess basis can qualify. How much you have depends on your adjusted tax basis in the property you sold and how the exchange is structured, so have your CPA calculate it.
Do ground leases qualify for bonus depreciation?
Generally no. On a ground lease you own only the land, which can’t be depreciated. The tenant owns the building and improvements.
We are not CPAs or tax advisors. Please verify and confirm how these rules apply to you with your CPA.
If you are looking for a NNN property that fits your tax plan, contact us. We have represented buyers on 225+ NNN transactions, and our buyer representation is always free to you.