Increase Cash Flow in 2025

If you’re a real estate professional, you know the thrill of closing a deal—whether it’s your most profitable flip yet or a new rental property that expands your portfolio. But there’s a catch: every time you run the numbers, the IRS is waiting with its handout.

For many in real estate, taxes aren’t just an expense, they’re a cash flow killer. The good news? With the right strategies, you can legally keep more of what you earn, free up capital for your next investment and avoid scrambling to cover an unexpected tax bill at year-end.

Three strategies stand out in 2025:

  1. Qualifying as a real estate professional for tax purposes.
  2. Using cost segregation studies to accelerate depreciation.
  3. Leveraging the One Big Beautiful Bill (OBBB) and its 100% bonus depreciation.

Used together, they can dramatically shift the way you manage both taxes and cash flow.

How Does Real Estate Professional Status Reduce Taxes?

One of the most misunderstood areas of real estate taxation is what it means to be a “real estate professional” in the eyes of the IRS. This isn’t about having a license—it’s about how you spend your time.

Under IRC Section 469(c)(7), you qualify if:

  1. You work more than 750 hours in real property trades or businesses during the year.
  2. You spend more than 50% of your total working time on these activities.

For married couples filing jointly, only one spouse needs to meet these requirements.

Why This Matters

Most rental losses are treated as “passive” and can’t be used to offset W-2 wages or other active income. But if you qualify as a real estate professional, those losses become non-passive. That means you can use them right away—reducing taxable income across the board, improving cash flow and freeing up money for your next project.

Example:
Suppose you have $75,000 in rental losses from depreciation and other expenses. If you qualify as a real estate professional, you can use those losses to offset a spouse’s salary or other business income, dropping your overall tax liability immediately instead of waiting for future passive gains.

What Is Cost Segregation and Why Does It Matter?

Depreciation is one of the biggest tax benefits of owning real estate, but the default schedules (27.5 years for residential, 39 years for commercial) are painfully slow.

A cost segregation study accelerates that timeline. It identifies specific building components, such as flooring, lighting, fixtures or landscaping, that qualify for shorter depreciation lives (5, 7, or 15 years).

Benefits of Cost Segregation

  1. Bigger deductions sooner – You front-load depreciation, reducing taxable income in the early years.
  2. Improved cash flow – More money stays in your business instead of going to the IRS.
  3. Growth funding – Tax savings can be reinvested into your next property acquisition.

When It Works Best

  • You’ve recently purchased a property (new or existing).
  • You’ve completed major renovations or improvements.
  • You want to offset significant income in the current year.

Example:
A $1 million multifamily property could have $250,000 of assets reclassified into 5-, 7- or 15-year categories. Instead of spreading that deduction out over decades, you can use it now to lower taxes and boost cash flow.

How the One Big Beautiful Bill (OBBB) Changes the Game

The One Big Beautiful Bill introduced a provision: permanent 100% bonus depreciation for qualified property.

Assets identified in a cost segregation study that fall into 5-, 7- or 15-year categories can be fully expensed the year they’re placed in service. Instead of spreading deductions over decades, you deduct everything up front.

Example:
A commercial property owner buys a $1.5 million building. A cost segregation study identifies $450,000 in short-life property. Under OBBB rules, the owner can deduct that entire $450,000 in year one. That frees up cash to reinvest in another property, without taking on new debt.

The Power of Combining These Strategies

Each of these tactics is valuable on its own, but the real impact comes when you layer them together:

  1. Real estate professional status allows rental losses to offset other income.
  2. Cost segregation accelerates depreciation and unlocks bigger deductions.
  3. OBBB’s 100% bonus depreciation means you can expense those deductions immediately.

The result? You dramatically lower your tax bill, improve cash flow and build momentum to scale your portfolio faster. This isn’t just about reducing taxes—it’s about controlling when and how you pay them to maximize your growth.

Your Next Steps

If you want to take advantage of these strategies in 2025, here’s where to start:

  1. Confirm Your Status – Determine if you (or your spouse) qualify as a real estate professional.
  2. Order a Cost Segregation Study – Work with a qualified advisor to identify short-life assets.
  3. Apply Bonus Depreciation – Use OBBB’s 100% bonus depreciation on eligible assets.
  4. Track Your Time & Records – Keep contemporaneous logs of hours worked, activities and improvements.
  5. Plan Ahead – Don’t wait until tax season; proactive planning saves the most.
Questions?

Taxes are one of the largest and most controllable expenses for real estate professionals. The sooner you act, the bigger your potential savings for 2025 and beyond. Talk to your CPA or an Adams Brown tax advisor now to see how these strategies can apply to your properties—before the IRS claims a bigger piece of your next deal.