If you’re a business owner in Texas who owns real estate, keeping up with depreciation rules and new tax laws is critical. We’re here to make it as simple as possible—no complex jargon, just clear explanations.
Here’s a breakdown of what’s changing for Texas real estate investors in 2025.
What is Depreciation?
As a reminder, depreciation is how the IRS lets you account for the wear and tear on your property over time. Think about your property like a tool that wears out over time. Depreciation is a way to tell the IRS, “This property isn’t as shiny and new as it used to be,” and they let you lower your taxable income because of it. It’s like a tax break for normal wear and tear.
Bonus Depreciation in 2025
Bonus depreciation is a tool introduced under the Tax Cuts and Jobs Act (TCJA) that allows you to deduct a significant portion of eligible property costs in the first year.
But here’s the catch: it’s being phased down.
If you’re planning to invest in new property or improvements, the reduced bonus depreciation means your immediate tax savings will be smaller. You’ll need to factor this into your budgeting.
What’s Changing?
In 2025, you can only deduct 40% of eligible property costs in the first year. That’s a reduction from the higher percentages allowed in previous years.
This phase-down applies nationwide, including in Texas.
Could Bonus Depreciation Be Extended?
With the re-election of Donald Trump in 2024, there’s a possibility that the Tax Cuts and Jobs Act provisions, including bonus depreciation, could be extended or modified. Keep an eye on legislative updates in 2025 as new policies may emerge.
Why Does This Matter?
If you’re planning to invest in new property or improvements, the reduced bonus depreciation means your immediate tax savings will be smaller. You’ll need to factor this into your budgeting.
Texas-Specific Considerations
While Texas doesn’t have its own depreciation rules (these are federal), property tax changes could indirectly impact your real estate investments. Let’s look at what’s on the horizon for Texas property owners.
Texas Property Tax Law Changes in 2025
In 2025, Texas is rolling out several new laws under the Property Tax Relief Act, aimed at reducing property tax burdens. Here’s what you need to know:
Circuit Breaker Limitations
A “circuit breaker” is like a safety net that stops your property’s appraised value from skyrocketing.
Who Does It Affect?
- It’s for non-homestead properties (like rentals or commercial buildings) worth $5 million or less.
- Your property value for tax purposes can only go up by 20% per year, even if the market value jumps higher.
How Does It Work?
- Let’s say last year your property was appraised at $100,000. This year, the market says it’s worth $125,000. Thanks to the circuit breaker:
- If you sell the property, the cap is removed, and the new owner pays taxes based on the full market value.
Important Dates
- This rule started in 2024 and lasts through 2026. The $5 million limit might change depending on inflation.
Homestead Exemption Increase
Now, what’s a homestead? It’s just a fancy word for your main home. Texas is making it cheaper to own one.
What’s New?
- Homeowners can now knock $100,000 off their home’s value when calculating school taxes. That’s a big jump from the old $40,000.
- Example: If your home is worth $300,000, only $200,000 of it is taxed for schools.
How Was This Approved?
- Voters gave it the green light in 2023 through Proposition 4. It’s all about making taxes fairer and easier to predict.
How Do These Changes Impact You?
- For Investors: The reduction in bonus depreciation means you’ll need to plan for smaller upfront tax benefits on new investments. However, the circuit breaker cap could help keep property tax increases manageable for smaller commercial properties.
- For Homeowners: The increased homestead exemption provides significant relief, especially for those in areas with high property values.
- For Businesses: These changes may impact cash flow, so it’s important to consult with a tax professional to strategize effectively.
Need Help With Your Texas Real Estate Depreciation & Taxes?
Tax laws and depreciation rules can feel overwhelming, but staying informed helps you make smarter decisions. The 2025 changes bring both opportunities and challenges for Texas business owners and real estate investors. If you’re unsure how these changes affect you, reaching out to a tax professional who specializes in real estate and Texas laws can make all the difference.
Stay ahead of the curve and take control of your financial future!
