Unlocking Tax Policy for Maximum SFR Wealth
Investors in single-family rental (SFR) real estate are benefitting from a seismic tailwind in 2025: the permanent return of 100% bonus depreciation—now available for new and used SFR assets—stacked on top of a stronger 1031 exchange regime. Combined, these tools supercharge wealth creation through immediate tax benefits, robust portfolio expansion and new doors opened by deregulation and federal incentives. For those deep in the rental market, this is not incremental; it’s transformative.[1][2]
To illustrate how these new policy changes impact your ROI potential, let’s look at a new home investment over a 5-year period. Picture this as an example: In early 2025, an investor acquires a brand-new single-family rental for $400,000. They commission a cost segregation study, by a qualified firm and find that $100,000 of the home’s value—appliances, HVAC, landscaping, flooring, cabinets and other short-life assets—qualifies for depreciation over 5, 7 or 15 years.[1][2]
Year 1 (2025): Supercharged Bonus Depreciation
Under the restored 100% bonus depreciation rule, the investor may qualify to immediately deduct the entire $100,000 of eligible improvements in the first year. Assuming a 35% marginal tax rate, that’s a $35,000 potential reduction in federal taxes for 2025—cash that stays in the business for growth and reinvestment.
- Acquisition Price: $400,000 (with $100,000 qualifying for bonus depreciation)
- First-Year potential tax benefit: $35,000 (this only applies if the investor has sufficient adjusted taxable income )
Years 2-4: Strong Cash Flow—and a Portfolio That Grows
With such a significant upfront tax deduction, the property’s cash flow is exceptionally strong in years two through four. Maintenance, rental income and appreciation continue, with annual depreciation on the remaining building value (spread over 27.5 years for residential real estate) reducing taxable income.[1]
During this period, the investor uses part of the freed-up capital from their tax savings to make strategic upgrades at other properties, expanding their portfolio and again leveraging bonus depreciation on each new purchase or qualifying improvement.[1][3]
Year 5: 1031 Exchange—Tax-Deferred Upsizing
By 2029, the value of the property has appreciated to $500,000, and the investor decides it’s time to upgrade. Through a 1031 like-kind exchange, the investor sells the home and reinvests the proceeds—tax-deferred—into a new $600,000 SFR asset. The 1031 exchange allows all capital gains from the sale to roll into the new property, deferring a potentially large tax bill.[4][2]
Then, it gets better: for the new more expensive home a cost segregation study is also commissioned. Based on the cost segregation study, $150,000 of the purchase price, (which is 25% of the new homes value) falls into bonus depreciation categories. The new home has carryover basis of the old home (approx. $250K) plus the additional cash invested ($100K, for a total basis of $350K) . The basis of the new home must be allocated in line with the cost segregation study, therefore 25% of the basis or $87.5K is available for bonus depreciation. At the same 35% rate, provided again the investor has sufficient adjusted taxable, income that’s another potential $30,625 in tax savings generated on the upgrade.[3][2]
- Sale Price: $500,000
- Purchase Price (New SFR): $600,000
- Bonus Depreciation: $87.5K, yielding a $30,625 potential tax benefit.
The Compounding Effect
Over five years, this investor has:
- Potentially reduced $65,625 from taxes with bonus depreciation
- Built equity through appreciation and reinvested tax savings
- Deferred all capital gains using a 1031 exchange, enabling immediate scaling without interrupting their compounding returns
Why This Matters
Time and again, these policies allow investors to boost cash flow early, reinvest savings and scale up their portfolios—without eroding returns through taxes. By carefully timing acquisitions, cost segregations and exchanges, SFR investors can ride the wave of the new tax policy for wealth growth in just a handful of years.[3]
Take advantage of these new policy changes and available synergies to help maximize your investment strategy in the SFR marketplace. To learn more and view curated rental-ready new homes for sale across 90+ desirable markets nationwide, visit the Lennar Investor Marketplace today.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Lennar Corporation does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors to evaluate the risks, consequences and suitability of any real estate transaction. Lennar makes no guarantee of present or future market conditions. Forecasts, projections and other predictive statements should never be relied upon.
Source 1. https://griffinfunding.com/blog/mortgage/100-percent-bonus-depreciation-real-estate/
Source 2. https://www.cbh.com/insights/articles/trumps-tax-bill-bonus-depreciation-cost-segregation/
Source 3. https://www.recostseg.com/post/2025-bonus-depreciation-the-ultimate-guide-for-real-estate-investors
Source 4. https://www.stephanoslack.com/2025/07/15/understanding-like-kind-exchanges-in-2025-new-rules-strategies- and-opportunities/
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