Allocations by institutional investors, represented by public pensions, have plateaued in recent years. This is unsurprising given the sheer volume of capital already committed, combined with the fact that private equity, the larger of the two allocations, has failed to deliver returns comparable to public markets for many years.

The tapering of new institutional commitments, coupled with a clogged exit environment, created pressure across the private-markets ecosystem. Asset managers still had large portfolios to finance, consultants still had asset classes to recommend, and distributors still needed new products to sell. The solution was a structural innovation that allowed the industry to expand its investor base: semi-liquid vehicles designed specifically for individual investors and marketed as the “democratization” of private markets.

These structures typically offer periodic liquidity, often through quarterly redemption windows, while investing in assets that may take years to sell at reliable prices. The appeal is obvious. Investors are offered exposure to private markets together with the appearance of stability and the reassurance that they can redeem capital periodically.

The problem is that this model violates the previously explained principle of finance. Long-duration, difficult-to-price assets should never be financed with short-term liabilities unless a lender of last resort stands behind the structure. When that rule is ignored, the structure is unstable. As long as inflows continue and redemptions remain manageable, it seems advantageous to both investors and fund managers. But once investors begin to withdraw capital, the mismatch between liquidity promises and underlying assets becomes visible very quickly.

History provides many examples of this dynamic. Wildcat banks in the 1800s, trust companies in the early 1900s, and investment bank warehousing facilities in the early 2000s. In each case, when confidence weakened, investors rationally attempted to redeem before others did. It doesn’t take long before investors run, simply in anticipation of other people running – which is the hallmark of a bank or fund run. This risk is substantially amplified when individual investors provide a large percentage of the capital.

Taken together, semi-liquid private credit and private equity funds are unusually vulnerable to run mechanisms. Not only are Illiquid assets financed with redeemable capital, but the underlying investments were raised at the tail-end of two aged investment cycles. Financial history suggests that such combinations rarely remain stable for very long. They may function smoothly for several years. But when confidence weakens, the structural mismatch becomes impossible to ignore.

That day arrived on February 18, when Blue Owl announced that it had permanently eliminated quarterly liquidity in its OBDC II private credit fund.

This article is presented by Cost Segregation Guys.

If you’ve been following real estate tax strategy for the past few years, you’ve watched a powerful deduction slowly disappear in the rearview mirror. Bonus depreciation went from 100% in 2022 to 80%, then 60%, then 40%—a slow bleed that left a lot of investors shrugging and saying, “Well, I guess we just wait it out.” 

The wait is over. Thanks to the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, 100% bonus depreciation has been permanently reinstated for qualifying property acquired and placed into service on or after Jan. 19, 2025. 

But here’s the thing most investors are missing: Bonus depreciation is only as powerful as your ability to use it correctly. And that’s where cost segregation enters the picture.

Before we get to the strategy, let’s back up and talk about the problem it’s designed to solve.

The Standard Depreciation Schedule: Slow, Painful, and Not Optimized for You

When you buy a rental property, the IRS doesn’t let you deduct the full purchase price on day one. Instead, it requires you to depreciate the asset over its “useful life”—27.5 years for residential properties and 39 years for commercial.

What does that mean in practice? Let’s say you buy a $500,000 single-family rental. Under standard depreciation, you’d deduct roughly $18,182 per year for 27.5 years. It’s better than nothing, but it’s far from exciting—and it treats your entire investment as if it’s one monolithic asset aging at the same rate.

The IRS’s logic: The structure, such as the walls, foundation, and roof, depreciates over decades. But that’s not all you bought.

Your $500,000 rental property isn’t just a building. It’s a collection of hundreds of individual components, and many of them have much shorter useful lives than 27.5 years.

The standard schedule ignores this entirely. It lumps everything together, assigns one timeline, and calls it a day. For the investor, this means leaving a significant deduction on the table every single year.

What Gets Lumped Together That Shouldn’t Be

Here’s where it gets interesting and where most investors have a blind spot.

When you purchase a property, the building itself isn’t the only thing with depreciable value. Inside and around that structure are dozens of assets that the IRS actually classifies as personal property or land improvements. These are categories with much shorter depreciation schedules: five, seven, or 15 years.

But under the standard depreciation approach, these components get buried inside the “building” bucket and depreciated at the building’s rate. They’re in there; you’re just not getting the faster deductions you’re entitled to.

The fix is a detailed engineering and tax analysis that identifies and reclassifies these components: cost segregation. 

Real-Life Examples: What’s Really in Your Property

But before we get there, let’s make the problem concrete with some real-world examples.

Flooring

That hardwood floor in your rental? Or the luxury vinyl plank you installed during your last renovation? Under standard depreciation, it’s riding the 27.5-year schedule along with the walls and foundation. 

But specialty flooring, such as carpet, decorative tile, and vinyl plank, is generally classified as five-year personal property. That means it could be depreciated in full in year one under the new 100% bonus depreciation rules, instead of dripping out over nearly three decades.

Appliances

Movable personal property with a five-year depreciable life includes refrigerators, ranges, dishwashers, and washer/dryer units, but if they’re not broken out explicitly, they get absorbed into the building’s 27.5-year depreciation schedule. That’s a significant difference. Fully deducting a $12,000 appliance package in year one versus spreading it over 27.5 years is not a minor distinction on a tax return.

Parking lots and land improvements

Own a small multifamily property or short-term rental with a paved driveway or parking area? That asphalt belongs in the 15-year land improvements bucket, not the 27.5-year building bucket. Same goes for landscaping, fencing, outdoor lighting, and sidewalks. These are all separate asset classes with faster depreciation schedules, and they’re routinely overlooked in a standard depreciation analysis.

These categories are right there in the IRS cost segregation tax code. The challenge is identifying and documenting them properly, which is exactly what cost segregation is designed to do.

The Concept of Asset Components: Not All of Your Building Is a Building

The key insight behind cost segregation, and why 100% bonus depreciation is such a game-changer right now, is this: A real estate investment is not one asset. It’s hundreds of assets, each with its own classification, useful life, and depreciation timeline.

The IRS recognizes this. The tax code distinguishes between:

• Real property: Real property (the structure itself) is depreciated over 27.5 or 39 years.
• Personal property: Personal property (movable components like appliances, flooring, and fixtures) is depreciated over five or seven years.
• Land improvements: Land improvements (site improvements outside the building) are depreciated over 15 years.

Standard depreciation doesn’t make this distinction for you. It defaults to treating nearly everything as the building. That’s the path of least resistance for a tax preparer who isn’t a cost segregation specialist, like Cost Segregation Guys, but it’s a costly default for the investor.

To illustrate the gap: A professional cost segregation study typically identifies 20% to 30% of a property’s purchase price as shorter-lived components eligible for accelerated depreciation. On a $1 million property, that’s $200,000 to $300,000 that could potentially be deducted in year one under current bonus depreciation rules, rather than spread across 27.5 years.

The math on that is significant. The strategy is real. And now that 100% bonus depreciation is back and permanent, the opportunity to use it is bigger than it’s ever been.

There’s a Method to Break These Out Properly

So how do you actually identify and reclassify these components? How do you separate the flooring from the foundation, the appliances from the structure, the parking lot from the land? And how do you do it in a way that holds up under IRS scrutiny?

The answer is a cost segregation study, a detailed engineering-based analysis that goes component by component through your property, assigns the correct asset classifications, and documents everything to the IRS’s standards.

It’s not something you do with a spreadsheet. It requires trained professionals who know both the engineering side (what’s actually in a building and how it depreciates) and the tax side (how the IRS classifies different asset types). Done correctly, it’s one of the most powerful tax strategies available to real estate investors. With 100% bonus depreciation now permanent, the return on a well-executed cost seg study has never been higher.

Final Thoughts

While 100% bonus depreciation is back permanently, a deduction you don’t know how to capture is a deduction you don’t get. 

The standard depreciation schedule was never designed to optimize your tax position. It was designed to be simple. Simple and optimal are two very different things.

The investors who will benefit most from the current tax environment are the ones who took the time to understand what they actually own—down to the flooring, appliances, and asphalt—and structured their depreciation accordingly.

That process starts with knowing what to look for. And now you do.