How the Rich Use Depreciation to Eliminate Taxes

Want to know one of the most powerful wealth-building secrets used by the ultra-wealthy? It’s not a complex loophole — it’s depreciation.

Depreciation allows business owners and investors to deduct the cost of assets over time, reducing taxable income without spending additional cash. And when used strategically, it can wipe out entire tax bills — legally.

What Is Depreciation?

Depreciation is the IRS’s way of acknowledging that certain assets lose value over time. When you buy a building, vehicle, or equipment for your business, you generally can’t deduct the full cost upfront. Instead, you spread the deduction over a number of years.

But savvy entrepreneurs use accelerated depreciation, bonus depreciation, and Section 179 to claim much of the deduction in the year of purchase — front-loading the tax benefit.

Practical Example

Let’s say you purchase a vehicle over 6,000 pounds (like a Tesla Model X or a BMW X5) for your business and it qualifies for bonus depreciation. If it costs $85,000, you may be able to deduct 100% (or 60% in 2024 and beyond) in year one.

That’s a potential $51,000 tax deduction, assuming 60% depreciation and business use.

Or, imagine you invest in a rental property and order a cost segregation study, which breaks out shorter-life assets (like appliances, fixtures, flooring). You may accelerate 20–30% of the building’s value into depreciation in the first year — possibly wiping out all of your rental income on paper.

How High Earners Use It

• Real estate investors use cost segregation to massively accelerate depreciation deductions.

• S Corp owners buy SUVs or trucks over 6,000 pounds to write off large business-use vehicles.

• Medical practices and law firms use Section 179 to write off equipment like X-ray machines or servers.

• Short-term rental hosts often qualify for bonus depreciation without being real estate professionals.

And with passive losses, you can often use depreciation to offset income from other properties — and sometimes, other sources (if you qualify as a real estate professional).

Bonus Depreciation Is Phasing Out

Under the 2017 Tax Cuts and Jobs Act:

• Bonus depreciation was 100% through 2022.

• It’s now 60% in 2024, dropping 20% each year until it phases out unless extended by Congress.

That makes now the time to act if you’re considering a major asset purchase.

Final Thoughts

Depreciation is one of the most powerful — and underutilized — tax strategies for business owners, high earners, and investors. Done right, it creates paper losses that erase real income.

It takes planning, but when aligned with your goals, it can drastically lower your tax bill.

Want to explore how depreciation fits into your tax strategy?

Book a free strategy call and let’s map out your opportunities.