Real estate investors hoping to lessen their tax burdens next year are putting the pedal to the metal in a race to buy gas stations.

Since 100% bonus depreciation became law in July, gas station, convenience store and car wash investment sales have surged.

National gas station and convenience store investment sale activity has spiked 27% since the law passed, compared to a 17% increase in overall retail investment sales, according to data from net lease-focused real estate firm The Boulder Group. 

The assets’ equipment-heavy requirements make them especially tax-beneficial, sending investors rushing to get deals closed by the end of the year, driving up prices and compressing cap rates.

“It’s really at a fever pitch,” said Jim Ceresnak, a vice president in Northmarq’s Charlotte office specializing in car wash sales.

Demand is coming from new investors, repeat buyers, new investment funds and REITs, he said. 

Bonus depreciation allows investors to deduct the full value of equipment improvements or purchases upfront instead of throughout the lifetime of the investment.

The tax break was originally set to be reduced by 20% annually and would have settled at 40% this year, but the One Big Beautiful Bill Act reinstated permanent 100% bonus depreciation for properties purchased and placed into service after Jan. 19, 2025.  

Unlike other retail, gas stations come with significant equipment like underground storage tanks and submersible pumps. Investors can deduct full depreciation for everything except the land from their taxable income the first year, rather than over the typical 39 years, said Navjeet Chahal of Chahal & Associates, a Northern California-based tax and accounting firm that works with hundreds of gas stations.

“Even though they know that the interest rates are still slightly higher, they do want to take advantage of the bonus depreciation to be able to offset their tax liability, especially toward the end of the year,” Chahal said. 

There has also been a renewed interest in gas stations since the likely timeline of electric vehicles dominating the market has been pushed out. Electric vehicle battery production tax credits will now end in 2028, and Biden-era transition mandates were overturned. 

“No one’s thinking electrical cars aren’t a part of the future,” The Boulder Group President Randy Blankstein said. “They’re just thinking that the day that they take over isn’t 2028. It’s 2035 and later.” 

Hybrid vehicles are likely to be more common before fully electric vehicles, giving the gas station model more longevity, Blankstein said. Gas stations are also seen as recession-proof in an era of slower job growth and rising inflation.

“People understand the essentialness of gas stations day to day,” he said. “You don’t need to make economic predictions as to where we are in a cycle. It’s a pretty essential business for most people.” 

Ceresnak said the demand environment is similar to what it was in 2021 and 2022, the last time there was 100% bonus depreciation from the Tax Cuts and Jobs Act of 2017.

But now there is more inventory available and more operators entering the market, increasing the number of buyers and sellers. 

“It’s a healthier transaction environment,” he said. 

REITs, funds and individuals who bought car washes over the past five to seven years are now looking to exit, some by doing a 1031 exchange into another asset class, Ceresnak said.

“So you’ve seen inventory come from the operators as well as legacy holders that bought sale-leasebacks four or five years ago,” he said. 

Bonus depreciation allows buyers to get more aggressive on pricing, driving up competition for assets, compressing cap rates and making more willing sellers, Northmarq investment analyst Sage Chaffin said. 

“If we’re underwriting something for an operator, our exit cap rate for them is now more aggressive because we’re taking bonus depreciation into account, and so are buyers,” Chaffin said. “Both sides are more aggressive.” 

The frenzy of activity has led more gas station operators to explore sale-leasebacks, which they can use as a financing tool. It has also drawn private equity attention and driven further consolidation in the car wash industry. 

Blankstein said he has seen demand from high net worth investors, mostly those with other existing real estate businesses. The sector is especially appealing for investors with older portfolios that have already taken their full depreciation.

“We’re selling a bunch to a senior housing developer, some multifamily developers,” he said. “Usually you have an existing portfolio of income, and this is kind of a one-time tax benefit.”

But it isn’t a straightforward process, and the tax code can be tricky. About a quarter of gas stations use a ground-lease structure, which doesn’t qualify for bonus depreciation, Blankstein said. 

Convenience stores must derive more than 50% of revenue from petroleum sales to be classified as property that depreciates in 15 years rather than 39 under IRS code, meaning they can qualify for full depreciation in Year 1. Self-serve or tunnel-style car washes without retail on-site can also be classified as 15-year properties. 

But if a convenience store has food service, retail or other revenue that pushes its fuel sales below 50%, only a portion of the property may qualify for 100% bonus depreciation. There is also risk of inaccurate purchase price allocation between the land, building and site improvements, which could trigger an audit, according to Northmarq.

Investors should consult with advisers very familiar with gas station real estate and tax codes, Chahal said, adding he has even had to educate auditors on depreciation rules.

“Just find somebody who understands this business, because not everybody does, and then they end up doing a disservice to you,” he said. 

Gas stations and convenience stores are innovative and ever-changing, providing a long runway for this investment market into the future, said Sai Thakor, Houston-based vice president at CBRE specializing in the sector. Gas stations can adjust their business models based on fuel contract variables, tenants, management and offerings, he said. 

“It gives a blend of real estate and business value, so you get a bang for your buck,” Thakor said.

Some of the activity today is normal cyclical behavior — transactions tend to pick up in the fourth quarter. But that is especially true this year, and there are numerous transactions happening right now, Thakor said.

“A lot of people are scrambling to close before the end of the year because they have a high allocation of taxes,” he said.