What is bonus depreciation and what is the current percentage?
Bonus depreciation allows you to deduct a large portion of an asset’s cost in the year you place it in service rather than spreading that deduction across the asset’s full recovery period. For real estate investors, this accelerates tax savings and can create significant paper losses that offset other income.
The current percentage depends on when you acquired and placed the property in service.
For qualified property acquired and placed in service after January 19, 2025, the percentage is 100%. The One Big Beautiful Bill Act permanently restored full bonus depreciation, reversing the phase-down that Congress had scheduled under prior law.
For property acquired on or before January 19, 2025, the original phase-down schedule still applies. That means 40% in 2025, 20% in 2026, and 0% in 2027 and beyond. The timing distinction matters because if you acquired a property before the cutoff date, you remain subject to the reduced percentages regardless of when you placed it in service.
Qualified property generally means assets with a recovery period of 20 years or less. For real estate, this includes items like appliances, carpeting, fixtures, cabinetry, and certain land improvements such as parking lots and landscaping. It does not include the building structure itself, which has a 27.5 or 39 year recovery period depending on property type.
This is where cost segregation becomes valuable. A cost segregation study breaks out the shorter-lived components of a building and reclassifies them into categories that qualify for bonus depreciation. Without a study, you depreciate the entire building over its full recovery period. With one, you pull out significant value in components that qualify for immediate deduction. At 100% bonus depreciation, the benefit from a cost seg study is at its maximum, and getting this right is a key part of real estate investor accounting.
The restoration of full bonus depreciation makes cost segregation studies more valuable again for anyone acquiring property going forward. If you are buying or recently closed on a property, tax advisory and planning around depreciation should happen before year-end so you can capture the full benefit in the current tax year.
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