Part of our pillar guide: Real Estate Tax Benefits: The Complete Overview →
Under standard depreciation, short-life assets identified in a cost segregation study are deducted over 5, 7, or 15 years. Bonus depreciation allows you to deduct the full costof those same assets in the year they're placed in service — no waiting.
The combination of cost segregation (identify short-life assets) + bonus depreciation (deduct 100% immediately) is what creates the large, front-loaded paper losses that sophisticated real estate investors use against ordinary income.
Phase-Down Schedule
Current Bonus Depreciation Rates
The Tax Cuts and Jobs Act of 2017 expanded bonus depreciation to 100%. That rate began phasing down in 2023 under original law — but the One Big Beautiful Bill, signed July 4, 2025, permanently restored bonus depreciation to 100% for qualified property acquired and placed in service after January 20, 2025.
| Period | Bonus Depreciation Rate | Example: $300K in short-life assets |
|---|---|---|
| 2022 | 100% | $300,000 deduction in yr 1 |
| 2023 | 80% | $240,000 deduction in yr 1 |
| 2024 | 60% | $180,000 deduction in yr 1 |
| Jan 1–Jan 19, 2025 | 40% | $120,000 deduction in yr 1 |
| Jan 20, 2025+ | 100% (permanent) | $300,000 deduction in yr 1 |
Current Law (2025)
The One Big Beautiful Bill permanently restored 100% bonus depreciation for property placed in service after January 20, 2025. This is the most favorable bonus depreciation environment since 2022 — and unlike the prior phase-down, there is no scheduled expiration under current law.
Estimate your year-one deduction with our Bonus Depreciation Calculator →, or see how short-life assets are identified in our Cost Segregation guide.
What Qualifies
What Qualifies for Bonus Depreciation?
Bonus depreciation applies to Qualified Property — which in the real estate context means any asset with a depreciable life of 20 years or less. This includes:
- 5-year and 7-year personal property identified in a cost segregation study
- 15-year land improvements (parking lots, landscaping, sidewalks)
- Qualified Improvement Property (QIP) — improvements to the interior of nonresidential buildings after placed-in-service date
- Certain new equipment and machinery in operating businesses
The building structure itself (27.5 or 39-year property) does not qualify for bonus depreciation. Only the short-life components do — which is exactly why cost segregation is the prerequisite strategy.
Strategy
When to Use It (and When to Wait)
Use Bonus Depreciation When:
- ✓You have real estate professional status (losses offset ordinary income)
- ✓You have substantial passive income to offset
- ✓You are in a high tax bracket this year
- ✓You expect your bracket to decrease in future years
- ✓You are acquiring a new property with high short-life asset content
Consider Deferring When:
- –Passive losses already exceed passive income and you can't currently use them
- –You expect significantly higher income (and brackets) in coming years
- –You plan to sell soon and want to minimize recapture exposure
- –NOL carryforward limitations apply
Examples
Worked Examples by Property Type
Example 1: Residential Rental
Example 2: Manufactured Housing Community
MHC asset composition produces exceptional bonus depreciation due to infrastructure-heavy allocation. See the full MHC bonus depreciation guide.
Illustrative only. Actual results depend on cost segregation study findings, usable passive activity losses, and individual tax circumstances. Consult a qualified tax advisor.
Strategy Note
When Bonus Depreciation Is Powerful — and When It's Wasted
100% bonus depreciation is an enormously powerful tool — but only if the paper losses it generates are actually usable in the current year. If passive loss rules trap the losses, they suspend on your tax return and roll forward. That has value, but not nearly as much as offsetting current ordinary income.
Bonus depreciation is at its strongest when paired with Real Estate Professional Status (REPS), passive income to absorb the losses, or a strategy to convert trapped losses into useful deductions. See our passive loss rules guide before assuming every dollar of bonus depreciation produces current-year tax savings.
FAQ
Frequently Asked Questions
Is bonus depreciation still 100%?
Yes. The One Big Beautiful Bill signed July 4, 2025 permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 20, 2025. There is no scheduled expiration under current law.
What qualifies for bonus depreciation?
Any depreciable asset with a recovery period of 20 years or less — 5-year personal property, 7-year property, 15-year land improvements, and Qualified Improvement Property (QIP). The building structure itself (27.5 or 39-year property) does not qualify.
Can bonus depreciation create a net operating loss?
Yes — bonus depreciation frequently creates paper losses that exceed rental income. Whether you can use that NOL depends on your tax situation, REPS status, and active/passive income composition.
Is bonus depreciation better than Section 179?
They serve different purposes. Section 179 has dollar limits and an income limitation; bonus depreciation has no dollar cap and can create losses. For real estate, bonus depreciation is typically the primary tool.
What's the difference between cost segregation and bonus depreciation?
Cost segregation identifies which assets qualify as short-life property. Bonus depreciation determines how much of those short-life assets you can deduct in year one. They work together — cost seg is the prerequisite.
Related Guides
Cost Segregation Examples & Numbers
The prerequisite strategy. How engineers identify short-life assets and what gets reclassified.
Passive Loss Rules for Real Estate Investors
Can you actually use those deductions? The answer depends on these rules.
MHC Bonus Depreciation
Why MHCs produce the most favorable bonus depreciation profile in real estate.