The One Big Beautiful Bill restored 100% bonus depreciation for real estate investors. Property acquired after January 19, 2025 now qualifies for a full first-year deduction on qualifying components. No phase-out. No scheduled expiration under current law.
For investors, this means significant tax savings in year one rather than waiting decades to depreciate building components.
But how much can you actually save? That depends on your property type, purchase price, and tax bracket.
This guide breaks down how bonus depreciation works, walks through real calculation examples, and includes a free calculator tool. Enter your property details below to estimate your potential tax savings in minutes.
What Is Bonus Depreciation?
Bonus depreciation is a federal tax incentive that allows property owners to deduct a large percentage of an asset's cost in the year it is placed in service. Rather than spreading deductions over 5, 7, 15, or even 39 years, investors can claim the deduction immediately.
This applies to MACRS property with a recovery period of 20 years or less. That includes carpeting, appliances, landscaping, parking lots, and certain building components. Qualified Improvement Property (QIP), which covers interior improvements to nonresidential buildings, also qualifies as 15-year property eligible for bonus depreciation. The building structure itself (27.5-year residential or 39-year commercial property) does not qualify.
Here is the key point: bonus depreciation only applies to assets already classified as short-life property. A cost segregation study identifies and reclassifies building components into these shorter recovery periods. Without cost segregation, most investors miss out on thousands of dollars in eligible deductions.
There is no annual limit on how much bonus depreciation you can claim.
Important: Bonus depreciation deductions from rental property are typically classified as passive losses. Unless you qualify as a Real Estate Professional or use the STR loophole, these losses may only offset passive income. Excess passive losses carry forward to future years.
Current Bonus Depreciation Rates: 2025 and Beyond
The applicable bonus depreciation rate depends on when you acquired the property and when it was placed in service.
Note: Property acquired between January 1-19, 2025 falls under the prior 40% rate for 2025.
The acquisition date (when you signed the purchase contract or closed on the property) determines your bonus rate. The placed-in-service date (when the property is ready and available for use) determines the tax year you claim the deduction. If you signed a binding contract before January 20, 2025, the prior phase-out schedule still applies. Properties acquired after that date qualify for the restored 100% rate with no scheduled phase-out under current law.
How to Calculate Bonus Depreciation
The bonus depreciation formula is straightforward:
Bonus Depreciation = Eligible Property Cost × Applicable Bonus Rate
Here is the step-by-step process:
- Determine your depreciable basis. Start with your purchase price and subtract the land value. Land is not depreciable. Add any renovation costs to get your total depreciable basis.
- Identify eligible components. A cost segregation study separates building components into 5-year, 7-year, and 15-year property. These shorter-life assets qualify for bonus depreciation. Typically, 20-30% of a building's value can be reclassified.
- Apply the bonus depreciation percentage. Multiply the value of qualifying components by your applicable bonus rate (100% for property acquired after January 19, 2025).
- Calculate remaining depreciation. After claiming bonus depreciation, the remaining basis is depreciated using standard MACRS rates over the applicable recovery period (5, 7, 15, 27.5, or 39 years).
- Calculate your tax savings. Multiply your bonus depreciation deduction by your marginal tax rate.
Try the Calculator
Use the free bonus depreciation calculator to estimate your first-year tax savings. Enter your property details and see your results in seconds.
Bonus Depreciation Examples: Real Tax Savings
These examples show how bonus depreciation translates into actual tax savings.
Example 1: Single-Family Rental Property
- Purchase price: $500,000
- Land value: $100,000
- Depreciable basis: $400,000
- Cost segregation results: $80,000 reclassified to 5-year and 15-year property (20%)
- Bonus depreciation (100%): $80,000
- Tax savings at 37% bracket: $29,600 in year one
Example 2: Multi-Family Apartment Building
- Purchase price: $2,000,000
- Land value: $400,000
- Depreciable basis: $1,600,000
- Cost segregation results: $400,000 reclassified (25%)
- Bonus depreciation (100%): $400,000
- Tax savings at 37% bracket: $148,000 in year one
Example 3: Commercial Office Building
- Purchase price: $3,500,000
- Land value: $700,000
- Depreciable basis: $2,800,000
- Cost segregation results: $672,000 reclassified (24%)
- Bonus depreciation (100%): $672,000
- Tax savings at 37% bracket: $248,640 in year one
These percentages reflect industry averages. Actual cost segregation results vary based on property age, construction quality, fixtures, and other factors. A professional study with a site visit is required for accurate figures and may identify additional qualifying components.
Bonus Depreciation Questions Investors Ask Most
How Does Bonus Depreciation Affect Recapture When I Sell?
Bonus depreciation is subject to recapture when you sell the property at a gain. For Section 1245 property (personal property like appliances, fixtures, and carpeting), recapture is taxed as ordinary income at rates up to 37%. For Section 1250 property (land improvements and qualified improvement property), bonus depreciation in excess of straight-line depreciation is also recaptured as ordinary income. If you plan to sell via a 1031 exchange, depreciation recapture can be deferred, but specific rules apply.
Can I Use Bonus Depreciation on a Property I Already Own?
Yes. You can perform a cost segregation study on existing property and claim missed depreciation through a catch-up deduction. This requires filing Form 3115 with your tax return. No amended returns are necessary.
Does Bonus Depreciation Work for Used Property?
Yes. Used property qualifies for bonus depreciation if it meets acquisition requirements: the property must not have been previously used by you or a related party, and it cannot be acquired in certain related-party or carryover basis transactions.
Can I Choose NOT to Take Bonus Depreciation?
Yes. You can elect out of bonus depreciation on a class-by-class basis. Some investors prefer to spread deductions over time if they expect to be in a higher tax bracket in future years or face passive loss limitations.
How Cost Segregation Unlocks Bonus Depreciation
The building structure itself does not qualify for bonus depreciation. Residential rental property depreciates over 27.5 years. Commercial property depreciates over 39 years. Neither qualifies for accelerated treatment.
Cost segregation changes that. A cost segregation study identifies building components that qualify for shorter recovery periods. These include:
- Carpeting and flooring
- Appliances and fixtures
- Landscaping and paving
- Specialized electrical and plumbing
- HVAC components
Once reclassified to 5-year, 7-year, or 15-year property, these assets become eligible for 100% bonus depreciation.
Engineering-based studies from firms like R.E. Cost Seg provide IRS-compliant documentation. This level of detail ensures your deductions are defensible if audited.
Without cost segregation, bonus depreciation benefits remain locked inside your building's long-term depreciation schedule.
Does Your State Conform to Federal Bonus Depreciation?
Not all states follow federal bonus depreciation rules. Some states fully conform, including Arizona, Colorado, Kansas, and West Virginia. Others decouple entirely, including California, Florida, New York, New Jersey, Pennsylvania, and Illinois.
If your state decouples, you may owe state taxes on income offset by federal bonus depreciation. Consult a tax professional to understand how your state treats accelerated depreciation before filing.
Maximize Your Tax Savings This Year
100% bonus depreciation is back for property acquired after January 19, 2025. Combined with a cost segregation study, investors can accelerate tens or even hundreds of thousands of dollars in deductions into year one.
The calculator above provides a quick estimate. For a precise analysis, a professional study identifies every qualifying component in your property.
Ready to see your full savings potential? Request a free cost segregation estimate from R.E. Cost Seg today.
