Guide · Bonus depreciation

100% bonus depreciation is back. Permanently.

For property acquired after January 19, 2025, you can deduct the full cost of qualifying components in the first year. Here’s what that means for a rental, how it pairs with a cost segregation study, and what changed for people who bought earlier.

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Updated October 2026. Not tax advice; bring it to your CPA.

The schedule

Acquired after January 19, 2025: Permanent. No sunset.; 100%
Acquired in 2024 (before Jan 20, 2025): Old phase-down, still applies to those purchases; 60%
Acquired in 2023: 80%
Acquired 2017–2022: The first 100% era; 100%

Federal, under Section 168(k) as amended in 2025. “Acquired” means a binding contract, not the closing date, for purchases; for construction, when work began.

What it is

Depreciation is a deduction for wear. Bonus depreciation lets you take it all at once.

Every rental property is deducted over time: 27.5 years for residential, 39 for commercial. That spreads a building’s cost thin. A $1 million rental gives you roughly $36,000 a year.

But a building isn’t one thing. The carpet, cabinets, appliances, lighting, the pool, the fence, the driveway and the landscaping all wear out faster, and the tax code lets them depreciate over 5, 7 or 15 years instead.

Bonus depreciation applies to exactly that short-life property. With the rate at 100%, you deduct those items in full the year they go into service. On a typical rental that’s 20–40% of the purchase price, deducted in year one.

The catch: the IRS won’t take your word for which parts are which. An engineering-based cost segregation study is the documentation that supports the split.

How it works with cost segregation

Four steps from purchase to deduction.

[01]

Buy, build or renovate

Bonus depreciation applies to the year the property (or the improvement) is placed in service. The purchase or renovation date decides which rule you're under.

[02]

Find the short-life property

The building itself is 27.5- or 39-year property and gets no bonus. A cost segregation study identifies the parts that are 5-, 7- and 15-year property: fixtures, finishes, cabinetry, pool, landscaping, parking, site work.

[03]

Take 100% in year one

Everything the study put into those shorter classes can be deducted in full the first year, instead of over decades. That's the number on the first page of your estimate.

[04]

Use the loss

Whether that deduction offsets only rental income or also your salary depends on your situation: real estate professional status, or a short-term rental where you materially participate. This is the part to plan with your CPA before you buy, not after.

Worked example

A $1.68M mixed-use building, bought after the cutoff.

This is a real study from our San Francisco case below. Without a study, depreciation on the whole building is about $61,000 a year. With the study and 100% bonus, the short-life property comes off the top in year one.

Depreciable basis: $1,676,000
Found by the study: 5-year property: $609,100
Found by the study: 15-year property: $8,600
Deductible in year one with 100% bonus: $617,700
Plus normal year-one depreciation on the remaining $1.06M building: ~$38,000

Two real studies

What the estimate said, and what the engineers found.

Every engagement starts with a free estimate and ends with an engineering study. Here are two, side by side. Addresses and names withheld.

[01]Sonoma, California

Short-term rental

Farmhouse with pool and guest house, renovated · $2.61M depreciable basis

Estimate

29%

of basis to 5- and 15-year property

$176,600 est. first-year cash benefit

median scenario, 35% combined rate

Final study

44%

of basis reclassified · $1.14M

5-year $348,700

15-year $791,800

The owner had just finished a large renovation on a wine-country short-term rental. The estimate assumed 29% of the basis would move to shorter lives. The engineering study found 44%: the pool, site work and outdoor improvements alone put $791,800 into 15-year property.

Takeaway · Renovations and outdoor improvements are where estimates most often undershoot. Send the invoices.

[02]San Francisco, California

Mixed-use building

Residential units over ground-floor retail · $1.68M depreciable basis

Estimate

23%

of basis to 5- and 15-year property

$91,900 est. first-year cash benefit

median scenario, 35% combined rate

Final study

37%

of basis reclassified · $617,700

5-year $609,100

15-year $8,600

A city building with almost no land improvements, so the estimate was conservative. The study went through the interior instead: finishes, fixtures, electrical and plumbing serving the units and the retail space. $609,100 qualified as 5-year property, 36% of the basis.

Takeaway · Urban buildings with no yard still carry a lot of 5-year property inside the walls.

Figures from the Veritax Advisors Benefit Analysis and final study for each property. Cash benefit is the estimate’s median scenario at a 35% combined rate; actual tax savings depend on your return. Every property is different — get your own estimate.

Who it helps most

The deduction is the easy part. Using it is the plan.

Owners with rental income to offset. The deduction shelters rental profit first. Multiple properties, or a well-performing one, use it directly.
Real estate professionals. If you or your spouse qualify for real estate professional status, rental losses can offset other income, including a salary.
Short-term rental owners who materially participate. A short-term rental you actively run is treated differently from a passive rental, which is why bonus depreciation on a well-chosen STR can offset W-2 income. How the strategy works, and the thinking behind STR Prime.
Everyone else. Losses you can’t use this year carry forward. They aren’t lost; they wait for income, or for the sale.

Questions

Does bonus depreciation apply to the whole building?

No. Residential buildings depreciate over 27.5 years and commercial over 39, and bonus doesn't touch either. It applies to property with a recovery period of 20 years or less. In a rental that's the contents and the land improvements, and a cost segregation study is how those get identified and documented.

I bought in 2024. Did I miss it?

You're under the old schedule: 60% bonus for 2024 purchases, 80% for 2023. That's still a large first-year deduction, and if you've already filed without a study, a look-back study can catch up the missed depreciation on this year's return without amending old ones.

What about California?

California doesn't follow the federal bonus rules. On your state return the short-life property still depreciates over its normal schedule. Your estimate shows the federal benefit; your CPA will show you the state picture. Most of the savings for California owners is federal.

Is there a catch when I sell?

Depreciation you've taken is recaptured when you sell, taxed at rates that depend on the type of property. The strategy is about timing: a dollar deducted this year is worth more than a dollar deducted in 2045, and a 1031 exchange or holding the property can defer the recapture. Plan the exit with your CPA when you plan the purchase.

Do I need bonus depreciation to benefit from a cost segregation study?

No. Even without bonus, moving 20–40% of a building into 5- and 15-year classes front-loads the deductions substantially. Bonus makes it dramatic. With 100% back, it's the strongest it has ever been.

Find out what 100% bonus means for your property.

A free estimate shows the short-life property, the year-one deduction and the study fee side by side. Back within 48 hours.

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