Bonus Depreciation in 2025: What Changed for Real Estate Investors
The 2025 tax law made 100% bonus depreciation permanent for property acquired after January 19, 2025. Here is what that means, what still depends on your acquisition date, and how it works with cost segregation.
Bonus depreciation lets you deduct a large share of an eligible asset's cost in the first year instead of spreading it over its recovery period. For real estate investors it is the reason cost segregation can produce big first-year deductions.
What Is Bonus Depreciation?
Bonus depreciation is a tax incentive that allows businesses and real estate investors to deduct a percentage of the purchase price of eligible assets right away, rather than depreciating them over time.
For real estate investors using cost segregation, bonus depreciation applies to assets reclassified as 5-year, 7-year, and 15-year property. It does not apply to the building structure, which is depreciated over 27.5 years (residential rental) or 39 years (nonresidential).
What Changed in 2025
The Tax Cuts and Jobs Act of 2017 set bonus depreciation at 100% and then scheduled it to drop each year starting in 2023. Under that schedule the rate for property placed in service in 2025 would have been 40%.
The One, Big, Beautiful Bill changed this. It provides a permanent 100% additional first-year depreciation deduction for qualifying property acquired after January 19, 2025. The IRS issued Notice 2026-11 on January 14, 2026 to explain the rules. You can read the IRS announcement.
The IRS also notes that taxpayers may elect to deduct 40% instead of 100% for qualifying property placed in service during the first tax year ending after January 19, 2025.
What Still Depends on Your Acquisition Date
The date that matters is when you acquired the property. Property acquired on or before January 19, 2025 is not covered by the new permanent 100% rule, so an older, lower rate may apply to it. If you signed a binding purchase contract before January 20, 2025, ask your CPA which rate applies to you.
Other conditions also apply. For example, used property generally qualifies only if you did not use it before you acquired it. Your CPA will confirm eligibility.
An Example
Suppose you buy a rental property after January 19, 2025. The building basis is $400,000 and a cost segregation study moves $100,000 of it into 5, 7 and 15-year property.
- With 100% bonus depreciation, the $100,000 is deductible in year one.
- The remaining $300,000 is depreciated over 27.5 years, about $10,900 per year.
- Year-one depreciation is about $110,900, compared with about $14,500 for the whole building on straight-line depreciation.
Limits to Check Before You Count on the Deduction
- Passive activity rules. Rental losses are generally passive and may be limited against wages.
- State conformity. Many states do not follow federal bonus depreciation. Ask your CPA how your state treats it.
- Recapture on sale. Depreciation on the shorter-life property is generally recaptured as ordinary income when you sell at a gain, up to the amount claimed.
Already Own the Property?
If you bought or built a property in a prior year and never did a study, you can generally still claim missed depreciation without amending returns, by filing Form 3115 and taking a section 481(a) adjustment. Whether bonus depreciation applies to those assets depends on when you acquired them. See look-back cost segregation studies.
The Bottom Line
100% bonus depreciation is no longer scheduled to disappear for property acquired after January 19, 2025. That removes the pressure to buy or order a study by a deadline. The decision now rests on your property, your tax situation and your plans for holding it. For a full overview, read the complete guide to cost segregation.
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