Bonus Depreciation in 2025: What Real Estate Investors Need to Know
With bonus depreciation phasing out, 2025 may be your last chance to maximize tax savings. Here's what you need to know about the current rules and how to take advantage.
Bonus depreciation has been a game-changer for real estate investors, allowing first-year write-offs that were previously impossible. But with the phase-out in full swing, 2025 is a critical year for property owners to act.
What Is Bonus Depreciation?
Bonus depreciation is a tax incentive that allows businesses and real estate investors to immediately deduct a large percentage of the purchase price of eligible assets, 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.
The Bonus Depreciation Phase-Out Schedule
The Tax Cuts and Jobs Act of 2017 introduced 100% bonus depreciation, but this benefit is being phased out:
| Year | Bonus Depreciation Rate |
|---|---|
| 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027+ | 0% |
Real-World Impact: 2025 vs. 2024
Let's look at a practical example. Assume a cost segregation study identifies $600,000 in personal property eligible for bonus depreciation:
2024 (60% Bonus):- Immediate deduction: $360,000
- Remaining $240,000 depreciated over asset lives
- Immediate deduction: $240,000
- Remaining $360,000 depreciated over asset lives
At a 37% tax rate, that's approximately $44,400 less in immediate tax savings compared to 2024.
Why 2025 Is Still Worth It
Despite the reduced rate, 2025 bonus depreciation is still incredibly valuable:
1. $240,000 Is Still Significant
Using our example, a $240,000 immediate deduction at 37% tax bracket = $88,800 in tax savings
2. Better Than Nothing
Without bonus depreciation at all (2027+), you'd only get standard depreciation of about $40,000 in year one for the same assets.
3. Carries Forward
Depreciation you don't claim this year carries forward—meaning the benefit isn't lost, just spread out.
Strategies to Maximize 2025 Bonus Depreciation
Close Transactions Before Year-End
Properties must be placed in service in 2025 to qualify for 2025 bonus depreciation rates. If you're acquiring property, aim to close before December 31, 2025.
Consider Cost Segregation for Older Properties
Even if you've owned a property for years, you can still do a "look-back" cost segregation study and claim missed depreciation (called a "catch-up" adjustment).
Pair with Section 179
Section 179 allows an additional first-year deduction for qualifying assets. Combined with bonus depreciation, this can maximize your write-offs.
Plan for State Taxes
Not all states conform to federal bonus depreciation rules. Consult with your tax advisor about your specific state's treatment.
What Happens After Bonus Depreciation Ends?
When bonus depreciation expires in 2027, cost segregation will still be valuable:
- Standard accelerated depreciation over 5, 7, and 15 years still beats 27.5 or 39-year straight-line depreciation
- Time value of money: Earlier deductions are worth more than later ones
- Cash flow benefits: Accelerated depreciation improves cash flow in early ownership years
Action Items for 2025
The Bottom Line
While 40% bonus depreciation in 2025 isn't as generous as the 100% we enjoyed a few years ago, it's still a powerful tax planning tool. More importantly, it may be one of the last years to take advantage of this benefit before it disappears entirely.
Lock In Your 2025 Bonus Depreciation Now
Time is running out on bonus depreciation benefits. Our platform calculates your cost segregation savings in minutes, so you can act fast and capture every dollar of accelerated depreciation before rates drop further.
Start Your Free Analysis →Add your property and see your potential first-year tax savings instantly—while 40% bonus depreciation is still available.
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