100% Bonus Depreciation FAQ

When you acquire a rental property, qualifying components (identified via cost segregation) can be deducted entirely in Year 1 under 100% bonus. The remaining depreciable basis follows standard MACRS schedules. This accelerates deductions significantly compared to straight-line depreciation.

Yes. Under OBBBA, used property qualifies for 100% bonus depreciation if you meet requirements: purchased from an unrelated party, never used by you before, and basis isn't carried over from prior ownership.

Savings depend on property cost, land allocation, and reclassification percentage. A $2M acquisition with 35% reclassified and 37% tax rate could yield $180K+ in Year 1 tax savings. Use the bonus depreciation calculator to estimate your specific property's benefit.

Typically yes. Cost segregation studies cost $3K - $8K but usually generate $100K - $500K+ in extra Year 1 deductions (depending on property size). ROI is often 20 - 50x the study cost, making it highly worthwhile for real estate investors.

Yes. Timing matters, once you place the investment property in service, bonus depreciation eligibility is locked. Consult your CPA to ensure qualification under current rules.

Bonus depreciation is subject to recapture at ordinary income rates when you sell. You'll owe tax on the recapture amount. However, the cash flow and tax deferral benefit during ownership typically outweigh recapture liability at sale.

Report bonus depreciation on Form 4562 (Depreciation and Amortization). If claiming bonus, you must attach a statement explaining the property's acquisition date, basis, and bonus percentage. Your CPA or tax professional handles this; IRS-defensible cost segregation studies provide required documentation.

No. Bonus depreciation exists independent of cost segregation. However, cost segregation amplifies bonus benefits by identifying shorter-life components. Most serious investors combine both to maximize deductions and ROI.

Section 179 has annual limits and applies to personal property. Bonus depreciation has no annual limit and applies to real estate improvements. Bonus is generally better for large real estate acquisitions; Section 179 works for equipment.

Yes. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently restored 100% bonus depreciation for property placed in service after January 19, 2025. This removes uncertainty from prior phase-out schedules.

Yes, but with nuance. Qualified leasehold improvement property (QLIP) qualifies for 100% bonus if it's a real property improvement to an existing building and placed in service after January 19, 2025. Consult your CPA on whether your improvements qualify.

Yes. Equipment, machinery, and personal property within a building can qualify separately for bonus depreciation. Cost segregation identifies these components. A restaurant's kitchen equipment or a factory's machinery qualifies for 100% bonus.

QIP qualifies for 100% bonus depreciation (Prior to the OBBBA it was excluded). This includes interior walls, flooring, lighting, HVAC systems, and other building components. Cost segregation studies precisely identify QIP for maximum benefit.

Yes. Property you construct yourself qualifies for bonus depreciation if built and placed in service after January 19, 2025. The acquisition date is when you pay or incur more than 10% of total construction costs. Self-construction can maximize bonus benefits.

You can elect to claim less bonus (instead of 100%) or opt out entirely by property class. Elections are made on your tax return and must be consistent across all properties in that class for the year. Consult your CPA on whether bonus makes sense for your tax situation.

No. For used property, the placement-in-service date must be after January 19, 2025, to qualify for 100% bonus. Properties placed in service before that date follow prior-year rules. New property had different phase-out percentages before the OBBBA.

Depreciation actually helps with Section 163(j) limits. It's added back to calculate taxable income, which can increase your allowable interest deduction ceiling. More depreciation can mean more deductible interest, benefiting leveraged investors.

Not automatically. Federal bonus depreciation doesn't always flow to state returns. Some states follow federal rules; others have their own depreciation schedules. Check your state's treatment and consult a CPA familiar with your state's tax code.

Yes. You can claim bonus depreciation on the new property acquired through a 1031 exchange (if placed in service after January 19, 2025). This allows you to defer capital gains while accelerating depreciation deductions.