Bonus depreciation lets businesses deduct the full cost of qualifying property in the year it's placed in service. Under the One Big Beautiful Bill Act, signed July 4, 2025, bonus depreciation is permanently 100% for property acquired after January 19, 2025. It covers new and used property with a recovery period of 20 years or less, with no dollar cap.
This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.
The current rule in one sentence
If you acquire and place in service qualifying property after January 19, 2025, you can generally deduct 100% of its cost in the first year, and that rule has no scheduled end date.
What property qualifies?
| Qualifies | Doesn't qualify |
|---|---|
| Equipment, machinery, vehicles (with limits on passenger cars) | Land |
| Furniture, appliances, carpet (5- and 7-year property) | Residential rental buildings (27.5-year) |
| Land improvements like paving, fencing, landscaping (15-year) | Commercial buildings (39-year) |
| Qualified improvement property (interior improvements to commercial buildings) | Property bought from a related party |
| Off-the-shelf computer software | Property used mostly outside the U.S. |
| Used property, if you never used it before | Property you previously used |
The big takeaway for real estate owners: buildings don't qualify, but many parts of them do. That's why bonus depreciation and cost segregation go together.
How we got here: a short history
| Period | Bonus rate |
|---|---|
| Sept 28, 2017 – 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 (acquired before Jan 20, 2025) | 40% |
| 2026 (acquired before Jan 20, 2025) | 20% |
| Acquired after Jan 19, 2025 | 100%, permanent |
The acquisition date controls. Property under a binding contract before January 20, 2025, stays on the old phase-down schedule even if placed in service later.
Bonus depreciation vs. Section 179
Both let you deduct costs upfront, but they work differently:
| Feature | Bonus depreciation | Section 179 |
|---|---|---|
| Dollar limit | None | $2.5 million for 2025 (indexed), phasing out after $4 million of purchases |
| Can create a loss? | Yes | No, limited to business income |
| Opt in or out? | Automatic, but you can elect out by asset class | You choose asset by asset |
| Residential rental property items | Generally allowed | Generally not allowed for lodging property |
Many owners use both: Section 179 for flexibility on specific items, bonus for everything else.
How to use bonus depreciation on real estate
- Get a cost segregation study to identify the 5-, 7-, and 15-year parts of your building.
- Confirm the acquisition date to know if you get 100% or a lower rate.
- Decide whether to take it. Sometimes spreading deductions over time is smarter, for example if you're in a low bracket now.
- Check your state. Many states don't follow federal bonus depreciation.
- Plan for recapture when you eventually sell.
When you might elect out
- You expect to be in a much higher tax bracket in future years
- You can't use the losses now because of passive activity limits
- You want to avoid a net operating loss for other reasons
- State tax differences make tracking two schedules a headache
Frequently asked questions
Is 100% bonus depreciation really permanent?
Does bonus depreciation apply to used property?
Can I take bonus depreciation on a rental house?
See what your property may qualify for
Run our 2-minute STR Qualification Quiz or model your Low / Mid / High cost segregation range.
Related guides
What Is Bonus Depreciation? A Simple Explanation
Bonus depreciation lets you deduct the full cost of qualifying business property in year one. Here's what it is, how it works, and a simple example.
Read guideBonus Depreciation 2025: The 40% vs. 100% Split Explained
In 2025, bonus depreciation is 40% or 100% depending on when you acquired the property. See the January 19 cutoff, examples, and what to do before you file.
Read guideWhat Is a Cost Segregation Study? How It Works, Costs, and Savings
Learn what a cost segregation study is, how engineering reports reclassify 5-, 7-, and 15-year property for 100% bonus depreciation, and who benefits most.
Read guideAccelerated Depreciation Explained: Methods, Pros, and Cons
Accelerated depreciation lets you deduct more of an asset's cost early. Learn the main methods, how they compare to straight-line, and when it makes sense.
Read guideThis content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.