Bonus Depreciation and Cost Segregation After the 2025 Tax Law Changes
Quick answer
Bonus depreciation after the 2025 tax law changes is generally 100% for eligible property acquired after January 19, 2025, and placed in service under the applicable rules. For real estate investors, this is not a deduction for an entire rental building: cost segregation identifies qualifying components that may be expensed immediately. The decisive questions are when the property was legally acquired, whether each component qualifies, and whether the resulting deduction can actually be used. The 2025 law restored a permanent 100% rate but did not erase earlier acquisition dates or passive-loss restrictions. See IRS Notice 2026-11 and IRC §168(k).
The change is consequential for buyers of existing apartment buildings, hotels, commercial properties and furnished rental homes. Yet comparing “2024 versus 2026” by the calendar alone gives wrong answers: a binding purchase contract signed before January 20, 2025 can control the bonus rate even when closing and rental operations happen later.
Bonus depreciation 2025: What changed on January 20
The bonus depreciation 2025 reform in Public Law 119-21, enacted July 4, 2025, amended §168(k) to restore 100% additional first-year depreciation for qualified property acquired after January 19, 2025. Earlier law was phasing the rate down. The change applies by acquisition and placed-in-service conditions, not by the date Congress signed the law or the date a cost segregation report arrives. For most eligible property, bonus depreciation applies automatically unless a valid election changes the result.
| Scenario | Typical bonus rate for eligible short-life asse | What to verify |
|---|---|---|
| 2024 acquisition; placed in service in 2024 | 60% | Original acquisition and service dates |
| Acquired January 1–19, 2025; placed in service in 2025 | 40% | Written binding contract and actual acquisition |
| Contract signed before Jan. 20, 2025; property placed in service in 2026 | Generally 20% | Pre-change contract and service date |
| Acquired after Jan. 19, 2025; placed in service in 2025 or 2026 | Generally 100% | Eligible property and used-property tests |
These are the general rates for ordinary qualified property, not special aircraft or long-production-period property. The old phase-down continues for relevant pre-January 20 acquisitions. Later construction, components and complex contracts require their own factual analysis. The IRS explains the transitional regime in IRS Notice 2026-11.
Why bonus depreciation 2025 depends on contract dates
Consider a buyer who signed a binding contract to acquire an apartment property on January 10, 2025, but closed and began renting in April 2025. A 2026 cost segregation study does not automatically make the acquired 5-, 7- and 15-year assets eligible for 100% bonus depreciation. The acquisition analysis may preserve the older rate. Contrast a similar purchaser who first entered a binding acquisition agreement in February 2025; qualifying components of that transaction may fall under restored 100% treatment.
A contract labeled “letter of intent” is not necessarily binding, and a closing after January 19 is not conclusive. Governing-law enforceability, conditions, cancellation rights and the applicable federal acquisition rules matter. Self-constructed improvements follow additional rules: taxpayers should retain construction agreements, work orders and evidence of when physical work began. Avoid reducing this issue to “which tax year was the property bought in?”
Bonus depreciation 2025 for used buildings
Another bonus depreciation 2025 opportunity is that a building need not be newly built. A taxpayer acquiring an existing income-producing property in a taxable transaction may acquire used furniture, appliances, removable specialty equipment and certain site improvements. Those assets may qualify for bonus depreciation even though the building itself was built decades earlier. Used-property requirements generally address prior use by the taxpayer, related-party transfers, carryover basis and other anti-abuse conditions.
A 30-year-old apartment building purchased in 2026 can therefore be economically more interesting for first-year depreciation than an older property already held by the same owner. The purchaser may have a new cost basis in qualifying components. By contrast, ordering a study in 2026 for property bought in 2022 ordinarily does not create a 2026 acquisition or switch the original bonus percentage to 100%.
This distinction is where Cost segregation services and calculator may help identify the amount worth analyzing; it is not a substitute for determining statutory eligibility.
A side-by-side $2 million acquisition example
Assume two unrelated investors separately buy comparable existing commercial properties for $2 million each, allocate $400,000 to land, and document $1.6 million of depreciable basis. Each supported study identifies $320,000 of qualifying shorter-lived assets. Investor A acquired and placed the property in service in 2024; Investor B acquires and places the property in service in 2026, without a pre-January 20, 2025 binding contract. Assume every identified short-lived component otherwise qualifies and neither investor elects out.
| Illustrative item | 2024 transaction | 2026 transaction |
|---|---|---|
| Short-life basis identified | $320,000 | $320,000 |
| Bonus depreciation percentage | 60% | 100% |
| Immediate bonus deduction | $192,000 | $320,000 |
| Difference in immediate bonus | $128,000 less | $128,000 more |
The bonus depreciation 2025 comparison illustrates why the $128,000 difference is the incremental first-year bonus amount, not total depreciation difference or immediate income-tax savings. Investor A also takes regular MACRS depreciation on the unbonused $128,000; building depreciation continues separately in both cases. If Investor B is in a 35% marginal bracket and can use the additional deduction currently, $128,000 multiplied by 35% is $44,800 before other tax effects—an intentionally simplified ceiling-style illustration, not a promised refund. The true 2024-versus-2026 annual tax-return comparison also requires regular MACRS, marginal brackets, §469 and sale assumptions.
Why 100% bonus is not always the best election
Bonus depreciation 2025 does not require maximum expensing in every case. Section 168(k) generally permits an election out for one or more classes of qualified property. For the first taxable year ending after January 19, 2025, a separate transitional election under §168(k)(10) can permit 40% bonus depreciation instead of 100% for qualifying property (60% for specified categories). This is not a standing annual election to choose any desired percentage. The exact available election depends on the relevant tax year and property.
A full immediate write-off can waste economic value where losses are suspended, where deductions fall into unusually low brackets, or where income is expected to rise. Conversely, it can be valuable where eligible deductions offset high-rate income today. A property-by-property cash-flow model needs to distinguish the elective bonus depreciation decision by asset class from a decision to commission a cost segregation study. IRS Publication 946 explains the elections and reporting framework.
Three 2025-law traps for owners and tax preparers
The report date is not the acquisition date
An engineer may complete a study in 2026 for property first placed in service in 2021. If the original classifications were incorrect, an accounting-method change may allow a catch-up §481(a) adjustment under applicable procedures, frequently using Form 3115. But that adjustment reflects the historical recovery method and historical bonus rate; it does not transform old assets into newly acquired 100%-eligible property. Check IRS Form 3115 instructions before assuming automatic consent or a particular filing method.
A short-term stay does not make the building bonus-eligible
A furnished vacation property may generate separate shorter-lived assets, but a seven-day average guest stay is a §469 rental-activity classification question. It does not convert a building into five-year property under §168. Likewise, cost segregation does not make suspended passive losses immediately usable against wages. See IRS Publication 925 and our article on Cost segregation savings and passive losses.
A §163(j) election can change the depreciation result
Certain real property trades or businesses may elect out of the business-interest limitation under §163(j), generally with an associated requirement to use the alternative depreciation system (ADS) for specified real-property categories. Property required to use ADS generally is not eligible for §168(k) bonus depreciation. Acquisition, interest-expense and depreciation elections should therefore be modeled together rather than assigned to separate advisors without coordination.
What makes a cost segregation analysis defensible in 2026?
Bonus depreciation 2025 puts more economic weight on asset classification. Distinguishing removable equipment from structural components requires evidence: acquisition records, building plans, photographs, invoices, construction cost data and reasoned functional analysis. Percentages from marketing calculators are screening estimates, not tax basis allocations. The IRS Cost Segregation Audit Technique Guide discusses study quality, reconciliation and common examination issues; the guide itself is not binding law.
Miami Tax & Tech maintains a strategic alliance with KBKG, under which KBKG may perform technical services for mutual clients while Miami Tax & Tech coordinates the tax-planning and implementation issues. The engagement and the applicable responsibilities are defined for each project. The central objective is a supportable return position, not simply the largest depreciation line on a report.
When should a real estate investor act?
Before acquisition, preserve the actual dates and documents establishing whether a binding obligation was entered into; review the expected asset mix and potential used-property issues. At placed-in-service, retain evidence of the business use and occupancy date. Before filing, reconcile the completed study to purchase accounting and evaluate asset-class elections, passive activity position, basis and at-risk limitations, and projected dispositions. Delaying the study can still leave options, but it cannot rewrite the transaction history.
For owners with multiple buildings, a rolling acquisition plan may produce a more useful tax result than a single maximal deduction: an additional acquisition may generate new depreciable basis, while suspended losses, recapture, interest and financing make the overall portfolio return highly fact-dependent. The tax choice should follow the investment economics, not drive an otherwise uneconomic real estate purchase.
Frequently asked questions
Does bonus depreciation after 2025 apply to the entire purchase price?
No. Land is not depreciable, and ordinary residential and nonresidential buildings generally have recovery periods longer than 20 years. Eligible components identified through a defensible study may qualify; the whole building ordinarily does not.
Can I obtain 100% bonus for a building purchased in 2024 by ordering a study in 2026?
Not merely by changing the study date. A later method correction generally follows the original acquisition and placed-in-service rules, including the applicable historical bonus percentage.
Can I buy a used apartment building in 2026 and claim 100% bonus?
Potentially for eligible short-life components, subject to the used-property and acquisition requirements. This is different from deducting the residential building structure itself immediately.
Can cost segregation offset salary or business profits?
Only when the depreciation deduction is currently usable under the taxpayer’s activity classification and applicable limits. Long-term rental losses generally are passive under IRC §469. Specific exceptions require factual evidence, not merely a large cost segregation report.
Should I automatically take 100% bonus if available?
No. Compare the present value of deductions across years, current and future marginal rates, carryforwards, state conformity, other elections and expected sale taxation. A larger deduction today is not always the best lifetime result.
The changed law creates an opportunity, not a substitute for planning
The bonus depreciation 2025 reform materially changes the timing of tax recovery for qualifying components of newly acquired real estate—including many used-property purchases. But the most valuable question is whether the taxpayer can turn an accelerated deduction into an economically worthwhile, documented tax result. Miami Tax & Tech combines real estate depreciation analysis with Miami Tax & Tech tax planning, including technical study coordination through its KBKG strategic alliance. Explore our Cost segregation services and calculator to begin a property-specific assessment.
Primary legal authorities and further reading
- I.R.C. §§ 167, 168(k), 168(k)(10), 179, 163(j), 446(e), 469, 481(a), 1245, 1250; Pub. L. No. 119-21, § 70301, 139 Stat. 72 (2025).
- Treas. Reg. §§ 1.168(k)-2, 1.48-1(c), (e), 1.469-1T(e)(3), 1.469-5T.
- I.R.S. Notice 2026-11, 2026-6 I.R.B.; Internal Revenue Service, Publication 946, How To Depreciate Property; Publication 5653, Cost Segregation Audit Technique Guide (Feb. 2025); Instructions for Form 3115.
- Hospital Corp. of Am. v. Commissioner, 109 T.C. 21 (1997); Whiteco Indus., Inc. v. Commissioner, 65 T.C. 664 (1975); AmeriSouth XXXII, Ltd. v. Commissioner, T.C. Memo. 2012-67.
About the author
Oleg Shmal is a New York-admitted attorney, IRS Enrolled Agent and LL.M. in Taxation graduate of the University of Florida, with prior Big Four tax leadership experience. Oleg Shmal is an Associate Member of the American Society of Cost Segregation Professionals (ASCSP), Associate Member #A029-26. ASCSP is a professional organization committed to establishing the technical and ethical standards for the cost segregation industry through education, testing and certification. See Oleg Shmal professional profile and the American Society of Cost Segregation Professionals.
This article provides general educational information as of October 2026, not individualized tax or legal advice. Results depend on acquisition dates, classification evidence, elections, tax return limitations, and applicable law.