Bonus depreciation under IRC section 168(k) allows a full first-year deduction for qualified property instead of spreading the cost over 5, 7, or 15 years. The One Big Beautiful Bill Act, signed in July 2025, made the 100% rate permanent for qualified property acquired after January 19, 2025. For a real estate investor, the rule matters because the building itself never qualifies; only the short-life property that a cost segregation study carves out of the purchase price does.
What counts as qualified property
Under IRC section 168(k)(2), qualified property is MACRS property with a recovery period of 20 years or less. In a rental or commercial building that typically means:
- 5-year property: appliances, carpet, decorative lighting, cabinetry that is not structural
- 7-year property: office furniture and certain equipment
- 15-year property: land improvements such as paving, fencing, sidewalks, and landscaping
- Qualified improvement property under IRC section 168(e)(6), a 15-year class for interior improvements to nonresidential buildings
Residential buildings (27.5-year) and nonresidential buildings (39-year) are excluded. Used property qualifies if it meets the first-use-by-you acquisition tests of IRC section 168(k)(2)(E)(ii): you never used it before, you did not buy it from a related party, and you did not take a carryover basis. Property is placed in service when it is ready and available for its intended use, per IRS Pub 946.
Acquisition date controls the rate
Property acquired after January 19, 2025 gets 100% permanently. Property acquired on or before that date stays on the TCJA phase-down by placed-in-service year: 80% for 2023, 60% for 2024, and 40% for 2025 placements. A written binding contract fixes the acquisition date, so a contract signed January 10, 2025 that closes in March 2025 remains on the 40% schedule even though closing happened after the cutoff.
Worked example
Say a fund buys a duplex for $750,000 in June 2026, with $150,000 allocated to land. The depreciable basis is $600,000. An engineering-based cost segregation study allocates $90,000 to 5-year property and $60,000 to 15-year land improvements, a total of $150,000 of qualified property. At the permanent 100% rate, the fund deducts $150,000 in year 1, plus about $8,864 of regular 27.5-year depreciation on the remaining $450,000 building portion under the mid-month convention. Without the study, first-year depreciation would have been roughly $11,818 on the full $600,000.
When the rules do not help
Bonus depreciation creates a deduction, not automatic savings. The passive activity rules of IRC section 469 can suspend the loss unless you qualify as a real estate professional or materially participate in a short-term rental. Several states decouple from IRC section 168(k) and require an addback. Related-party purchases and inherited property fail the acquisition tests. And you can elect out by asset class under IRC section 168(k)(7) when taking the deduction now is the wrong move.
Amadae's cost segregation screen models the reclassification and first-year benefit before you pay for an engineering study, and Amadae prepares and files the return that claims the deduction. Amadae does not perform the engineering study itself; it coordinates with firms that do.