Renovations are often better bonus depreciation candidates than the original purchase, because new spending after January 19, 2025 sits squarely in the permanent 100% regime under OBBBA. The route to the deduction depends on what the improvement is and what kind of building it sits in.
Route 1: qualified improvement property
Qualified improvement property under IRC section 168(e)(6) covers improvements to the interior of a nonresidential building placed in service after the building itself was. QIP is 15-year property and qualifies for bonus under IRC section 168(k). It excludes building enlargements, elevators and escalators, and internal structural framework. A $250,000 interior build-out of a dental office, new partition walls, ceilings, lighting, and finishes, is largely QIP and can be deducted in full at 100% in the year placed in service. Residential rental interiors do not get QIP treatment, which makes the next route matter.
Route 2: segregate the renovation itself
For any building type, including 27.5-year residential rentals, the components of a renovation can be classified individually. Appliances, carpet, window treatments, and removable cabinetry are 5-year property; new paving, fencing, drainage, and landscaping are 15-year land improvements under IRS Pub 946. All of it is bonus-eligible. What stays out: structural components such as a new roof, foundation work, exterior walls, and most plumbing and electrical serving the whole building remain in the 27.5-year or 39-year class. A new roof on a nonresidential building gets no bonus, though it can qualify for Section 179 expensing instead.
Route 3: the partial asset disposition
When a renovation rips out the old kitchen, roof covering, or HVAC, Reg 1.168(i)-8 lets you elect a partial asset disposition and deduct the remaining undepreciated basis of the components you removed, in the same year. This pairs naturally with a renovation-year cost segregation analysis, because the same cost detail supports both numbers.
Worked example
A fund spends $300,000 renovating a 12-unit residential building in 2026: $70,000 on appliances and in-unit finishes (5-year), $40,000 on parking and landscaping (15-year), and $190,000 on structural and building systems work (27.5-year). Bonus depreciation at 100% yields a $110,000 first-year deduction on the short-life spend, while the $190,000 depreciates over 27.5 years. A partial asset disposition on the demolished components adds whatever basis was left in them.
Caveats
Documentation decides everything here. Contractor invoices that lump the job into one line make classification hard; itemized bills make it clean. Improvements are tested for the acquisition-date rule by when the work begins, so renovations started after January 19, 2025 get the permanent 100% rate. And the deduction still has to clear the passive loss rules of IRC section 469 to land on your return. Amadae's cost segregation screen models renovation scenarios, and Amadae prepares the return, including the Form 3115 catch-up when prior-year improvements were misclassified.