With 100% bonus depreciation officially back under the new tax law, real estate investors have a powerful incentive to revisit cost segregation studies — especially for properties placed in service after January 19, 2025.
This change creates an opportunity to front-load depreciation deductions in a way that offsets passive income, or even ordinary income if you qualify as a real estate professional.
What’s Bonus Depreciation?
Bonus depreciation allows you to immediately deduct the cost of qualifying property — rather than spreading the deduction out over decades.
Under the new law:
60% bonus applies to assets placed in service January 1–19, 2025
100% bonus applies to assets placed in service after January 19, 2025
Applies to components with a useful life of 20 years or less (think: flooring, cabinets, wiring, HVAC zones, appliances, etc.)
Why Cost Segregation Matters More Than Ever
Without a cost segregation study, most commercial and residential rental property is depreciated over:
27.5 years (residential rental)
39 years (commercial property)
But with a properly performed cost segregation analysis, you can break out components like:
Carpets, flooring, wall coverings
Landscaping, parking lots, fencing
Electrical and plumbing systems tied to equipment
These shorter-lived assets (5, 7, or 15 years) can now be fully deducted in year one under bonus depreciation — as long as they were placed in service after Jan 19.
Strategy: Pair Bonus Depreciation with Passive Income or REP Status
Here’s where it gets powerful:
If you’re a passive investor, bonus depreciation can offset other passive income — rental income, K-1s, etc.
If you’re a real estate professional, it can offset any income — including wages or business income.
That makes a cost segregation study one of the most tax-efficient moves you can make in 2025–2026 if you’re acquiring, building, or renovating.
Real Example
You purchase a $1.2M residential rental in February 2025. With a cost segregation study, you identify:
$150,000 in 5-year property (appliances, flooring)
$50,000 in 15-year property (land improvements)
Under 100% bonus depreciation:
You deduct $200,000 immediately in 2025
That deduction offsets passive income — or all income if you’re a REP
Without cost segregation, that same $200K would be spread over decades.
Final Thoughts
The return of full bonus depreciation means it’s time to:
Review acquisitions made after Jan 19
Consider a cost seg study for any property over ~$500,000
Maximize deductions while they're available (the provision is permanent — but tax rates and REP rules could change)
Want help modeling the benefit or reviewing your eligibility as a real estate professional? Let’s talk. This is one of the most powerful planning tools available right now.