One of the biggest tax law changes for real estate investors in years is now in effect: 100% bonus depreciation is back for qualifying property placed in service after January 19, 2025, thanks to the One Big Beautiful Bill Act (OBBBA). If you're planning a purchase, or you closed on a property recently, this is worth understanding before you file.
A Quick Recap: What Bonus Depreciation Does
Bonus depreciation lets you deduct a large percentage of the cost of qualifying property in the year it's placed in service, rather than spreading that deduction out over many years. It had been phasing down — 80% in 2023, 60% in 2024, 40% in 2025 under prior law — on a path to disappearing entirely. OBBBA reset that clock, restoring 100% bonus depreciation for qualifying assets acquired and placed in service after January 19, 2025.
Where Cost Segregation Comes In
Bonus depreciation only applies to property with a recovery period of 20 years or less — things like land improvements, certain electrical and plumbing components tied to specific equipment, carpeting, and other shorter-life assets. The building structure itself (with its 27.5- or 39-year life) doesn't qualify.
That's exactly the gap cost segregation fills. A cost segregation study identifies which components of your property fall into those shorter recovery periods — and with 100% bonus depreciation back, every dollar reclassified that way can potentially be deducted immediately instead of over 5, 7, or 15 years.
Timing Still Matters
To benefit from the current 100% rate, property generally needs to be placed in service after January 19, 2025. Property placed in service earlier falls under the older, lower bonus percentages. If you're in the middle of a purchase or a renovation, the placed-in-service date is worth planning around.
One Caveat: Passive Activity Loss Rules
Large first-year deductions are powerful, but they're still subject to passive activity loss limitations for investors who don't qualify as real estate professionals. Depending on your income and how actively you're involved in the property, some or all of the loss may be suspended until you have passive income to offset it, or until you sell. This doesn't eliminate the benefit — it just means the "when" of the deduction depends on your specific tax situation.
If you're planning a purchase or have recently placed a property in service, a cost segregation study paired with current bonus depreciation rules could be one of the more impactful tax moves available to you this year.