Bonus depreciation is what happens when Congress gives certain deductions permission to cut the line.
The property did not become more profitable. Rent did not rise. Insurance did not fall. Bad debt did not apologize. A qualified property’s depreciation deduction may simply move forward, sometimes into the first year.
That timing can be valuable. It can also create a loss the taxpayer cannot currently use and a lower adjusted basis waiting at sale. The calendar advanced the deduction, not the economics.
This is general tax education, not tax, legal, accounting, or investment advice. The taxpayer’s CPA must apply the property rules, dates, elections, limitations, entity allocations, and state law to the actual facts.
Start with the regular schedule
Depreciation normally recovers depreciable basis over a statutory period after property is placed in service, meaning ready and available for its intended income-producing use. Land is not depreciable. Residential rental buildings generally use 27.5-year straight-line depreciation; nonresidential buildings generally use 39 years.
Bonus depreciation is an additional first-year allowance, generally calculated after any Section 179 deduction and before regular MACRS depreciation. The building itself usually does not qualify because 27.5 and 39 years are longer than the 20-year-or-less recovery-period test. That is why somebody says “bonus depreciation” and a cost-segregation vendor appears before the sentence ends.
Cost segregation can identify components using 5-, 7-, or 15-year recovery periods instead of the building’s 27.5 or 39 years. Those shorter-life assets may satisfy the 20-year-or-less test if every other requirement is met. Classification is the gate; enthusiasm is still waiting outside.
Two dates hold the stamp
Current IRS guidance reflects the 2025 statutory change: qualifying property acquired after January 19, 2025, and placed in service after that date generally receives a 100% additional first-year depreciation deduction unless the taxpayer makes an applicable election. Qualified property generally includes tangible MACRS property with a recovery period of 20 years or less, certain computer software, water utility property, and several specialized production categories. New property and certain used property can qualify.
Both dates matter. A signed purchase agreement, closing date, invoice, delivery record, installation date, and “ready for use” date are not synonyms sharing office space. The file must prove acquisition and placed-in-service facts separately.
The old phase-down still matters because older assets and transition facts do not evaporate after a statutory change:
| Prior-law placed-in-service year | General bonus percentage |
|---|---|
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027 and later | 0% |
That was the general pre-change schedule. It is not the default answer for eligible property acquired after January 19, 2025. IRS Publication 527 says property placed in service from January 1 through January 19, 2025, or acquired before January 20, 2025 and placed in service later, remains subject to prior-law transition rules. Publication 946 and the Form 4562 instructions carry the detailed elections and date tests.
There is also a transition election for the first tax year ending after January 19, 2025 that can substitute the prior 40% allowance for certain otherwise 100%-eligible property, with a different percentage for specified long-production-period property and aircraft. “Bonus is 100% now” is a slogan. A tax memo keeps the dates and elections attached.
The study cannot classify by optimism
A building purchase begins with basis allocated among land, the building, and other assets. A defensible cost-segregation report connects its classifications to site inspection, construction records, plans, invoices, cost data, legal authorities, and an asset-level depreciation schedule. The IRS audit guide emphasizes methodology and substantiation, although the guide itself is not a legal ruling.
The study is the bridge between one acquisition price and multiple tax lives. If it cannot show how each dollar crossed, the bridge is decorative.
Put 100% beside 40%
Assume an apartment property is acquired for $10,000,000 and placed in service after January 19, 2025:
- Land allocation: $2,000,000
- Total depreciable basis before the study: $8,000,000
- Cost-segregated 5-, 7-, and 15-year components: $1,600,000
- Remaining residential building basis: $6,400,000
If all $1,600,000 of shorter-life property is qualified and 100% bonus applies, the potential bonus deduction is $1,600,000. The remaining $6,400,000 building basis stays on its regular residential schedule. A simple annual division produces about $232,727, although the actual first-year building deduction depends on the mid-month convention and the month placed in service.
For comparison, a 40% bonus assumption on the same $1,600,000 pool would produce a $640,000 bonus deduction. The remaining $960,000 does not vanish; it continues through regular MACRS schedules for those component classes. The immediate bonus difference between the two assumptions is $960,000.
That $960,000 is a deduction-timing difference. It is not $960,000 of cash, and it is not a guaranteed tax saving. Basis, at-risk limits, passive-activity rules, business-interest rules, entity allocations, elections, taxable income, and state conformity can change when or whether a taxpayer uses the loss.
Bonus can move the deduction into year one. It cannot force the taxpayer through every limitation standing between the K-1 and the return.
Rebuild the number from the file
A credible bonus-depreciation number should survive a trip through these records:
- purchase agreement, closing statement, and acquisition-date support;
- land and building basis allocation;
- placed-in-service records for the property and major components;
- final cost-segregation report and asset detail;
- construction invoices, fixed-asset ledger, and improvement records;
- Form 4562 and the full depreciation schedule;
- any election out of bonus or transition election;
- K-1 footnotes explaining each investor’s allocated tax items.
If the model says “100% bonus” but cannot name the property class, acquisition date, placed-in-service date, and election posture, the model brought a headline to a date audit.
Trace the pool from the study into Form 4562. Confirm which assets received bonus, which continued under regular MACRS, and how federal treatment differs from the state schedule. Then carry the reduced adjusted basis into the disposition model. Early deductions do not leave the ledger; they leave fingerprints.
The CPA owns the final answer
PRSE can teach the shape of the timing rule and show where the evidence belongs. The taxpayer’s CPA determines eligibility, class lives, elections, limitations, partnership allocations, amended-return or accounting-method issues, and state treatment. Tax counsel belongs in the room when acquisition contracts, related-party rules, entity transactions, or disputed classifications make the facts legal rather than mechanical.
Ask one clean question: “Which assets make up the bonus number, which rule qualifies each one, and where does that amount appear on Form 4562 and the depreciation schedule?”
Congress can move the departure board. Your asset still needs the right class, the right dates, the right election posture, and a CPA willing to sign the return.
Sources
PR Steinfurth Equity provides educational information only. Nothing on this website is an offer to sell or a solicitation of an offer to buy any security, nor investment, legal, or tax advice. Any securities offering is made only to qualified investors through official offering documents. Real estate investments involve risk, including possible loss of principal. Past performance is not indicative of future results.