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Tax-Advantaged Strategies
Restored: One Big Beautiful Bill
Business & Real Estate Tax Strategy

Bonus Depreciation

IRC §168(k) allows qualifying property to be fully expensed in the year it is placed in service, converting what would be a 5-, 7-, or 15-year depreciation schedule into an immediate, first-year deduction. One Big Beautiful Bill restored this 100% rate for property placed in service after January 19, 2025.

The Legislative History You Need to Know

Bonus depreciation was introduced by the Job Creation and Worker Assistance Act of 2002, sporadically modified, and then dramatically expanded to 100% by the Tax Cuts and Jobs Act of 2017 (TCJA). Under TCJA, however, the 100% rate was temporary: it began phasing down at 20% per year starting in 2023.

That phase-down created a race against time. Property placed in service in 2024 qualified for only 60% bonus depreciation; 2025 was scheduled to drop to 40%. One Big Beautiful Bill, enacted in 2025, reversed this trajectory entirely, restoring the bonus depreciation rate to 100% for property placed in service after January 19, 2025.

For business owners and real estate investors, this is one of the most significant tax developments in years: a strategy that was expiring has been restored by legislation.

Tax YearBonus Dep. Rate (TCJA)Rate After One Big Beautiful Bill
2022100%100%
202380%80%
202460%60%
2025 (post-Jan 19)40% (scheduled)100% ✓
2026+20% / 0%100% ✓

Qualifying Property: What Applies

Tangible Personal Property (5- & 7-Year)

Equipment, machinery, computers, vehicles, furniture, and fixtures with MACRS lives of 20 years or fewer. This is the broadest and most commonly claimed category for business owners.

15-Year Land Improvements

Landscaping, parking lots, sidewalks, fencing, and outdoor lighting appurtenant to a building. Reclassified via cost segregation, these qualify for immediate 100% expensing.

Qualified Improvement Property (QIP)

Interior, non-structural improvements to nonresidential buildings placed in service after the building's placed-in-service date. The CARES Act corrected QIP to 15-year property, making it eligible for bonus depreciation.

Used Property

Unlike pre-TCJA law, used property now qualifies for bonus depreciation, provided the taxpayer or a predecessor hasn't previously used the property and the property wasn't acquired from a related party.

What Does Not Qualify

The structural components of a building (39-year commercial, 27.5-year residential) do not qualify for bonus depreciation as-is. Nor does land. Real property that would qualify (5/7/15-year components) must first be identified through a cost segregation study. Additionally, property used in certain regulated utility trades, property used outside the U.S., and property for which the taxpayer elected out of the uniform capitalization rules in certain circumstances may not qualify.

Illustrative Examples

Example A: Manufacturing Business
Equipment purchased and placed in service (2025)$800,000
Normal depreciation (7-year MACRS, year 1)$114,320
100% bonus depreciation (full immediate deduction)$800,000
Incremental deduction$685,680
Tax savings @ 37% federal (year 1)~$253,700 additional
Example B: Real Estate, Cost Seg + Bonus Dep
Commercial property acquisition cost$6,000,000
Cost seg reclassification (25% of basis)$1,500,000
100% bonus dep on reclassified portion$1,500,000 (year 1)
Remaining 39-year basis$4,500,000 / 39 yrs
Combined year 1 depreciation~$1,615,385
Tax savings @ 37% (if REPS qualified)~$597,692

The Strategies That Make Bonus Depreciation Most Powerful

+ Cost Segregation

Bonus depreciation doesn't apply to the building itself, but it applies in full to components reclassified through a cost segregation study. Together, the two strategies are multiplicative: cost seg identifies what qualifies; bonus dep makes it all deductible immediately.

Cost Segregation Guide

+ Real Estate Professional Status

Without REPS, the large losses generated by bonus depreciation on real estate are passive, deferred until you have passive income or sell. REPS converts them into active deductions usable against all income in the current year. This is the difference between a 10-year carry and an immediate tax check.

REPS Qualification

Is Bonus Depreciation the Right Move for You?

Business owners purchasing significant equipment, machinery, or technology in 2025
Real estate investors acquiring commercial or mixed-use property with a cost segregation study
Investors in the 24%+ federal bracket where the acceleration of deductions produces meaningful present-value savings
Taxpayers with passive income seeking to offset it through real estate losses
Real estate professionals (REPS) seeking to offset wage or business income with real property losses
Business owners considering whether to lease vs. buy, 100% bonus depreciation often tips the math decisively toward ownership

Frequently Asked Questions

Is 100% bonus depreciation still available in 2025 and beyond?
Yes. One Big Beautiful Bill restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. Under prior law (TCJA), bonus depreciation was phasing down at 20% per year (80% in 2023, 60% in 2024, 40% in 2025). The legislation reverses this phase-down and restores 100% expensing under current law.
What property qualifies for 100% bonus depreciation?
Qualifying property includes: tangible personal property with a MACRS recovery period of 20 years or less (5-year, 7-year, 15-year classes), certain film, television, and theatrical productions, computer software, and qualified improvement property (QIP, interior improvements to nonresidential buildings). The property must be new or used (used property became eligible under TCJA) and meet the original use or acquisition requirements under §168(k)(2).
Can bonus depreciation create a loss, and can that loss be used?
Yes, bonus depreciation can create or increase a net operating loss (NOL). Under current law, NOLs can be carried forward indefinitely and used to offset up to 80% of taxable income in future years (§172). For real estate professionals (REPS) who have unlocked the passive activity exception, the loss offsets ordinary income in the current year. For other passive investors, the loss is suspended until offset by passive income or on disposition.
How does bonus depreciation interact with the §179 expensing election?
Both §179 (dollar-amount cap, currently $1.22M in 2024) and §168(k) bonus depreciation allow immediate expensing, but they operate differently. §179 is limited by taxable income from active business (cannot create a loss), applies only to business property, and must be elected. Bonus depreciation has no dollar cap, can create a loss, applies more broadly, and applies automatically unless the taxpayer affirmatively elects out. For large real estate acquisitions, bonus depreciation is almost always superior.
Does bonus depreciation apply to real property directly?
Not directly to the building structure (39-year or 27.5-year property), that does not qualify for bonus depreciation. However, components reclassified through a cost segregation study into 5-, 7-, or 15-year property do qualify. Additionally, Qualified Improvement Property (QIP), interior non-structural improvements to nonresidential buildings, is 15-year property and qualifies for 100% bonus depreciation.

Model Your Bonus Depreciation Benefit

Gideon will run a side-by-side analysis of your tax position with and without 100% bonus depreciation, and identify the optimal strategy for your situation.