Bonus depreciation allows investors to immediately expense (rather than depreciate over years) certain short-life assets identified through a cost segregation study. This front-loads massive deductions into the year of purchase.
Bonus depreciation phases:
- 2017–2022: 100% bonus on qualifying property
- 2023: 80% bonus
- 2024: 60% bonus
- 2025: 40% bonus
- 2026: 20% bonus (scheduled)
Qualifying assets include 5-year property (appliances, carpets), 7-year property (furniture, fixtures), and 15-year property (land improvements like fencing and paving).
Related Terms
MACRS Depreciation
IRS tax deduction allowing investors to deduct the cost of a building over 27.5 years (residential) or 39 years (commercial).
Cost Segregation
IRS-approved engineering study that reclassifies building components to shorter depreciation lives, accelerating tax deductions.
Passive Activity Loss (PAL)
Tax losses from rental properties that can only offset passive income — unless you qualify as a real estate professional.