100% Bonus Depreciation Is Back: What Rental Owners Need to Know

100% Bonus Depreciation Is Permanent

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.

Under the original Tax Cuts and Jobs Act (TCJA) of 2017, 100% bonus depreciation began phasing down: 80% for 2023, 60% for 2024, and was scheduled to drop to 40% in 2025 and 0% by 2027. The OBBBA reversed this phase-down and made 100% bonus depreciation permanent. For rental property owners, this is one of the most consequential tax provisions in a generation.

What "Permanent" Actually Means

Unlike the TCJA's original bonus depreciation, which came with a built-in sunset, the OBBBA has no expiration date. This removes the urgency that previously drove owners to rush acquisitions before phase-down deadlines. You can now plan property purchases and cost segregation studies on your own timeline, confident that 100% bonus depreciation will be available when you are ready.

That said, "permanent" in tax law means "until Congress changes it." Future legislation could modify or repeal the provision. But for now, the planning horizon is indefinite.

What Qualifies for Bonus Depreciation?

Bonus depreciation applies to assets with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS). For rental property owners, qualifying assets include:

• 5-year property: Appliances, carpeting, and certain fixtures identified through cost segregation
• 7-year property: Furniture and specialized equipment
• 15-year property: Land improvements such as landscaping, driveways, fences, and exterior lighting
• Qualified improvement property (QIP): Interior improvements to non-residential buildings (15-year life)

The building structure itself (27.5 years for residential, 39 years for commercial) does not qualify for bonus depreciation. This is precisely why cost segregation is essential: it separates qualifying shorter-lived components from the structure so they can receive first-year expensing.

New vs. Used Property

One of the most significant features of post-TCJA bonus depreciation is that it applies to both new and used property. Before the TCJA, bonus depreciation only applied to brand-new assets. Now, when you purchase an existing rental property, the qualifying components identified through cost segregation are eligible for 100% bonus depreciation — even though those components were previously owned.

The only restriction: the property must be new to you. You cannot sell a property to a related party and re-claim bonus depreciation on the same assets.

Impact on Rental Property Owners

First-Year Deduction Comparison

Consider a property purchased for $600,000 with a depreciable basis of $480,000 (excluding land). A cost segregation study reclassifies $120,000 into 5, 7, and 15-year categories.

With 100% bonus depreciation:

• Bonus depreciation on reclassified assets: $120,000
• Straight-line on building structure: $13,091 ($360,000 ÷ 27.5)
• Total first-year depreciation: $133,091

Without cost segregation (straight-line only):

• Straight-line on full basis: $17,455 ($480,000 ÷ 27.5)
• Total first-year depreciation: $17,455

The difference — over $115,000 in additional first-year deductions — can translate to $28,000 to $43,000 in tax savings depending on the owner's marginal rate.

Impact Across Tax Brackets

These figures represent the additional savings from cost segregation with bonus depreciation versus standard straight-line depreciation. The actual total tax savings (including the straight-line portion) are higher.

STR Owners Benefit Most

For short-term rental owners who materially participate and qualify for the STR loophole, these deductions are non-passive and can offset W-2 income directly. This makes the financial impact immediate and tangible — it shows up as a larger refund or smaller tax payment in April.

Long-term rental owners also benefit, but the deductions may be classified as passive losses and subject to the $25,000 passive activity loss allowance (which phases out above $100,000 AGI). The deductions still have value — they carry forward and offset future rental income — but the immediate benefit is smaller for high-income passive landlords.

Important Acquisition Date Rule

The OBBBA restoration applies only to property acquired after January 19, 2025. Property acquired on or before that date remains subject to the original TCJA phase-down schedule (40% for 2025, 20% for 2026). The acquisition date — not the placed-in-service date — determines which rate applies.

What Counts as the "Acquisition Date"?

For purchased property, the acquisition date is generally the closing date — the date the buyer takes ownership. For self-constructed property, it is the date construction begins. A binding contract to acquire property may establish the acquisition date even before closing, depending on the terms.

Transitional Planning

Property owners who took reduced bonus depreciation in 2023 or 2024 on assets acquired during those years are not retroactively entitled to 100%. However, they should consult with their tax advisor about whether a change in accounting method could provide additional benefits going forward.

For properties acquired between January 1, 2025 and January 19, 2025, the 40% TCJA rate applies — not the 100% OBBBA rate. Owners who were in the process of closing during this narrow window should verify their acquisition date carefully.

Strategic Considerations

Timing Your Purchase

With 100% bonus depreciation now permanent, there is no longer a "rush" to buy before a phase-down deadline. You can focus on finding the right property at the right price rather than racing to close before year-end.

That said, placing a property in service earlier in the year is still advantageous for the straight-line portion of depreciation, which is prorated using the mid-month convention. A property placed in service in January gets 11.5 months of straight-line depreciation, while one placed in service in December gets only 0.5 months.

When to Do the Cost Segregation Study

Ideally, the cost segregation study should be completed in the same tax year the property is placed in service. This ensures you claim maximum first-year deductions on your original return, avoiding the need for amended returns or Form 3115.

If you missed the first year, you can still perform a lookback study and claim the catch-up depreciation via Form 3115. But doing it upfront is simpler and avoids potential complications.

Interaction With Section 179

Section 179 expensing is an alternative to bonus depreciation for certain assets. Key differences:

• Income limitation: Section 179 cannot create or increase a net loss; bonus depreciation can
• Selective application: Section 179 can be applied to specific assets; bonus depreciation is all-or-nothing per asset class
• Annual limit: Section 179 is capped at $1,250,000 (2025); bonus depreciation has no limit

For most rental property owners, bonus depreciation is the preferred tool because it has no income limitation. However, Section 179 can be useful in specific planning scenarios — for example, when you want to deduct furnishings but not create a large overall loss that might attract IRS attention.

What Should You Do Now?

With 100% bonus depreciation now permanent, there has never been a better time to get a cost segregation study done. Property acquired after January 19, 2025 qualifies for full first-year expensing of all reclassified components, maximizing your deductions immediately.

Action Items for Property Owners

1. New purchases: Get a cost segregation study before filing your tax return for the year the property was placed in service
2. Existing properties: Consider a lookback study if you have been depreciating on a straight-line basis without cost segregation
3. Renovations and improvements: New capital improvements to existing properties may also qualify for bonus depreciation — track them separately
4. Consult your CPA: Ensure your tax professional is aware of the OBBBA changes and can properly apply them to your situation

RentalDeductions helps property owners identify these deductions with self-serve cost segregation analysis, so you can quantify the potential savings before committing to a full engineering study.