Depreciation Rules
Bonus Depreciation: Rules as Currently Understood (Verify)
A cautious overview of how bonus depreciation generally interacts with cost segregation, with clear notes on what to verify against current law.
Part of the Depreciation and Bonus Rules hub. See also the FAQ and the glossary.
Bonus depreciation is the feature that most affects how attractive a cost segregation study is. It is also a feature whose rules have changed repeatedly. This page describes the general picture as currently understood, and it should be read with a caution: verify the rule that applies to your property, by acquisition date, with a qualified professional before relying on it.
What bonus depreciation is
Bonus depreciation, found in Section 168(k) of the tax code, generally allows a taxpayer to deduct a percentage of the cost of certain qualifying property in the year it is placed in service, rather than recovering the cost over its regular recovery period. Qualifying property generally includes property with a recovery period of 20 years or less, which brings in the 5, 7, and 15 year categories that a study identifies. It does not include the 27.5 or 39 year building itself.
The role it plays with a study
Without a study, the building is generally depreciated over 27.5 or 39 years, and bonus generally does not apply to it. With a study, components moved into 5, 7, and 15 year categories may qualify for bonus, so a large share of their cost can potentially be deducted in the first year. This is why bonus and cost segregation are so often discussed together. See How Bonus Depreciation and Cost Segregation Interact.
The general percentages, with caution
Over recent years the percentage has been the subject of legislation. As generally understood:
| Period (general description) | Bonus percentage (general understanding) |
|---|---|
| --- | --- |
| Property acquired and placed in service after September 27, 2017 through 2022 | 100 percent |
| 2023 | 80 percent |
| 2024 | 60 percent |
| Early 2025 acquisitions before a January 2025 cutoff date | 40 percent under the prior phase-down |
| Property acquired after mid-January 2025 under 2025 legislation | 100 percent, as generally understood |
The 2025 legislation, commonly referred to as the One Big Beautiful Bill Act, is generally described as restoring 100 percent bonus for qualifying property acquired after January 19, 2025, and making it permanent. That description is a summary from general reading, not a legal opinion. Dates, transition rules, and elections matter, and further changes are always possible. Do not use this table to file a return.
Elections
Taxpayers can generally elect out of bonus for a class of property. Some owners elect out to preserve deductions for future years or to manage the interaction with other limits. Whether to do so is a planning question for your preparer.
What must be true for property to qualify
In general terms, property must be of a qualifying type, must be placed in service within the applicable window, and must satisfy acquisition requirements. Used property can qualify under certain conditions. See Used Property and Bonus Depreciation Eligibility.
How the percentage is determined
The percentage generally depends on the date the property was acquired and placed in service, and for self-constructed property possibly on when construction began. If you closed near a transition date, ask your preparer which percentage applies. Written binding contracts and acquisition date rules can be relevant.
Bonus does not cure usability limits
A bonus deduction is still a deduction. If your losses are limited by passive rules, the bonus does not remove the limit. See The Passive Activity Loss Rules and Cost Segregation.
Bonus and state tax
Many states do not follow federal bonus depreciation, or follow it in part. This affects your state return. See State Conformity to Federal Bonus Depreciation.
Bonus and recapture
Bonus depreciation accelerates deductions, and recapture rules can apply when you dispose of the property. See Depreciation Recapture on Sale: What Comes Back.
What to verify
- The percentage that applies to your acquisition date.
- Whether your property type and asset classes qualify.
- Whether used-property conditions are met.
- Whether you want to elect out.
- Whether your state conforms.
- Whether any newer legislation or guidance has changed the rules.
Signals that the rule may have changed
Watch for news of legislation affecting depreciation, new IRS guidance on bonus depreciation, and changes in your state's rules. Ask your preparer to alert you before you commit to a purchase or a study. If you read a summary on the internet, check its date.
Questions to write down for your preparer
Which percentage applies to this property based on its acquisition date and placed-in-service date? Is any of the property subject to a transition rule or an election? Does the property qualify as used property? Should I elect out of bonus for any class? What does my state do? How does the result interact with my loss limits? Could a legislative change affect the position between now and filing? Ask for the answers in writing so that you have a record of what was assumed.
Why you should not rely on a table
Tables like the one above summarize a complicated set of dates and conditions. Real filings require reading the statute, regulations, and current guidance for the specific transaction. The table is here to orient you, not to decide. If your decision depends on a specific percentage, treat verification as a required step, not an optional one.
Next steps
Read Bonus Depreciation History and Why to Stay Cautious to understand why the rules deserve caution, and Section 179 Versus Bonus Depreciation for the Study Decision for the alternative deduction.