Bonus depreciation for rental property: 100% is back—permanently

If you own rental property and haven't looked into bonus depreciation, you might be leaving tens of thousands of dollars on the table. And here's the good news: after years of phasing out, this powerful tax strategy is back at full strength—permanently.

Let me explain what changed and how to take advantage of it.

What is bonus depreciation?

Normal depreciation spreads the cost of an asset over its useful life. A residential rental building? That's 27.5 years. Commercial? 39 years.

Bonus depreciation lets you deduct 100% of certain property costs in the first year instead of spreading them out.

Example:

• You buy a $500,000 rental property
• A cost segregation study identifies $100,000 of assets eligible for bonus depreciation
• You can deduct the full $100,000 in Year 1
• Without bonus depreciation, you'd deduct only a few thousand dollars per year

That's a massive acceleration of tax deductions. Model your depreciation schedule →

What changed: 100% bonus is permanent again

Under the Tax Cuts and Jobs Act, bonus depreciation was on a phase-down schedule—80% in 2023, 60% in 2024, headed for zero by 2027.

Then Congress stepped in. The One Big Beautiful Bill Act, signed July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. The old phase-down is repealed—there's no sunset date to race against anymore.

One wrinkle worth knowing: property acquired on or before January 19, 2025 stays on the old phase-down schedule even if you placed it in service later. Your CPA can sort out which rules apply to your timeline.

What property qualifies?

Bonus depreciation applies to property with a recovery period of 20 years or less. In the rental property context, this typically includes:

Eligible (Through Cost Segregation)

• Land improvements (parking lots, landscaping, fencing)
• Personal property (appliances, carpeting, cabinetry)
• Certain building components (electrical, plumbing for specific fixtures)

Not Eligible

• The building structure itself (still 27.5 or 39-year depreciation)
• Land (never depreciable)

This is why cost segregation studies are essential. They break out the components that qualify for accelerated depreciation.

Real example: DFW rental property

Let's look at a typical Dallas-area rental property purchase (acquired and placed in service after January 19, 2025):

Property Details

• Purchase price: $400,000
• Land value: $80,000
• Building value: $320,000

Without Cost Segregation

• Annual depreciation: $320,000 ÷ 27.5 = $11,636/year
• First-year deduction: $11,636

With Cost Segregation (100% bonus)

• Building (27.5-year): $220,000 → $8,000/year
• 5-year property: $50,000 → 100% bonus = $50,000 Year 1
• 15-year property: $50,000 → 100% bonus = $50,000 Year 1
• First-year deduction: $8,000 + $50,000 + $50,000 = $108,000

That's an extra $96,364 in deductions in Year 1.

At a 32% tax bracket, that's approximately $30,800 in tax savings.

Who benefits most?

Bonus depreciation is most valuable if you:

1. Have high W-2 or business income — More income means higher tax brackets, making deductions more valuable

2. Qualify as a Real Estate Professional — Can offset unlimited W-2 income with rental losses

3. Are acquiring new properties — Bonus depreciation applies to the year property is placed in service

4. Have multiple properties — The math compounds with scale

5. Anticipate lower income in future years — Front-loading deductions makes sense

The real estate professional advantage

Most rental losses are "passive" and can only offset passive income. But if you qualify as a Real Estate Professional, you can use rental losses to offset any income—including your salary.

Requirements:

• 750+ hours in real estate activities annually
• Real estate must be your primary occupation (more than 50% of working hours)
• Material participation in rental activities

For DFW investors who meet this threshold, bonus depreciation becomes extraordinarily powerful.

Cost segregation studies: Worth the investment

A cost segregation study costs $3,000-$7,000 depending on property size and complexity. Is it worth it?

Rule of Thumb: If your building value exceeds $500,000, almost always yes. For properties $200,000-$500,000, run the numbers with your CPA.

The study pays for itself many times over in most cases—and with 100% bonus now permanent, the first-year payoff is bigger than it's been since 2022.

Finding a Provider:

• Ask your CPA for referrals
• Look for engineers experienced in your property type
• Ensure they provide audit-defensible documentation

Strategic timing considerations

Now that the phase-out is gone, timing is about which year you want the deduction—not about beating a deadline.

If you're buying now

• Qualifying property acquired and placed in service after January 19, 2025 gets the full 100% bonus
• The deduction lands in the year the property is placed in service, so a December closing vs. a January closing shifts the deduction by a full tax year
• Match the deduction to a high-income year for maximum benefit

If you already own property

• You can do a cost segregation study on property you've owned for years
• You'll get a "catch-up" deduction for missed depreciation
• Still valuable, though less dramatic than year-of-purchase

If you're considering major improvements

• Improvements placed in service qualify for bonus depreciation
• Roof components, HVAC, major renovations (where they fall into eligible asset classes)
• Time these to land in the tax year where the deduction helps most

Depreciation recapture: The trade-off

There's no free lunch. When you sell the property, you'll face depreciation recapture—taxed at up to 25%.

But here's the thing:

• You're trading future dollars for today's dollars (time value of money)
• Tax rates might change
• You might 1031 exchange and defer indefinitely
• The math usually favors acceleration

Work with your CPA to model your specific situation.

Action steps for DFW investors

If you purchased property in 2024 or early 2025:

1. Get a cost segregation study done ASAP — you're still on the old schedule (60% for 2024, 40% for property acquired January 1-19, 2025), but the deduction is still substantial
2. File an amended return if you missed the deduction
3. Document everything for potential IRS review

If you purchased (or are buying) after January 19, 2025:

1. Factor 100% bonus depreciation into your investment analysis
2. Budget for a cost segregation study at closing
3. Consult with a CPA before closing on placed-in-service timing

If you're planning future acquisitions:

1. The 100% rate is permanent — no need to rush a purchase to beat a phase-out
2. Focus timing decisions on your income picture, not the calendar
3. Build cost segregation into your standard acquisition playbook

The bottom line

Bonus depreciation is one of the most powerful tax strategies for rental property investors—and thanks to the One Big Beautiful Bill Act, 100% bonus depreciation is here to stay for qualifying property acquired after January 19, 2025.

If you own rental property in the DFW area and haven't explored bonus depreciation, there's no longer a closing window to panic about—but every year you wait is a year of tax savings left on the table.

This is exactly the kind of strategy I implement for my real estate investor clients. The tax savings can be substantial, but the rules are complex.

Own rental property in DFW? Let's run the numbers and see what 100% bonus depreciation could do for your tax bill.

Schedule a strategy call →

— Krystal Le, CPA

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LeCPA helps real estate investors across Plano, Richardson, Frisco, Carrollton, and Dallas maximize tax savings through strategic planning.

Sources:

• IRS Publication 946, How To Depreciate Property
• IRS Publication 527, Residential Rental Property
• IRS Publication 925, Passive Activity and At-Risk Rules
• IRS: One Big Beautiful Bill Act Overview