100% Bonus Depreciation in 2025: What Changed and What It Means for Your Properties

The One Big Beautiful Bill Act permanently restored 100% first-year bonus depreciation. Here's what changed, what qualifies, and how to take advantage before year-end.

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What Just Happened

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. Among its many provisions, it permanently restored 100% first-year bonus depreciation for qualified property — reversing the phase-down that had been in effect since 2023.

Under the Tax Cuts and Jobs Act of 2017, bonus depreciation was set at 100% through 2022, then scheduled to decline: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% from 2027 onward.

The OBBBA eliminated this phase-down entirely. The new rate is 100%, permanently, with no sunset. This is arguably the single most impactful tax provision for real estate investors in the new law.

What Qualifies for Bonus Depreciation

Bonus depreciation applies to "qualified property" with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS). For real estate investors, this primarily means:

Critically, the building structure itself (the shell, foundation, load-bearing walls, roof structure) remains 27.5-year or 39-year property and does NOT qualify for bonus depreciation. This is exactly why a cost segregation study matters — it identifies and separates the qualifying components from the non-qualifying structure.

Without a cost seg study, the entire building gets lumped into the 27.5 or 39-year category, and you miss out on the bonus depreciation entirely for the qualifying components.

The Phase-Down Gap: Why Lookback Studies Matter Now

If you purchased property between 2023 and early 2025, you were subject to the reduced bonus depreciation rates. With the OBBBA's permanent restoration of 100%, you may be able to capture the difference through a lookback study.

For example, if you purchased a property in 2024 and took 60% bonus depreciation on reclassified assets, you can now file Form 3115 to claim the remaining 40% as a catch-up adjustment. For a property with $200,000 in reclassified assets, that's an additional $80,000 in depreciation you can claim this year.

This applies retroactively, and the IRS grants automatic consent for this type of accounting method change. Your CPA files Form 3115 with your current tax return — no amended returns, no approval process.

How to Maximize Bonus Depreciation on Your Properties

The key to maximizing bonus depreciation is having a proper cost segregation study that defensibly identifies every qualifying component. The IRS Audit Techniques Guide for cost segregation specifies 13 required elements that a study must contain to be considered compliant.

A compliant study should include: a description of the methodology, a detailed asset listing with MACRS class lives, supporting documentation (photos, blueprints, specifications), cost reconciliation back to the purchase price, and an engineer's certification.

Studies that skip these requirements — particularly cost reconciliation and engineering methodology documentation — are the ones that draw IRS scrutiny. The study doesn't need to be expensive to be thorough, but it does need to follow the ATG framework.

For investors with multiple properties, consider prioritizing by value and hold period. Higher-value properties with longer expected hold periods generate the largest absolute savings and the lowest risk of depreciation recapture.

Common Mistakes to Avoid

The most common mistake is not getting a study at all — leaving tens or hundreds of thousands of dollars in legitimate deductions unclaimed. But there are others worth avoiding.

Don't use a "desktop study" that assigns percentages based on property type alone without analyzing your specific building. These lack engineering rigor and are the most likely to be challenged on audit.

Don't forget about land improvements. Landscaping, parking lots, and fencing are 15-year property eligible for 100% bonus depreciation, and they're often overlooked.

Don't wait until you sell. The optimal time for a cost seg study is the year you acquire the property, but any year you still own it works. The only scenario where cost seg becomes less attractive is if you're planning an imminent sale, since you'd face depreciation recapture.

And don't try to DIY the depreciation schedule. The distinction between structural and non-structural components requires engineering judgment — it's not something you can accurately determine from a spreadsheet template.

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