Bonus depreciation lets you deduct 100% of the cost of qualifying property in year one instead of spreading it over its schedule. Under current law it is permanent for qualifying property acquired and placed in service after January 19, 2025. Here is the part investors miss: it only applies to property with a recovery period of 20 years or less. Your building's 27.5-year or 39-year shell does not qualify. The 5-year and 15-year components hiding inside it do, and a cost segregation study is what finds them.
Think of bonus depreciation as an engine. A powerful one: whatever qualifying property you feed it, it deducts in full, immediately. Now the question that decides everything: what are you feeding it? Buy a qualifying truck, and the truck goes in. Buy a $1.2 million building, and, on paper, almost nothing goes in, because a building is 39-year property and the engine only accepts 20 years or less. The engine sits idle next to your biggest asset.
Nina bought that $1.2 million retail building. Her cost segregation study went through it component by component and identified the property the law already treats as 5-year and 15-year: the specialty electrical, the finishes, the parking lot, the site improvements. Roughly a quarter of her depreciable basis, reclassified, became exactly the kind of property the engine accepts. The study did not change what Nina bought. It identified what she bought, and 100% bonus did the rest, in year one.
The rules in plain English
- 100% bonus applies to qualifying property acquired and placed in service after January 19, 2025, and under current law it is permanent. No more phase-down clock.
- Qualifying means a recovery period of 20 years or less: equipment, vehicles over the weight line, and the 5-year and 15-year building components a study identifies.
- Used property qualifies when it is new to you and bought from an unrelated party. The building you purchased last year has components that count.
- Bonus is automatic unless you elect out, and electing out, by asset class, is sometimes the smarter filing in a low-income year. That timing call belongs to your CPA.
One sentence to keep: bonus depreciation is the engine, and cost segregation is the fuel. Owners who buy buildings and skip the study own a very fast car and an empty tank.
A 100% deduction in a low-income year can be a wasted deduction; electing out is sometimes the smarter filing. Several states do not follow the federal bonus rules, and your CPA reconciles the difference. The engine is real; feeding it correctly is the price.
Questions owners actually ask
The engine is running and it is permanent. What most owners never do is fill the tank: $200,000 to $450,000 per million of property value in 5-year and 15-year components, sitting unidentified inside their buildings. You understand the engine now. Send the engineers in for the fuel.
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