If you own real estate, bonus depreciation is one of the most powerful tools in the tax code — especially when paired with a cost segregation study. Used together, they can front-load large deductions into the first year you own a property. Here is how it works in plain terms.
What is bonus depreciation?
Bonus depreciation is a tax provision that lets you immediately deduct a large percentage of the cost of qualifying assets in the year you place them in service, instead of depreciating them slowly over many years. It applies to property with a depreciation life of 20 years or less — exactly the categories a cost segregation study creates.
How does bonus depreciation work with cost segregation?
This is where it gets powerful. A normal building depreciates over 27.5 or 39 years, which does not qualify for bonus depreciation. But a cost segregation study reclassifies large parts of the property into 5-, 7-, and 15-year categories — which do qualify. That reclassified value can then be paired with bonus depreciation for a large immediate deduction.
In short: cost segregation finds the assets, and bonus depreciation supercharges the deduction.
How much can bonus depreciation save?
It depends on the property and the current bonus percentage (which has been phasing down in recent years), but on a property worth several hundred thousand dollars, combining cost segregation with bonus depreciation can produce six-figure first-year deductions. Because the rules change year to year, timing and planning matter.
Who should consider bonus depreciation?
It is most valuable for:
- Owners of commercial, rental, or multifamily real estate
- Investors who recently bought, built, or renovated property
- Anyone with enough taxable income to use large deductions
We combine cost segregation and bonus depreciation to maximize your real estate deductions — starting with a free feasibility review. See our cost segregation services.