EXPLAINED: Big Beautiful 100% Bonus Depreciation

[Michael Plaks]

1. Yes, it is 100% again!

If you buy a new property today, you can - again! - immediately write off 100% of a qualified portion of your purchase. It used to be 100% through 2022, but then was reduced to 80% for 2023, 60% for 2024 and 40% for 2025. We are now back to 100%, yay!

It is great news, especially for investors qualifying for REPS or STR - see below.

2. But not the entire purchase price, only a portion!

This is not new, just a reminder. You could never write off the entire cost of a property, although I have seen many tax returns where it was claimed, even by some so-called professionals. 

What you can write off is the portion which qualifies for a shorter depreciation period. It is basically "personal property" such as appliances, carpets and cabinetry, as well as "land improvements" such as fences, driveways and landscaping. To identify these items, you usually need a cost segregation study: https://www.biggerpockets.com/forums/51/topics/1075919-five-...

3. And you still need to qualify for an additional depreciation deduction

For most rentals, you only have a limited deduction. This extra bonus depreciation will not help you if you run into these limitations known as PAL - passive activity loss limitations: https://www.biggerpockets.com/forums/51/topics/1121063-expla...

There are two main ways to defeat these restrictions: either qualify for the Real Estate Professional Status (REPS) or qualify for the Short-term Rental (STR) loophole: https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

REPS and STR are not new, and you must actually qualify, it is not merely checking some box in your tax software.

4. For properties bought prior to Trump's inauguration you're SOL, sorry

Now, some bad news. The new law only applies to properties purchased after January 19, 2025. 

If you placed a property in service in 2023, you're stuck with 80%. If you placed a property in service in 2024, you're stuck with 60%. You cannot go back and amend your old returns or "catch up" in some other fashion. And, if you bought a property before January 19, you're stuck with 40%, even if you have not placed it in service yet!

To be clear, again: you cannot delay placing a property in service until after 1/19 hoping to qualify for 100%. Nope, the language of the law is very black and white: the property must be acquired after 1/19, and "acquired" means a signed binding contract.

5. No, you cannot "upgrade" an existing rental to 100% bonus by doing cost segregation today

This gotcha was actually covered by the previous section, but it is worth a separate emphasis. The date of cost segregation study does not matter! Cost segregation applies retroactively to the date the property was placed in service initially.

Even if you do cost segregation today and will be claiming extra depreciation catch-up on your 2025 tax return with a Form 3115 - the calculations must be done under the rule effective at the time you placed the property in service. So if it was placed in service in 2024 - your bonus stays at 60%, even if your cost segregation is applied to your 2025 return.

6. No, you cannot play funny games with entities.

Tomorrow, there will be YouTube and TikTok videos "teaching" you to create an entity and "purchase" existing properties from yourself to get around the 1/19 date rule. I know who you are.

Nice try, influencers. No cigar. Go home (where y'all stay anyway) and read about related party transactions.

7. Ask your tax professional about Section 179.

This remains a feasible Plan B for properties stuck with 80/60/40% bonus.