Bonus Depreciation Eligibility for New Construction

[Lauren L.]

We’re finishing up a new construction duplex (construction-to-perm, one-time close loan) and expect to receive our certificate of occupancy next week. The land was purchased in 2024, and we signed the contract with the builder in 2024. However, the building itself will be placed in service in July 2025.

Now that 100% bonus depreciation is back under the OBBBA starting January 2025, I’m wondering:
Is this property eligible for 100% bonus depreciation, even though the land purchase and construction contract were from 2024? Or does eligibility hinge solely on the placed-in-service date?

Would appreciate any insights. Thanks!

[Julius Vincent]

Hey @Lauren L. - Because you purchased the land and signed the construction contract in 2024, the IRS generally considers the property "acquired" in 2024, even if it won’t be placed in service until 2025. That means your duplex wouldn’t qualify for the new 100% bonus depreciation, and you’d be subject to the 60% rate in effect for 2024 acquisitions.

The only way around that would be if the construction contract was non-binding or significantly altered after January 19, 2025, which could, in theory, reset the acquisition date. But most builder contracts don’t meet that test.

Still, there’s likely opportunity for accelerated depreciation. Even without bonus, you can break out the under-20-year property (e.g., appliances, flooring, fencing, etc.) and use MACRS to frontload deductions where possible.