• Property with a depreciable life of 20 years or less. Bonus does not apply to the 27.5-year residential building or the 39-year commercial building.
• 5/7/15-year property created by cost segregation. Carpet, appliances, certain wiring, decorative fixtures (5-year), specialized furnishings (7-year), and land improvements like landscaping, paving, fencing (15-year). All bonus-eligible.
• Qualified Improvement Property (QIP) for interior improvements to non-residential property, with a 15-year life under current law.
• Furniture, fixtures, and equipment acquired separately (relevant for STR operators who buy furnishings as part of setup).

What is NOT bonus-eligible: the structural shell (27.5 or 39-year), land (non-depreciable), most goodwill and intangibles.

Cost segregation + bonus depreciation has been the dominant first-year tax strategy for high-net-worth real estate investors since TCJA. The two pieces work together:

• Cost segregation reclassifies portions of a real estate purchase into 5/7/15-year property, creating the buckets eligible for bonus depreciation.
• Bonus depreciation then lets you deduct the current bonus percentage of those buckets in year one, instead of over 5, 7, or 15 years.
• Phaseout is reducing the first-year benefit each year. 2026 will be the last meaningful year (20%); 2027 effectively eliminates the strategy unless Congress acts.
• Investors who can use the resulting losses (those with REPS or the STR loophole) benefit most. Passive-loss-limited investors carry the losses forward, which is still valuable but less time-sensitive.

The example below is illustrative only. Real outcomes depend on property specifics, the cost-seg study, and the taxpayer's ability to use the losses.

Assume a $1M short-term rental purchase, $800K depreciable basis after land. A cost segregation study identifies $350K of 5/7/15-year property. The remaining $450K stays in 27.5-year residential life.

The 2027-and-after column does not mean the property has zero depreciation. It means there is no year-one bonus on top of the normal 5/7/15-year MACRS schedule. Normal MACRS still produces meaningful first-year deductions, just not the compressed lump that the bonus stack creates.

State income tax savings are on top of these federal numbers, and vary by state. Some states decouple from federal bonus depreciation entirely; others conform fully. State conformity matters and should be reviewed with a CPA.

Multiple bills have been proposed to restore 100% bonus depreciation, some with retroactive effect. Several have passed the House but stalled in the Senate. Political winds shift year to year, and the broader tax policy picture interacts with TCJA individual-rate sunsets, R&D expensing, and other expiring provisions.

The conservative planning position: assume the phaseout proceeds as currently scheduled, and treat any restoration of higher bonus rates as upside. Do not base an acquisition decision on the expectation that Congress will reverse the phaseout. If you are inclined to wait for a legislative fix that may not arrive, you are likely better off taking the deduction at the current rate than betting on a future rate that may stay at 0%.

• If you were going to buy a particular property anyway, accelerating the close into the higher-bonus-rate year has measurable tax value.
• Do not buy a bad property just to capture bonus depreciation. The deduction is a percentage of basis; the basis only exists because you spent the money. Negative-economics deals do not become positive because they generate paper losses.
• Pair every acquisition planning to use bonus with a cost segregation study. Without one, almost nothing in a real estate purchase is bonus-eligible.
• For existing property without a cost seg study, evaluate a retroactive Form 3115 cost seg. The Section 481(a) catch-up deduction can use the current-year bonus rate on prior placed-in-service years per regulation; consult the CPA on the specific year-by-year mechanics for your facts.
• Confirm your ability to actually use the losses (REPS, STR loophole, or passive-income offset). For passive-loss-limited investors, the losses carry forward, but the time value is reduced.

• Section 179 expensing. Limited to active trade or business; rental real estate often does not qualify because of the passive characterization. Subject to a taxable income limitation. Useful for active short-term rental operators in specific situations.
• Standard MACRS depreciation. Without bonus, 5/7/15-year cost-seg property still depreciates faster than 27.5-year property. The benefit is smaller and stretched over more years, but it remains real.
• Cost segregation alone. Cost seg still provides value after bonus phaseout, because shorter MACRS lives are inherently better than 27.5 or 39-year lives. The catalyst effect is reduced but not eliminated.
• 1031 exchanges. Defer recognition on sale of appreciated investment property, which preserves the accumulated depreciation benefit. See 1031 exchange financing.
• Opportunity Zone investing. A different tax-deferral lever for capital-gain reinvestment. See opportunity zone financing.