Immediate expensing of qualified property under §168(k) — restored to 100% for property placed in service after January 19, 2025 — most powerful when paired with cost segregation.
What it is
Bonus depreciation is a special allowance applied after any §179 deduction and before regular MACRS. Under current law, qualified property acquired and placed in service after January 19, 2025 is generally eligible for a 100% allowance; property acquired earlier remains under the phase-down (40% for 2025). It is not §179 expensing, and it is not a cost-segregation study — cost segregation identifies the shorter-life assets that bonus depreciation then applies to.
Where it fits
It matters most in acquisitions where shorter-life components are properly classified, in improvement-heavy projects, and for operating businesses placing qualifying equipment in service. In real estate the practical use case is usually the correctly identified shorter-life property and land improvements — not the building shell.
Eligibility — the threshold questions
- Is it depreciable property with a MACRS recovery period of 20 years or less?
- Was it acquired and placed in service in the right window? “Placed in service” is not the same as purchased or delivered.
- Does an exception block it (listed property used 50% or less for business, property required to use ADS, same-year acquire-and-dispose)?
- Is the deduction usable in the taxpayer’s actual profile? Passive-activity and at-risk rules can defer the benefit on rental real estate.
How it works in practice
Taxpayers may elect out of the special allowance by class of property on a timely filed return; once made, the election generally cannot be revoked without IRS consent. Recapture matters on day one: on disposition, gain is recaptured as ordinary income up to the depreciation allowed, including the bonus allowance.
Documentation that holds up
- Capitalization policy and asset-classification framework
- Purchase records, closing support, and placed-in-service evidence
- Invoice detail sufficient to separate asset classes; cost-segregation support
- Tax-year decision memo documenting elections and assumptions
- Loss-limitation analysis and a recapture watchlist for future dispositions
Edge cases & when another path fits
Weak placed-in-service evidence, bundled classification, and ignored passive limits are the recurring problems. Bonus is a weaker fit when passive-loss constraints block near-term use, when state treatment dilutes the benefit, or when a short hold means meaningful recapture exposure — in which case a more selective profile or an election out by class may produce a better result.
Frequently asked questions
Is bonus the same as §179?
No — §179 is an election-based expensing regime with its own limits; bonus is a separate allowance applied after §179 and before MACRS.
Can I elect out?
Yes, by class of property on a timely return; the election generally cannot be revoked without IRS consent.
How does it relate to cost segregation?
Cost segregation classifies shorter-life assets; bonus depreciation is the deduction regime that may then apply to them.
Specific eligibility and execution thresholds vary by transaction structure, jurisdiction, and basis composition. This is a starting point for documentation discipline — not a substitute for engaged tax counsel. Nothing here is tax, legal, or investment advice.