What 100% Bonus Depreciation Actually Means
Plain-English explanation of bonus depreciation, the OBBBA shift on January 19, 2025, and a simple example showing the dollar effect.
What 100% Bonus Depreciation Actually Means
What you'll learn. What "bonus depreciation" is, how the One Big Beautiful Bill Act (OBBBA) restored it to 100% in mid-2025, and a simple example showing the dollar impact on a typical rental.
The one-sentence version
Bonus depreciation is a special first-year deduction under IRC §168(k) that allows the property owner to deduct a percentage of qualifying assets immediately, instead of stretching the deduction across the asset's recovery period.
When the rate is 100%, the entire eligible asset is written off in Year 1. When the rate is 60% (where it sat in 2024), 60% comes off in Year 1 and the remaining 40% follows the normal MACRS schedule.
What's eligible
Bonus depreciation applies only to property with a recovery period of 20 years or less. That includes the 5-year, 7-year, and 15-year classes — exactly the classes cost segregation reclassifies into. The 27.5-year residential building shell and the 39-year commercial shell are not eligible.
Also required: the property must be "new to the taxpayer" — newly acquired or new construction. Used property qualifies, as long as it wasn't previously used by the same taxpayer or related party.
The OBBBA timeline
The history matters because it determines the bonus rate in any given purchase year.
| Acquisition window | Bonus rate | Statute | | --- | --- | --- | | 2017 – 2022 | 100% | TCJA (Pub. L. 115-97) | | 2023 | 80% | TCJA phase-down | | 2024 | 60% | TCJA phase-down | | Jan 1 – Jan 19, 2025 | 40% | TCJA tail | | Jan 20, 2025 – ongoing | 100% | OBBBA §70301 (Pub. L. 119-21) |
The Tax Cuts and Jobs Act of 2017 set 100% bonus through 2022 and then phased it down 20 percentage points per year. The One Big Beautiful Bill Act, signed July 4, 2025, struck the phase-down and made 100% bonus permanent for property acquired after January 19, 2025.
That date is the inflection point. Property acquired on or before January 19, 2025 is stuck on the 40% TCJA tail. The same property acquired on or after January 20, 2025 gets 100%. A 2.5× swing on identical facts and a 24-hour calendar gap.
The cost-seg calculator encodes the inflection date directly per IRS Notice 2026-11. Entering the actual purchase month and year picks the right rate automatically.
A simple example
A property owner buys a long-term rental on March 15, 2026 for $500,000. After subtracting land ($100,000), depreciable basis is $400,000. Cost segregation reclassifies roughly 15% of basis — about $60,000 — into 5-year and 15-year property. The remaining $340,000 stays in the 27.5-year building shell.
Without bonus depreciation, that $60,000 of reclassified property would deduct over 5 and 15 years on the MACRS schedule — roughly $9,000 in Year 1 across all classes.
With 100% bonus depreciation under OBBBA, the entire $60,000 of reclassified property deducts in Year 1. Plus the building shell still picks up its mid-month straight-line for the year (about $11,000 on $340,000 over 27.5 years).
| Approach | Year-1 deduction | | --- | --- | | No cost seg, no bonus | ~$11,500 (full $400k S/L) | | Cost seg, no bonus | ~$20,000 | | Cost seg + 100% bonus (OBBBA) | ~$71,000 |
At a 32% marginal federal bracket, the cost-seg-plus-bonus approach is approximately a $22,700 federal tax effect in Year 1, vs. about $3,700 for the no-cost-seg path. Numbers rounded; results are not guaranteed.
Try this scenario in the calculator →
What 100% bonus is not
It is not a permanent extra deduction. The same total dollars eventually depreciate either way — bonus pulls them forward into Year 1 instead of spreading them over 5 to 15 years. The benefit is timing plus the time value of money.
It is not free of recapture. The deductions taken on §1245 personal property are recaptured as ordinary income on disposition. For property held five-plus years, the time value typically still wins. For property flipped inside two years, recapture can claw back most of the Year-1 cash benefit. (See the recapture warning on the result page.)
It is not automatic for prior-year acquisitions. Property the owner already placed in service in a prior tax year requires a Form 3115 method change with a §481(a) catch-up — covered in the dedicated tutorial.
The 2026 picture
For property acquired in 2026 or later, the bonus rate is a flat 100% under current law. OBBBA made it permanent — there is no scheduled phase-down. That stability is part of why cost-seg conversations have picked up: the timing benefit is fully available again, without the 20-percentage-point annual erosion that property owners had to time around in 2023 and 2024.
A 2026 acquisition with a meaningful 5-year and 15-year basis allocation captures the full bonus benefit in the year of placement, no questions asked.
Sources
- IRC §168(k) — Special allowance for certain property (bonus depreciation)
- One Big Beautiful Bill Act, Pub. L. 119-21, §70301 (July 4, 2025) — permanent restoration of 100% bonus for property acquired after January 19, 2025
- Tax Cuts and Jobs Act, Pub. L. 115-97 (2017) — original 100% bonus, scheduled phase-down
- IRS Notice 2026-11 — guidance on the bimodal 2025 acquisition rule
- IRS Publication 946 — How to Depreciate Property
Disclaimer. This tutorial describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. Calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.