The One, Big, Beautiful Bill Act (OBBBA) changed the federal bonus depreciation schedule. For qualifying property acquired and placed in service after January 19, 2025, the federal deduction can be 100% in the year the property is placed in service. For real estate owners, that usually means qualifying shorter-life components, not the entire building.
What The Federal Rule Covers
Land is not depreciable. The building shell generally remains 39-year property for nonresidential real estate or 27.5-year property for residential rental property. A cost segregation study may identify separate 5-, 7-, or 15-year components, including certain site improvements, flooring, lighting, and dedicated electrical work. Those components may qualify for federal bonus depreciation when the statutory requirements are met.
The 100% rate is a federal timing rule. It does not make every real estate cost immediately deductible. It does not replace the need to classify the assets correctly. The acquisition date, placed-in-service date, recovery period, and nature of the property all matter.
Placed In Service Still Controls
Signing a purchase agreement or closing on a property is not enough. Property generally must be ready and available for its intended use in the relevant tax year. For an acquisition, that date may be later than closing. For a renovation, it may be when the improved space is ready for use.
Keep the closing statement, invoices, construction records, placed-in-service support, and any cost segregation report with the tax file. The records should show what was acquired, when it was ready for use, and why the assigned recovery period is appropriate.
How It Fits A Real Estate Plan
A federal deduction may reduce current taxable income. It does not automatically create a tax benefit. Passive-activity limits, at-risk rules, basis, taxable income, and depreciation recapture can change the result. A real estate professional and a passive investor may have very different outcomes.
Cost segregation can separate qualifying components from the building. It does not turn land or the building shell into bonus property. Accelerating deductions also changes the pattern of future depreciation. Fit the decision to the property's operations and the owner's cash needs, not just the availability of a tax provision.
California Needs A Separate Calculation
California doesn't allow federal bonus depreciation at all. The federal deduction and California basis may therefore diverge, creating a state adjustment and a separate depreciation schedule. This article focuses on the federal rule. Have the California treatment modeled with the federal projection. Do not assume the deduction carries over.
A Practical Review Before Filing
Confirm the acquisition and placed-in-service dates. Review whether each asset is eligible for bonus depreciation and whether the federal recovery class is supported. Model the result with passive-loss, basis, recapture, and state effects included. Keep the supporting records with the return workpapers.
If you are buying, renovating, or studying a Los Angeles property, we can review the federal depreciation plan alongside your existing tax position before you commit to the timing. Book a consultation.