Can I use bonus depreciation on a building?

Bonus depreciation does not apply to a building as a whole because the building's structural components have long recovery periods. A cost segregation study identifies the components with short recovery periods — certain fixtures, finishes, and land improvements — and bonus depreciation applies to those. Full first-year expensing was restored for property acquired after early 2025 under that year's legislation, which is why the study matters again.

For tax year 2025

Key points

Bonus depreciation cannot be applied to a building as a whole because its structural components carry long recovery periods.
A cost segregation study separates fixtures, finishes, specialised systems, and land improvements with short recovery periods, and bonus depreciation applies to those.
The One Big Beautiful Bill Act restored full first-year expensing for qualifying property acquired after a date in early 2025.
Accelerated deductions lower basis faster, so more of the eventual gain is subject to depreciation recapture at sale.
A cost segregation study carries a real fee, so it suits properties large enough that the accelerated deduction clearly exceeds the cost.

Why does bonus depreciation not apply to the whole building?

A building's structural components, meaning the walls, roof, foundation, and core structure, are assigned long recovery periods under section 168: decades for residential rental property and longer still for nonresidential real property. Bonus depreciation under section 168(k) is only available for property with a recovery period of twenty years or less.

So the building shell keeps depreciating slowly over decades, and no first-year expensing applies to it. The purchase price of a building, taken as a single asset, does not qualify.

How does a cost segregation study unlock bonus depreciation?

A building is not a single asset; it is a collection of components, and many of them are not structural. A cost segregation study, performed by engineers working with tax specialists, examines the property and separates out the parts with short recovery periods: certain fixtures, specialised electrical and plumbing tied to equipment, cabinetry and finishes, and land improvements such as paving, landscaping, and site lighting.

Those shorter-lived components are exactly the property that qualifies for bonus depreciation. Instead of depreciating the entire purchase price slowly, the study lets the owner carve out the qualifying components and, with full first-year expensing restored, deduct much of their cost on Form 4562 in the year the property is placed in service. For an owner with income to offset, a deduction now is worth more than the same deduction spread across many years.

What changed under the 2025 legislation?

The One Big Beautiful Bill Act, P.L. 119-21, signed July 4, 2025, restored full first-year bonus depreciation for qualifying property acquired after a date in early 2025. In the years before that, the allowable bonus depreciation had been phasing down each year, which was steadily shrinking the first-year payoff of a cost segregation study.

With full expensing back, the payoff from identifying short-lived components is at its strongest, which is why cost segregation matters again. Because the effective date and the current amount are set by recent legislation, confirm both with a CPA for the specific acquisition date before relying on the deduction for a purchase.

What are the limits of bonus depreciation on real estate?

First, this is a shift in timing, not free money. Accelerating deductions lowers basis faster, which means more of the eventual gain is subject to depreciation recapture when the property is sold, and the reclassified components are recaptured at ordinary rates. The strategy works well when paired with a plan to exchange the property under section 1031 or hold it long term, so the recapture is deferred or eliminated rather than paid soon after.

Second, the study is a real engagement with a real fee, so it makes sense for properties large enough that the accelerated deduction clearly outweighs the cost. Third, the deduction only offsets active income if the owner clears the passive-activity rules through real estate professional status, the short-term rental exception, or material participation in a self-rented building; otherwise the loss is suspended until there is passive income or the property is sold. A CPA should model the recapture at the expected exit before a study is commissioned.