Yes, as of 2025, you can claim 100% bonus depreciation on eligible rental property, allowing immediate, first-year, full deductions for qualified improvements and personal property (e.g., appliances, furniture, fixtures) placed in service after Jan. 19, 2025. This applies to items with a useful life of 20 years or less, often identified through a cost segregation study.
You can deduct depreciation only on the part of your property used for rental purposes. Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. You may have to use Form 4562 to figure and report your depreciation. See Which Forms To Use in chapter 3.
One Big Beautiful Bill Act
In 2025, the OBBB reinstated 100% bonus depreciation. Starting with property placed in service after Jan. 19, 2025, businesses can again deduct 100% of the cost of most qualifying property up front moving forward.
Under the bonus depreciation rule, you can take an additional deduction of 100% of the cost of eligible assets in the first year of ownership. That can result in significant tax savings. You can even use bonus depreciation to create a net operating loss, which you can carry forward to offset future income.
Bonus depreciation is back. Business owners got their wish in 2025 when Congress made 100% bonus depreciation permanent. The provision, which was initially part of the 2017 Tax Cuts and Jobs Act (TCJA), began to phase out in 2023.
In general, the OBBB provides a permanent 100‑percent additional first year depreciation deduction for qualified property acquired, or specified plants that are planted or grafted, after Jan. 19, 2025.
100% bonus depreciation, when placed in service between 9/28/2017 and 12/31/2022. 80%, when placed in service between 1/1/2023 and 12/31/2023. 60%, when placed in service between 1/1/2024 and 12/31/2024. 40%, when placed in service between 1/1/2025 and 12/31/2025.
One of the downsides of rental property depreciation is the recapture tax. When you sell a depreciated property, you may be subject to a recapture tax on the depreciation deductions you previously claimed. This tax can be substantial and should be factored into your long-term investment strategy.
Both new and used property can qualify if the asset is new to you and used in your business during that tax year. Let's say your business buys $1 million worth of equipment. With 100 percent bonus depreciation, you can deduct the full amount in year one.
Yes, 100% bonus depreciation is back for eligible property acquired and placed in service after January 19, 2025, thanks to the "One, Big, Beautiful Bill" (OBBB) Act, which permanently reinstated it, reversing the phase-out schedule that would have reduced it to 40% for 2025 under prior law. This allows businesses to deduct the full cost of new equipment, machinery, and other qualified assets in the first year, significantly impacting tax planning.
If you have a gain from the sale or other disposition of Section 1245 property, all depreciation deductions previously taken for the property, or allowed if not actually taken, are recaptured and taxed as ordinary income.
Misclassification, incorrect recovery periods, and improper use of Section 179/bonus depreciation are common errors. Proper documentation and adherence to IRS guidance and industry-specific matrices are essential to avoid audit issues.
In the realm of real estate investment, the 80/20 rule, or Pareto Principle, is a potent tool for maximizing returns. It posits that a small fraction of actions—typically around 20%—drives a disproportionately large portion of results, often around 80%.
The exemption limit for TDS on rent under section 194-I and 194IB is Rs 50,000 per month. Tax is deducted under Section 194I without including the GST. If there is a Nil tax applicable to your income and you are receiving rent as income, you can file Form 15G or Form 15H for non-deduction of TDS.
You simply stop depreciating once you've reached the end of the recovery period: Residential rental: after 27.5 years. Commercial rental: after 39 years.
Tenant Issues and Vacancies
Tenants can sometimes fail to pay rent on time, damage property, or violate lease agreements. Even reliable tenants eventually move out, leading to vacancies. Each empty month means lost income, and finding new tenants often requires marketing, screening, and additional costs.
Capital works deduction, also known as 'building allowance', refers to the depreciation of the building structure and its fixed assets, such as walls, roofs, and plumbing. Investors can claim tax deductions for capital works over a period of 40 years at a rate of 2.5% per year.
On July 4, 2025, President Trump signed the 2025 tax reform into law as P.L. 119-21, Republicans' “One Big Beautiful Bill.” Among its most impactful provisions is the permanent restoration of 100% bonus depreciation, offering long-term clarity for tax planning and capital investment strategies.
100% bonus depreciation qualifies for tangible business assets with a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less, including machinery, equipment, furniture, vehicles, software, and qualified real property improvements, provided the original use starts with the taxpayer and it's acquired and placed in service after January 19, 2025, under the new One Big Beautiful Bill Act (OBBB). Specific rules also apply to used property and qualified production property, allowing immediate write-offs for many capital investments.
OBBB Changes to Bonus Depreciation
The bonus depreciation rate for 2025 pre-OBBB was just 40%. The OBBB, however, permanently reinstated 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. It also provided transition provisions.