Can I take bonus depreciation on rental property?

How to get 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. The new law made this 100% bonus depreciation available through tax year 2029. It will drop again in 2030 unless new legislation is passed.

What are the downsides of bonus depreciation?

Con: you cannot use that asset's depreciation again in the future, so you have to consider the potential value of the deduction in the future. Generally, it's best not to have major swings in income as it makes it more difficult to manage tax rates on an annual basis.

What is the bonus depreciation for a residential rental property?

Bonus depreciation is a tax incentive that allows businesses and real estate investors to immediately deduct a significant percentage (in this case 100%) of the cost of qualifying property in the year it's placed in service, rather than spreading those deductions over several years through traditional depreciation.

Is it better to take bonus depreciation or Section 179?

Bonus depreciation can reduce your taxable income below zero, but Section 179 cannot: If you want to reduce taxable income below zero, bonus depreciation is your only option. This would generate an NOL that you can use to offset future earnings. Just keep in mind that NOLs cannot offset more than 80% of taxable income.

What is the $300 depreciation rule?

Test 1 – asset costs $300 or less

To claim the immediate deduction, the cost of the depreciating asset must be $300 or less. The cost of an asset is generally what you pay for it (the purchase price), and other expenses you incur to buy it – for example, delivery costs.

Can I take depreciation on my rental property?

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.

How much depreciation can I claim on an investment property?

How is investment property depreciation calculated? The capital works deduction is calculated at 2.5 per cent of the total construction costs per year over 40 years.

What is the 80/20 rule for depreciation?

While allocating 20% to land and 80% to the building is a common practice, under an audit you may have to substantiate why you chose these numbers. This is commonly done by finding the land versus building value on an appraisal or property tax card filed with the county.

What is the downside of depreciation rental property?

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.

What is the most overlooked tax break?

The 10 Most Overlooked Tax Deductions

• Out-of-pocket charitable contributions.
• Student loan interest paid by you or someone else.
• Moving expenses.
• Child and Dependent Care Credit.
• Earned Income Credit (EIC)
• State tax you paid last spring.
• Refinancing mortgage points.
• Jury pay paid to employer.

What can I offset against rental income?

water rates, council tax, gas and electricity. insurance, such as landlords' policies for buildings, contents and public liability. costs of services, including the wages of gardeners and cleaners. letting agent fees and management fees.

Can you take 100% bonus depreciation?

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.

What qualifies for 100% bonus depreciation in 2025?

To qualify for the bonus depreciation deduction, certain criteria must be met. Qualifying assets can include: Any Modified Accelerated Cost Recovery System (MACRS) property with a recovery period of 20 years or less. This includes such property as computer equipment and office furniture.

Is Section 179 going away in 2025?

The Section 179 expense limit and phase-out threshold ($2.5 million and $4 million, respectively, for 2025) are now permanent parts of the tax code.

Which property does not qualify for bonus depreciation?

Items that do not qualify for the bonus depreciation include property with a useful life of more than 20 years, which generally includes real estate buildings, AC units, and leasehold improvements. Inventory items also do not qualify.

What depreciation method should I use for rental property?

Most residential rental properties use the General Depreciation System (GDS), which applies a 27.5-year recovery period and the straight-line method, meaning you deduct the same amount each year over the life of the asset.

Is Trump bringing back 100% bonus depreciation?

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.

Can you take bonus depreciation on a rental property?

Qualified Property for Bonus Depreciation

A residential rental property itself does not qualify. But there are several other asset types that you can claim bonus depreciation on. These fall into two main categories: personal property and land improvements.

Did bonus depreciation go back to 100%?

Property owners and investors should pay attention here. The OBBB — which was the Trump administration's signature tax and domestic policy bill — officially reinstated 100% bonus depreciation for property acquired after January 19, 2025, and placed in service after that same date.

Who benefits from bonus depreciation?

Bonus depreciation is a tax break for businesses buying new assets. It allows businesses to deduct a large percentage of the cost of eligible purchases in the year when they acquire them. Bonus depreciation aims to encourage business investment by offering significant and immediate tax benefits.