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Bonus Depreciation
A tax provision allowing immediate deduction of a large percentage of qualifying asset costs in the first year.
Definition
Bonus depreciation allows investors to immediately deduct a significant percentage of the cost of qualifying short-lived assets in the year they are placed in service, rather than spreading the deduction over many years. The Tax Cuts and Jobs Act of 2017 set bonus depreciation at 100% through 2022, with a scheduled phase-down of 20% per year (80% in 2023, 60% in 2024, etc.). When combined with a cost segregation study, bonus depreciation can generate massive first-year deductions that offset rental income and potentially other income for qualifying real estate professionals. The deduction applies to both new and used property components identified through cost segregation.
Related Terms
Cost Segregation
A tax strategy that accelerates depreciation by reclassifying building components into shorter-lived asset categories.
Depreciation
A tax deduction that accounts for the wear and tear of a property over its useful life.
Real Estate Professional Status
An IRS designation allowing real estate losses to offset active income by meeting specific hour requirements.
Passive Income
Income from rental properties or businesses in which the taxpayer does not materially participate.
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