Do Land Improvements Qualify for Bonus Depreciation?

Many land improvements qualify for bonus depreciation, but the answer is not simply “yes.” A separately identified improvement with a 15-year GDS recovery period satisfies the 20-year-or-less class-life test in Section 168(k). The asset must also meet the applicable acquisition and placed-in-service rules, qualify as new or eligible used property, remain outside an ADS requirement, and not be covered by an election out. Raw land never qualifies.

Need the Site Work Classified Before Filing?

AE reviews the purchase allocation, engineering support, acquisition dates, depreciation elections, and owning activity before the return claims bonus depreciation. That review helps prevent raw land, building structure, and true 15-year site assets from being mixed together.

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The Six-Part Bonus Depreciation Test for Land Improvements

A parking lot or fence does not receive bonus depreciation merely because it sits outside a building. Work through all six gates before treating the cost as qualified property.

Is it an improvement rather than raw land? The cost must create or acquire a depreciable asset. Purchase price assigned to the dirt itself is nondepreciable.
Is the asset properly classified as 15-year property? The 2025 IRS Publication 946 lists certain improvements made directly to or added to land, including shrubbery, fences, roads, sidewalks, and bridges, as 15-year property. Building structure and general land preparation can follow different treatment.
Does it use MACRS with a recovery period of 20 years or less? That is the class-life gateway for the special depreciation allowance. Fifteen-year GDS property normally passes it.
Are the acquisition and placed-in-service dates eligible? Current law provides a 100% allowance for qualifying property acquired and placed in service after January 19, 2025. Transition rules can produce a different result for property acquired earlier. The report date does not control.
Does new-or-used property eligibility apply? New construction can qualify, and certain used property acquired in a purchase can qualify. Used-property rules must be tested for prior use by the taxpayer, related-party acquisitions, carryover-basis transactions, and other statutory restrictions.
Is bonus depreciation otherwise available? Property required to use ADS and property within a valid election out of the special allowance do not receive the deduction. State law may also decouple even when the federal return qualifies.

The 2025 Instructions for Form 4562 confirm that qualifying tangible MACRS property with a recovery period of 20 years or less can receive the special allowance and that certain used property can qualify. The same instructions place the allowance in Part II, line 14, after any Section 179 deduction and before regular MACRS depreciation.

What Qualifies, What May Qualify, and What Does Not

Cost	Typical analysis	Bonus-depreciation consequence
Parking lot paving, curbing, and striping	Often separately identifiable 15-year site improvements	Potentially eligible when every Section 168(k) gate is met
Fences, gates, site lighting, and sidewalks	Common 15-year assets when supported by plans, measurements, and cost data	Potentially eligible
Drainage, irrigation, and exterior utility distribution	Classification depends on function, location, and whether the work serves the building structure or a separate site asset	Fact-specific; engineering detail matters
Landscaping	Building-dependent landscaping may be depreciable; general landscaping inseparable from land may not be	Only the depreciable, properly classified portion can qualify
General grading and clearing	May be nondepreciable land preparation or capitalized to a related depreciable improvement depending on purpose	Not automatically eligible
Raw land purchase allocation	Nondepreciable land	Never eligible
Building foundation, structural walls, and roof	Generally part of the 27.5- or 39-year building	Outside the 20-year class-life test

Three Date and Ownership Examples

Example 1: New parking lot placed in service after January 19, 2025

A business constructs a $240,000 parking lot and places it in service after January 19, 2025. Engineering and invoices support a separate 15-year GDS asset. The taxpayer did not elect out, the property is not required to use ADS, and federal eligibility is otherwise satisfied. The $240,000 basis can qualify for the 100% special depreciation allowance. The deduction is reported through Form 4562 and the business activity that owns the property.

Example 2: Used site work acquired with a building

An unrelated buyer acquires an operating retail center. A cost-segregation study assigns $410,000 of the depreciable purchase basis to existing paving, curbing, site lighting, and fencing. Used property is not disqualified merely because someone else placed it in service first, but the buyer must satisfy the statutory used-property acquisition rules. The land allocation remains nondepreciable, and the building structure remains long-life property.

Example 3: Same federal asset, different state result

A 15-year exterior improvement qualifies for federal bonus depreciation. The taxpayer's state does not fully conform and requires an addition modification with future subtraction recovery. The federal fixed-asset schedule shows the special allowance, while the state schedule preserves a different basis and depreciation pattern. Claiming the federal deduction without the state reconciliation creates a later basis problem even though the federal classification is correct.

Documents to Gather Before Claiming the Deduction

Closing statement, purchase agreement, appraisal, and support for the land allocation.
Site plan, survey, photographs, construction drawings, invoices, and contractor cost detail.
The final cost-segregation report or other classification workpaper tying every component to total depreciable basis.
Acquisition date, placed-in-service evidence, related-party information, and prior-use facts for acquired property.
Federal and state depreciation schedules, prior Forms 4562, and elections affecting MACRS, ADS, or bonus depreciation.
Ownership records showing which individual, disregarded entity, partnership, or corporation owns the asset for tax purposes.

Common Filing Failures

Calling all site work 15-year property. Function and relation to the building or land still control classification.
Taking bonus on raw land. Land basis is never depreciable.
Using the study date as the placed-in-service date. A later study does not reset the tax history.
Ignoring prior depreciation. A lookback study may require a Form 3115 method-change analysis rather than a new current-year asset entry.
Missing an ADS requirement or election out. A 15-year label alone does not override another rule that blocks the special allowance.
Forgetting state decoupling. Federal and state asset basis can diverge immediately.
Duplicating basis. Amounts reclassified to land improvements must be removed from the building or original lump-sum asset.

Bottom line: land improvements can qualify for bonus depreciation when they are genuine depreciable site assets, properly classified and supported, and every acquisition, use, method, and election requirement is met. Book a Return Review Call before filing if the return currently combines the land, building, and site work in one asset.

Why This Category Gets Missed

When a property closes, the settlement statement shows one number for the real estate. Someone then splits it between land and building, usually using the county assessor's ratio. That split has no line for site improvements, so every dollar of paving, curbing, and landscaping falls into one of two buckets: the 39 year building, or worse, nondepreciable land.

Land itself is never depreciable. But the improvements sitting on it are, and they are frequently substantial. On a commercial property with a large parking lot, land improvements can be 10 to 20 percent of total basis. Every dollar misallocated to raw land is a dollar that is never deducted at all.

What Qualifies as a 15 Year Land Improvement

Category	Examples
Paving and hardscape	Parking lots, driveways, sidewalks, curbing, patios, loading docks
Site utilities	Underground water, sewer, gas, and electrical lines outside the building footprint
Drainage	Storm sewers, catch basins, retention ponds, culverts, French drains
Landscaping	Shrubs, ornamental trees, sod, irrigation systems, planters
Site lighting	Parking lot poles and fixtures, pathway lighting, landscape lighting
Barriers and structures	Fencing, gates, retaining walls, bollards, dumpster enclosures
Amenities	Swimming pools, hot tub pads, decks, playgrounds, sport courts, fire pits
Signage	Monument and pylon signs and their foundations

The Landscaping Distinction

Not all landscaping is depreciable. The test is proximity and dependence: plantings immediately adjacent to a building that would be destroyed if the building were replaced are treated as depreciable improvements. General landscaping, mature shade trees, and grading that is inseparable from the land itself are not. Rev. Rul. 74-265 is the reference point, and this is exactly the kind of judgment a qualified engineer documents rather than assumes.

Qualified Improvement Property Also Sits at 15 Years

Separate from site work, qualified improvement property is any improvement to the interior of an existing nonresidential building, placed in service after the building was first placed in service. QIP excludes enlargements, elevators and escalators, and internal structural framework.

QIP was assigned a 15 year GDS life by the CARES Act in 2020, correcting the drafting error in the 2017 tax act that had stranded it at 39 years. Properly classified QIP can qualify for bonus depreciation when the acquisition, placed-in-service, method, and election requirements are met. Details in our QIP and tenant renovations guide. Note that QIP applies only to nonresidential property; interior work on residential rentals does not qualify as QIP.

The 15 Year Depreciation Schedule

Absent bonus depreciation, 15 year property uses 150 percent declining balance with a half year convention, running across sixteen tax years:

Year	Rate	Year	Rate
1	5.00%	9	5.91%
2	9.50%	10	5.90%
3	8.55%	11	5.91%
4	7.70%	12	5.90%
5	6.93%	13	5.91%
6	6.23%	14	5.90%
7	5.90%	15	5.91%
8	5.90%	16	2.95%

When a 15-year asset is eligible for 100 percent bonus depreciation and the taxpayer does not elect out, its federal basis can be deducted in year one. If bonus depreciation is unavailable, limited by a transition rule, or elected out, the regular 15-year schedule still matters.

What It Is Worth on a Real Property

A $3,000,000 retail strip center with a large parking lot, allocated by an engineering study:

Component	Allocation	Year 1 with bonus
Land	$600,000	$0
5 year personal property	$210,000	$210,000
15 year land improvements	$480,000	$480,000
39 year structure	$1,710,000	~$44,000
Total	$3,000,000	~$734,000

The land improvements alone produced more first year deduction than the 5 year property did. On commercial properties with significant site work, the 15 year bucket is often the largest single source of accelerated depreciation. More context in our commercial property cost segregation guide.

Recapture Treatment

A 15-year recovery period is not a promise of a 25 percent sale-year rate. The IRS Cost Segregation Audit Technique Guide says asset class 00.3 can include both Section 1245 and Section 1250 property. Section 1245 depreciation recapture is generally ordinary income to the extent of gain. A Section 1250 land improvement may also create ordinary recapture when accelerated or bonus depreciation exceeds straight-line; only eligible remaining depreciation-related gain can enter the maximum-25-percent unrecaptured Section 1250 calculation. The property's asset-level sale allocation and depreciation history determine the result. See the worked Section 1245 versus 1250 sale example before projecting after-tax benefits.

If You Already Own the Property

Land improvements sitting inside a 39-year building allocation may still be recoverable. When the filed-return history establishes an impermissible depreciation method and the taxpayer is eligible for the applicable automatic change, Form 3115 can produce a Section 481(a) catch-up adjustment. A one-year error may instead require an amended return. When you later replace a parking lot or fence, a timely partial asset disposition election may allow the remaining basis of the retired component to be written off.

Frequently Asked Questions

What are 15 year land improvements?

Land improvements are depreciable site work assigned a 15 year MACRS recovery period, depreciated using the 150 percent declining balance method. They include parking lots, driveways, sidewalks, fencing, retaining walls, site lighting, underground utilities, drainage systems, irrigation, swimming pools, and landscaping that is dependent on the building. The land itself remains nondepreciable.

Is landscaping tax deductible or depreciable?

Landscaping that is closely associated with a building and would be destroyed if the building were replaced is generally depreciable as a 15 year land improvement. General landscaping and grading that is inseparable from the land is treated as part of nondepreciable land. Routine lawn care and maintenance on a rental property is a currently deductible operating expense rather than a capital improvement.

Do land improvements qualify for bonus depreciation?

Many do, but not automatically. A separately identified land improvement with a 15-year GDS recovery period is within the 20-year-or-less class-life test for Section 168(k). The asset must also meet the applicable acquisition and placed-in-service rules, qualify as new or eligible used property, remain outside an ADS requirement, and not be covered by an election out. Raw land and costs inseparable from land do not qualify.

Is a parking lot 15 year property?

Yes. Asphalt and concrete paving, curbing, striping, and the base preparation beneath a parking lot are 15 year land improvements. On commercial properties with large parking areas, the paving alone can represent 10 percent or more of total acquisition basis, which is often the single largest accelerated depreciation category in a cost segregation study.

What is the difference between land improvements and qualified improvement property?

Both use a 15 year recovery period, but they cover different work. Land improvements are exterior site work such as paving, fencing, and utilities. Qualified improvement property is interior improvement to an existing nonresidential building placed in service after the building was, excluding enlargements, elevators, escalators, and internal structural framework. QIP does not apply to residential rental property.

How is a land improvement taxed when I sell the property?

A 15-year land-improvement recovery period does not by itself decide whether the asset is Section 1245 or Section 1250 property. The IRS cost-segregation guide says asset class 00.3 can include both. Section 1245 depreciation recapture is generally ordinary income to the extent of gain. A Section 1250 land improvement can also have ordinary recapture when accelerated or bonus depreciation exceeds straight-line; only eligible remaining depreciation-related gain is considered for the maximum 25 percent unrecaptured Section 1250 rate. Classify and calculate each asset before estimating sale tax.