Bonus Depreciation on Rental Property: Eligibility, Rates and Examples
See which rental assets qualify for bonus depreciation, how acquisition dates affect the rate, and why a cost segregation deduction may be suspended.
Can rental property qualify?
Some rental assets can qualify for bonus depreciation; land and the ordinary 27.5- or 39-year rental building do not. Cost segregation identifies supported shorter-life components. Whether a deduction reduces this year’s tax is a separate question from whether an asset qualifies.
Start with acquisition and placed-in-service dates, then classify assets and review elections. For the table percentages used after bonus, see MACRS depreciation tables.
Which rate applies to the rental assets?
The restored 100% rate generally applies to qualified property acquired and placed in service after January 19, 2025. The law did not reset the historical rates on old acquisitions. Binding-contract rules, special property categories and elections can affect the answer. Use IRS guidance on the law and Notice 2026-11 with the actual transaction documents.
| Situation | Review before claiming bonus |
|---|---|
| New purchase of a rental | Acquisition/service dates, land allocation and qualifying components |
| Used property acquisition | Prior use by the taxpayer, related-party and other acquisition restrictions |
| Study ordered years later | Original eligibility and recovery history; a new report does not create a new acquisition |
| Required ADS property | No special depreciation allowance on property required to use ADS |
| Election out of bonus | Class, tax year, deadline and permitted correction procedure |
Separate land, the building and shorter-life assets
Land stays outside depreciable basis. The building generally remains on its applicable real-property schedule. Separately supported furniture, appliances and land improvements can have different lives. Classification depends on function and facts, not simply the name on an invoice.
For example, assume $800,000 total acquisition cost, $160,000 supported land value and $640,000 remaining basis. If a study supports $128,000 of eligible short-life property and the applicable rate is 100%, bonus on those components is $128,000. The remaining $512,000 building basis follows its own schedule. These are illustrative assumptions, not a promised allocation.
A separate improvement project needs its own invoice, service date and classification. Avoid counting furniture already recorded on a depreciation schedule a second time.
A $128,000 deduction is not a $128,000 refund
The tax effect depends on income, loss limitations, rates, elections and state conformity. A long-term rental loss can remain passive even after cost segregation. A short-term rental requires its own activity and participation analysis. Personal use, at-risk limits and excess-business-loss rules can also constrain the result.
Build two projections: one using the existing schedule and one using the proposed study and filing method. Compare current usable tax savings, carryforwards, fees and an eventual sale. A benefit deferred for years has a different cash-flow value from a benefit usable now.
Can you do cost segregation on an old LTR or STR?
Yes, an existing property can be evaluated. Begin with the purchase allocation, improvement history, depreciation schedules and prior elections. A later study does not restart depreciation or upgrade an old bonus rate. Determine the proper correction procedure and reconcile any catch-up amount to deductions already taken.
Form 3115 may be appropriate for an established impermissible method; some errors instead use an amended return or another procedure. Eligibility and timing must be checked before filing.
Prepare your implementation review
Bring the purchase closing statement, prior returns and depreciation schedules, operating records, and any existing study. AE can scope the study, return preparation and correction work separately.
Sources and editorial information
Published by AE Tax Advisors. Source references and examples updated November 8, 2026. This educational guide explains general rules; an engagement reviews the documents and tax years specific to your return. See our editorial policy.