Bonus Depreciation: The Year-1 Acceleration Window
Bonus depreciation is the tax acceleration mechanism that makes cost segregation studies worth the engineering fee. The window is closing fast.
The Phase-Down Clock
- 2022: 100%
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027 and after: 0% (unless extended by legislation)
What Qualifies
Any asset with a MACRS recovery period of 20 years or less placed in service in a qualifying year. For commercial real estate, that means the 5-, 7-, and 15-year buckets identified in a cost segregation study. The 39-year shell does not qualify.
Strategy Implication
Every year of delay costs real money. A property acquired in 2024 captures 60% bonus dep on its eligible basis; the same property acquired in 2026 captures only 20%. On a $5MM property with $1MM of eligible basis, that's the difference between $600K and $200K of year-1 acceleration — a $400K timing swing.
Quantify Your Year-1 Acceleration
Model purchase price, reclass %, and bonus rate — get year-1 tax savings instantly.
Open Cost Seg + Bonus Calculator →Frequently Asked Questions
What is bonus depreciation?
Bonus depreciation (IRC §168(k)) lets a taxpayer expense a percentage of an eligible asset's cost in the year placed in service, rather than depreciating it over the asset's recovery period. Eligible assets have a recovery period of 20 years or less — which includes most assets identified in a cost segregation study.
What is the bonus depreciation phase-down schedule?
2022: 100%. 2023: 80%. 2024: 60%. 2025: 40%. 2026: 20%. 2027: 0% — unless Congress extends. Each year of delay is real money lost.
How does bonus depreciation interact with cost segregation?
Cost segregation reclassifies basis from 39-year (ineligible) to 5/7/15-year (eligible). Bonus depreciation then accelerates the eligible portion. The two strategies are complementary — running cost seg without claiming bonus dep leaves most of the value on the table.
Does bonus depreciation apply to used property?
Yes — since the TCJA, bonus depreciation applies to both new and used property, provided the taxpayer did not previously own the asset.