Can You Take Bonus Depreciation on Rental Property?

Yes, you can take bonus depreciation on a rental property, but only on its shorter-lived components — appliances, furniture, carpeting, fencing, landscaping, and similar assets — not on the building itself. Under the One Big Beautiful Bill Act, qualifying assets acquired and placed in service after January 19, 2025 are eligible for a 100% first-year deduction, which means the full cost comes off your taxes the year you put the item to use.¹ The 27.5-year building structure stays on its regular depreciation schedule and does not qualify.²

What Parts of a Rental Property Qualify

Federal tax rules split a rental property into pieces with different useful lives, and the bonus depreciation rules only reach the pieces with a recovery period of 20 years or less.³

The building shell — walls, floors, ceilings, windows, doors, plumbing fixtures, wiring, and central HVAC systems — is classified as 27.5-year residential rental property. It fails the 20-year test and cannot receive bonus depreciation.³

What does qualify falls into two groups. Personal property inside the unit has a 5- or 7-year recovery period. The 5-year items include refrigerators, stoves, dishwashers, washer-dryer sets, and carpeting. The 7-year items generally include furniture, unattached cabinets, and certain fixtures.²

Land improvements are 15-year property. This covers fences, roads, driveways, walkways, landscaping such as trees and shrubs, and irrigation or sprinkler systems.²

One category worth flagging so you don’t chase it: qualified improvement property, which allows bonus depreciation on interior work, applies to nonresidential (commercial) buildings only. If you own a residential rental, interior upgrades like new flooring or lighting are eligible only when they can be separately identified as personal property rather than a structural component.

How Much You Can Deduct Right Now

The Tax Cuts and Jobs Act put 100% bonus depreciation on the books from late 2017 through 2022, then started a phasedown of 20 percentage points a year.⁴ The rate dropped to 80% in 2023 and 60% in 2024 before Congress reversed course.

The One Big Beautiful Bill Act restored the 100% first-year allowance for property acquired and placed in service after January 19, 2025.¹ Buy an appliance in February 2026 and install it that same month, and the entire cost is deductible on your 2026 return.⁵

The old phasedown still governs assets acquired before January 20, 2025. For those, the allowance is 40% if placed in service during 2025 and 20% if placed in service in 2026.⁵ Both the acquisition date and the placed-in-service date matter.

Eligibility Conditions

Falling into the right recovery period is necessary but not enough. The asset also has to meet the following:

It must be placed in service — installed and ready for tenant use — during the tax year you claim the deduction. An appliance bought in December but installed in January belongs on next year’s return.³
It doesn’t have to be new. Used property qualifies as long as you didn’t previously use it yourself, didn’t buy it from a related party, and didn’t receive it through a tax-free exchange or inheritance.⁶
It has to be tangible property depreciable under MACRS with a recovery period of 20 years or less.⁷

Buy an existing duplex, and you can claim bonus depreciation on the used appliances, fencing, and other qualifying components that came with it, provided you had never personally used those items before.

Passive Activity Limits on the Deduction

A 100% write-off can easily push your rental into a paper loss. Whether you can actually use that loss depends on the passive activity rules. Rental activities are generally treated as passive, so losses only offset other passive income unless an exception applies.⁸

The most common exception is the $25,000 rental loss allowance. If you actively participate in managing the property — making decisions on tenants, repairs, and lease terms — you can deduct up to $25,000 in rental losses against nonpassive income each year. The allowance phases out as modified adjusted gross income rises above $100,000 and disappears entirely at $150,000.⁹ These thresholds are set by statute and are not indexed for inflation.

Losses you can’t use don’t vanish. They carry forward and can be deducted in a later year when you have passive income to absorb them, or in full when you sell the property.⁸ The calculation is reported on Form 8582.

If you qualify as a real estate professional, the passive treatment falls away. That requires more than 750 hours during the year in real property trades or businesses in which you materially participate, and those hours have to be more than half of all your working time.¹⁰ Meeting the standard means you can use the full bonus depreciation deduction against any type of income, with no $25,000 cap.

Section 179 as a Companion Tool

Bonus depreciation isn’t the only accelerated deduction. Section 179 also allows full expensing of qualifying personal property in the year it is placed in service, up to an annual cap of $2,560,000 for 2026, with the benefit phasing out once total qualifying purchases exceed $4,090,000. Since 2018, landlords have been able to use Section 179 for tangible personal property inside residential rental units — appliances, carpeting, blinds, and similar items — but not for the building or its structural components, and the rental activity must rise to the level of a trade or business.³

The practical difference matters. Section 179 cannot exceed your taxable income from active business operations for the year, so if your net rental income is $7,000 and you bought $10,000 in appliances, only $7,000 comes off under Section 179 and the rest carries forward. Bonus depreciation has no income limit and can create or deepen a loss, subject to the passive rules above. Many landlords use Section 179 up to the income limit and bonus depreciation for the rest.

Using Cost Segregation to Separate Qualifying Assets

When you buy or build a rental, the closing paperwork usually shows one purchase price. A cost segregation study, generally engineering-based, breaks that price into the building shell and the 5-, 7-, and 15-year assets eligible for bonus depreciation, assigning specific values to items like flooring, cabinetry, exterior paving, and landscaping.³

Without a study, the IRS may push back on how you allocated costs. That risk grows with property size. Studies for a single-family rental typically run two to four weeks; larger properties take longer. Fees vary widely, from a few hundred dollars for technology-driven providers handling a single-family home to several thousand for engineering firms working on larger buildings. The fee itself is deductible.

If you already own a property and never did a study, you can reclassify assets and catch up on missed depreciation by filing Form 3115 (Application for Change in Accounting Method). This lets you claim the accumulated deductions in one tax year without amending prior returns.

How to Claim It on Your Return

Bonus depreciation is reported on Part II of Form 4562 (Depreciation and Amortization). You take each qualifying asset’s depreciable basis — purchase price plus delivery and installation, minus any Section 179 amount elected on the same asset — multiply by the applicable percentage, and enter the result.⁵

Individual landlords attach Form 4562 to their return and carry the total to Schedule E (Form 1040), where rental income and expenses are reported.¹¹ Add Form 8582 if the passive loss rules limit the deduction. Most tax software handles the mechanics once you enter the asset details.

What Happens When You Sell

The upfront deduction comes with a bill at the back end. Any gain attributable to depreciation you previously claimed is recaptured and taxed at rates higher than the standard long-term capital gains rate.

For personal property like appliances and furniture (Section 1245 property), recaptured depreciation is taxed as ordinary income at your regular bracket.¹² For real property improvements like fences and driveways (Section 1250 property), the portion of gain tied to depreciation is taxed at a maximum rate of 25%, known as unrecaptured Section 1250 gain.¹³

Recapture is calculated on Form 4797 (Sales of Business Property), Part III, which sorts gain between ordinary income and capital gain.¹⁴ The more bonus depreciation you claimed, the larger the recapture at sale. A 1031 like-kind exchange can defer both capital gains and depreciation recapture if you roll the proceeds into another qualifying property.

1
Internal Revenue Service. One, Big, Beautiful Bill Provisions
2
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
3
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
4
Internal Revenue Service. Tax Cuts and Jobs Act: A Comparison for Businesses
5
Internal Revenue Service. 2025 Instructions for Form 4562
6
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
7
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
8
Internal Revenue Service. Topic No. 425, Passive Activities – Losses and Credits
9
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
10
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
11
Internal Revenue Service. Tips on Rental Real Estate Income, Deductions and Recordkeeping
12
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
13
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
14
Internal Revenue Service. 2025 Instructions for Form 4797