It’s Not the Whole Property Price Don’t get too excited—you can’t write off the entire purchase price. Only “qualified property” counts, like personal property (appliances, carpets, cabinetry) and land improvements (fences, driveways, landscaping). To pinpoint these, you’ll need a cost segregation study, which breaks down your property’s components into shorter depreciation schedules. The IRS provides guidance on what qualifies under Section 168(k). Qualification Is a Must Bonus depreciation is a dream for active investors, but passive activity loss (PAL) limitations can slam the brakes on your deductions. To sidestep these, you’ll need to qualify as a Real Estate Professional (spending over 750 hours annually on real estate activities) or use the STR loophole for properties rented for 7 days or less on average. Check the IRS’s rules on passive activity losses to see where you stand. Timing Is Everything The 100% bonus only applies to properties acquired with a signed, binding contract after January 19, 2025. If you bought in 2023, you’re stuck with 80%; 2024, it’s 60%; and earlier in 2025, it’s 40%. No, you can’t delay “placing in service” to game the system, and amending old returns won’t help. The IRS is crystal clear on this one. Cost Segregation Isn’t a Time Machine Thinking of doing a cost segregation study now to “upgrade” an older property to 100% bonus? Nice try, but no dice. The bonus rate is locked in based on when you placed the property in service. So, a 2024 purchase stays at 60%, even if you file the study on your 2025 return with a Form 3115. No Entity Shenanigans Allowed Social media influencers might tempt you with “hacks” like selling a property to your own LLC to reset the acquisition date. The IRS calls this a related party transaction, and they’re not amused. Save your creativity for property upgrades, not tax evasion schemes. Section 179 as Plan B If you’re stuck with a lower bonus rate on an older property, talk to your tax pro about Section 179. It’s not as flashy, but it can help you deduct certain business property costs upfront. The IRS’s Section 179 guide has the details. HOW TO MAKE THE MOST OF 100% BONUS DEPRECIATION Here’s the nitty-gritty on how to capitalize on this tax break without tripping over IRS rules:
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