What is Bonus Depreciation in Cost Segregation?

Bonus depreciation allows property owners to deduct qualifying asset costs sooner by accelerating depreciation into earlier years. When combined with a cost segregation study, it can significantly increase first-year tax deductions by applying immediate write-offs to assets assigned to shorter recovery periods.

How Recovery Periods Work

Cost segregation identifies building components and site improvements based on their recovery periods, which reflect how long the assets are expected to last. Assets grouped into shorter recovery periods, such as 5, 7, or 15 years, may qualify for bonus depreciation.

To better understand how those shorter timelines are determined, see our breakdown of 5-Year Property in Cost Segregation and 15-Year Property in Cost Segregation.

The Timing Difference

Bonus depreciation does not change how long an asset is depreciated overall. Instead, it changes when deductions occur. The total depreciation over the life of the property remains the same, but a larger portion is taken earlier. This timing shift can have a meaningful impact on taxable income in the first years of ownership.

A Simple Example

Assume a property owner has $1,000,000 of depreciable building basis.

If a cost segregation study identifies that 20% ($200,000) qualifies for shorter recovery periods, that portion may be eligible for bonus depreciation.

Under 100% bonus rules, the owner could deduct the full $200,000 in year one instead of spreading it over 5, 7, or 15 years.

The total depreciation over time is still $1,000,000. The difference is timing. Taking more deduction upfront can significantly reduce first-year taxable income and improve near-term cash flow.

Bonus Depreciation: Rule Changes

• 2017–2022: 100% bonus depreciation allowed full expensing of eligible property
• 2023–2024: Bonus depreciation was reduced under a scheduled phase-down
• After January 19, 2025: The One Big Beautiful Bill Act restored 100% bonus depreciation for qualifying property

How Bonus Depreciation and Cost Segregation Work Together

Cost segregation establishes the recovery period.
Bonus depreciation accelerates deductions within that recovery period.

When used together, they allow property owners to recover costs earlier while maintaining compliance with IRS guidance.

In simple terms: Cost segregation identifies the assets. Bonus depreciation accelerates them.

Key Takeaways

• Bonus depreciation accelerates deductions into earlier years
• Cost segregation identifies assets with shorter recovery periods
• Current rules restore 100% bonus depreciation for qualifying property
• Accelerated deductions can improve near-term cash flow
• Cost segregation and bonus depreciation work strategically together