100% Bonus Depreciation for Real Estate Investors in 2025 | Updated State-by-State Guide

Understanding the concept of bonus depreciation and its practical application can help you capitalize on this opportunity and determine if investing in real estate now is a good time. So, what is bonus depreciation, and how does it affect you as an investor? Keep reading to learn more about bonus depreciation and how it works.

What Is Bonus Depreciation and How Does It Work?

Bonus depreciation is a powerful tax incentive that allows investors to deduct 100% of the cost of eligible property in the same year it’s placed in service.

How It Works in 2025:

• 100% deduction applies to qualifying assets placed in service on or after January 20, 2025.

• Used property qualifies, as long as it’s new to the taxpayer.

• No phase-out schedule, 100% bonus depreciation is now permanent under federal law.

• Qualified Improvement Property (QIP) and assets with a MACRS recovery period of 20 years or less are eligible.

This means real estate investors can significantly reduce taxable income and increase after-tax cash flow, especially when they strategically acquire and place assets into service at the right time.

Bonus depreciation was a key provision of the 2017 Tax Cuts and Jobs Act (TCJA) that enhanced bonus depreciation for qualified property or assets placed into service. The prior phase‑out schedule (40% in 2025, 20% in 2026, 0% in 2027) has been eliminated.

Bonus Depreciation vs. Section 179: Key Differences in 2025

Both bonus depreciation and Section 179 allow for accelerated expensing of business assets, but they serve different purposes:

Pro Tip: Use Section 179 for smaller purchases and bonus depreciation for large property acquisitions, renovations, and upgrades.

Like bonus depreciation, Section 179 of the U.S. Internal Revenue Code (IRC) offers an immediate expense deduction for business owners purchasing depreciable business assets. Unlike standard depreciation, which spreads the deduction over time, Section 179 allows businesses to deduct up to the full purchase price of qualifying assets in the year they’re placed in service. Understanding these mortgage terms can help investors make more informed financial decisions.

This immediate deduction reduces the current-year tax liability, providing tax relief for businesses. However, Section 179 has limitations. For instance, the asset must be used more than 50% of the time for business purposes to qualify. There are also yearly limits placed on how much you can deduct.

On the other hand, bonus depreciation allows for immediate deductions but is not limited to specific assets. It generally allows you to deduct a certain percentage of the cost of qualifying assets placed in service in the year of purchase. Currently, the percentage you can deduct depends on the year.

The special depreciation allowance has no annual limit and can be larger than your income.

Bonus depreciation is often used for shorter-lived assets or improvements to real estate, such as new roofs or heating systems.

Which Real Estate Assets Qualify for 100% Bonus Depreciation?

For real estate investors, these are the most commonly eligible assets:

• 5-Year Property: Appliances, cabinets, carpeting, fixtures

• 7-Year Property: Office furniture, equipment

• 15-Year Property: Land improvements like fences, sidewalks, landscaping, and parking lots

• Qualified Improvement Property (QIP): Interior non-structural improvements to commercial buildings

This applies to both new and used property, including renovation and upgrade costs, as long as the taxpayer has not previously used the asset.

Cost segregation studies help identify which components of a property fall into these categories, enabling maximum first-year deductions.

Additionally, bonus depreciation applies to certain business assets with a maximum useful life of 20 years, meeting specific qualifications. The taxpayer must not have used assets before acquisition, they cannot have acquired the asset from a related party, and a member of a controlled group of corporations cannot have owned the asset. Examples of qualifying bonus depreciation business assets include:

• Private Jet / Aircraft used for business purposes.
• Short-term rental properties that are Modified Accelerated Cost Recovery System (MACRS) qualified or fall under the Qualified Leasehold Improvement Property classification.
• Residential investment properties that have been cost-segregated.

Certain assets remain permanently excluded from bonus depreciation, including property used to furnish or sell regulated utility services (electricity, water, sewage), or in gas or steam distribution systems, due to explicit statutory disallowance. Qualified Improvement Property (QIP) placed in service after December 31, 2017, is now eligible for bonus depreciation, thanks to the CARES Act amendment that retroactively assigned QIP a 15-year recovery period, fixing the original TCJA drafting error.

For bonus depreciation in real estate, it’s important for investors to understand that residential properties themselves don’t qualify for bonus depreciation because they have a longer useful life than 20 years. So, whether you have a DSCR loan or want to refinance your investment property, it doesn’t matter. What matters is the type of asset and its useful life.

While you can’t use the bonus depreciation deduction on residential property unless you administer a cost-segregation study, there are assets investors can claim bonus depreciation on.

Tangible property purchased for business use, including within rental properties, is deductible through the bonus depreciation for real estate. This applies to both new and newly acquired used property, provided it hasn’t been used personally before being placed in the rental. In other words, 100% bonus depreciation provides real estate investors an incentive to invest in improving and upgrading their property. These items might include:

• Appliances
• Furniture
• Lighting fixtures
• HVAC systems
• Televisions
• Window treatments
• Smart home technology

Business operation assets also qualify, such as:

• Hardware and computers
• Vehicles used for business purposes
• Production equipment for filming, staging, and marketing properties
• Office furniture and fixtures
• Non-licensed software

There are even eligible land improvements, such as

• Landscaping
• Irrigation systems
• Fences and walls
• Sidewalks
• Outdoor lighting
• Security systems

Keep in mind that land improvements must adhere to the 20-year useful life rule to qualify for bonus depreciation.

State-by-State Breakdown: Bonus Depreciation Conformity in 2025

While the One Big Beautiful Bill Act (2025) restored 100% bonus depreciation for federal tax purposes (effective for qualified property placed in service on or after January 20, 2025), each state has its own rules about whether to conform to this federal provision.

This means real estate investors and business owners must understand state-level depreciation rules to avoid costly errors and maximize tax efficiency.

Which States Allow 100% Bonus Depreciation?

Here’s how popular states currently treat the 2025 bonus depreciation provisions:

• California: Does not conform to the current IRC. Taxpayers must add back any federal bonus depreciation and use a separate depreciation schedule for California state returns. California follows static conformity (as of January 1, 2015) unless Senate Bill 711 is passed.

• Colorado: Fully conforms to the current Internal Revenue Code (IRC) and allows 100% federal bonus depreciation for state income tax purposes, no add-back required.

• Kansas & Louisiana: Both states conform to the federal IRC and allow taxpayers to claim full bonus depreciation at the state level.

• Texas, Nevada, Alaska, South Dakota, Wyoming, Washington, New Hampshire, Tennessee, Florida: These no-income-tax states either have:

  • No personal or corporate income tax (e.g., Texas, Nevada), or

  • Income tax systems that do not apply to depreciation conformity (e.g., Washington, New Hampshire).

  • Therefore, bonus depreciation conformity is not applicable, and no state-level adjustment is required.
    Note: Florida is the exception for corporations, which do file, but it conforms.

• Illinois, New Jersey, Pennsylvania, and New York: These states have decoupled from the federal bonus depreciation rules. Federal expensing must be added back, and state-specific depreciation must be calculated separately.

• Arkansas, Connecticut, Kentucky (and others): These states follow partial or static conformity. Bonus depreciation may be allowed in limited years or under special rules, but not fully adopted.

2025 Tax Planning Strategies for Real Estate Investors

Now that 100% bonus depreciation is back for good, investors should consider these strategic moves:

1. Time asset purchases to ensure placed-in-service dates fall on or after January 20, 2025.
2. Order cost segregation studies early in the process to accelerate depreciation on 5, 7, and 15-year property.
3. Maximize deductions by combining bonus depreciation with Section 179 for qualifying improvements.
4. Review passive activity rules and income limits with a CPA to ensure you’re eligible to use the full deduction in the current year.
5. Reinvest tax savings into additional properties to compound wealth over time.

Example: A residential real estate investor in a single-family home who spends $250K on unit renovations can now write off the full $250K in the same tax year, slashing their taxable income dramatically.

Pros and Cons of Using Bonus Depreciation in Real Estate

Bonus depreciation offers significant benefits for real estate investors and business owners. However, there are potential drawbacks to consider.

Pros of taking the bonus depreciation deduction include:

• Immediate tax deductions: Using bonus depreciation allows investors to deduct a significant portion of their property’s costs in the first year, reducing taxable income and potentially lowering their tax liability.
• Accelerated returns: By front-loading deductions, investors can enjoy higher deductions upfront, allowing them to generate profits sooner and reinvest resources into expanding their real estate portfolio.
• Flexibility: Bonus depreciation offers flexibility in managing taxes and cash flow, especially for those with fluctuating income or substantial capital expenditures.
• Net operating loss (NOL) creation: Claiming bonus depreciation in a year with losses can create or increase a net operating loss, which can be carried forward to offset future taxable income.

Potential disadvantages of using bonus depreciation include:

• Depreciation recapture: Upon selling the property, investors who claim bonus depreciation may be subject to depreciation recapture, requiring them to repay a portion of the deducted value.
• Can’t be used again: You can’t depreciate the asset again in the future if you use bonus depreciation. Therefore, using bonus depreciation can lead to future tax challenges, particularly if a business experiences fluctuations in income or fails to anticipate future depreciation needs.
• Disparities in taxable income: For larger companies with significant capital expenses, bonus depreciation deductions may exceed current taxable income, resulting in unnecessary losses that may be difficult to manage.

How to Maximize Tax Savings with Bonus Depreciation

100% bonus depreciation is a prime opportunity for investors to maximize their savings and optimize their tax strategies. There are excellent tax benefits of investing in real estate associated with bonus depreciation.

Considering investing in real estate? It’s always important to consider the tax implications by speaking to your tax professional. Partnering with a trusted mortgage lender like Griffin Funding can provide invaluable support and help you navigate today’s housing market.

Whether you’re looking to secure an investment property loan for acquisitions or optimize your investment portfolio, we offer tailored solutions to meet your needs. Contact Griffin Funding today or download the Griffin Gold app to unlock the full potential of your real estate investments.

With the return of 100% bonus depreciation, real estate investors have a powerful tool to:

• Boost after-tax ROI

• Accelerate equity building

• Reduce federal income tax liability

• Create a reinvestment snowball effect

Whether you’re investing in multifamily, single-family rentals, office, or industrial properties, this tax benefit makes now one of the best times to grow your portfolio.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 23 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 11 years in business.