# Bonus Depreciation: A Real Estate Tax Strategy That Saves Money
Bonus depreciation allows real estate investors to deduct a large portion of a property's value upfront rather than spreading deductions across decades. This accelerates tax write-offs and puts cash back in investors' pockets faster.
Here's how it works. When you buy a rental property or commercial building, the IRS lets you depreciate the structure (but not the land) over 27.5 years for residential or 39 years for commercial assets. Bonus depreciation shortens this timeline dramatically. Under current rules, investors can deduct 80% of qualified property improvements in the year of purchase, declining to 60% in 2024 and phasing down further through 2026.
The math matters. A $500,000 apartment building purchase might allocate $400,000 to the depreciable structure. With bonus depreciation at 80%, an investor claims a $320,000 deduction in year one. This reduces taxable income substantially, lowering tax liability and freeing up cash flow.
The strategy works particularly well for fix-and-flip investors and developers who purchase properties needing renovation. New roof, HVAC system, kitchen remodel, flooring. These capital improvements qualify for bonus depreciation. Standard rental property investors also benefit, though the impact depends on building age and condition.
There are limits. Bonus depreciation phases out for businesses exceeding certain adjusted gross income thresholds. The rules also sunset in 2026 unless Congress extends them. Qualified property must be placed in service during the tax year claimed, and investors need solid documentation of what portions of the purchase price apply to depreciable assets versus land.
This strategy pairs well with cost segregation studies. A cost segregation specialist breaks down a property into components, identifying more assets eligible for accelerated