100% Bonus Depreciation Is Back - Here’s How to Qualify

100% Bonus Depreciation Is Back! - But Only If You Know This IRS Form

Most real estate investors think the window for 100% bonus depreciation closed years ago. But thanks to a surprising twist in the new domestic policy spending bill, that opportunity is back, and it’s not just for new property acquisitions.

If your investment property has been quietly generating cash flow for years and you’ve never done a cost segregation study, the new tax law could open the door to a massive first-year write-off you didn’t think was possible.

In this article, we’ll break down:

• What the 2025 tax bill actually says about bonus depreciation
• How cost segregation works on older rental properties
• Why Form 3115 is the key to unlocking bonus depreciation for past purchases
• The timing rules that determine whether you qualify for the new 100% rate
• And what savvy investors should do right now to position for this rare planning opportunity

Let’s start with what just happened on Capitol Hill.

On July 3, 2025, the House passed the domestic policy bill unofficially called “One Big Beautiful Bill” (OBBB)—a sprawling tax, spending, and economic legislation package. One of the most eye-catching provisions in the bill is the restoration of 100% bonus depreciation, effective for qualifying property placed in service on or after January 19, 2025.

📜 What This Means:

• The original TCJA schedule had bonus depreciation phasing down to 40% in 2025, 20% in 2026, and disappearing entirely in 2027.
• The new bill reverses this phase-out, but only for assets placed in service on or after January 19, 2025, the cutoff date.
• 100% bonus depreciation would once again apply permanently under the new language.

For those in construction, manufacturing, and other capital-intensive industries, this is a significant development. However, for real estate investors—especially those with existing residential rentals—it presents a unique and time-sensitive opportunity when combined with the right tax strategy.

Most residential rental properties are depreciated over 27.5 years on a straight-line basis. That means minimal depreciation deduction in the early years when cash flow is tightest.

A cost segregation study breaks the property down into component parts, reclassifying items like:

• Carpeting, flooring, and appliances (5-year property)
• Site improvements like landscaping or fencing (15-year property)
• Wiring, lighting, and plumbing fixtures (varies)

These reclassified assets can be depreciated over shorter periods, and in years when bonus depreciation applies, they can often be entirely written off in the first year.

That’s where things get interesting.

If you purchased your rental property years ago and never conducted a cost segregation study, you haven’t lost your opportunity to accelerate depreciation. In fact, you can go back and retroactively reclassify the property using IRS Form 3115, which allows for a change in accounting method.

• You complete a cost segregation study in 2025.
• You file Form 3115 to reclassify the applicable portions of the property to 5-, 7-, or 15-year MACRS classes.
• The IRS allows you to take a Section 481(a) catch-up adjustment—meaning you get to deduct all the depreciation you should have taken in prior years in one shot.

And here’s the kicker: if those reclassified components are treated as “placed in service” in 2025 (more on that next), you could apply the new 100% bonus depreciation rate from the Senate bill—even on property you’ve owned for years.

The IRS defines “placed in service” as the date an asset is ready and available for its intended use. Usually, this is when you first begin renting the property.

However, under IRS rules for Form 3115 and cost segregation reclassification:

• The reclassified components are treated as newly placed in service in the year of the accounting method change (i.e., 2025).
• This means they can qualify for the prevailing bonus depreciation rate in that year, assuming they otherwise meet eligibility rules (20-year MACRS life or less, new use, etc.).

So, while the building itself was placed in service years ago, the carpet, appliances, land improvements, etc., identified through the 2025 study are treated as newly placed in service in 2025—and can be eligible for 100% bonus depreciation, if the law is finalized as proposed.

The Senate bill specifies that 100% bonus depreciation applies to assets placed in service on or after January 19, 2025.

That creates a critical timing nuance:

If your cost seg and 3115 filing is executed after January 19, 2025, the bonus depreciation applicable to those reclassified assets could be 100%, making timing crucial.

Let’s say you bought a $700,000 rental property in 2020. You’ve been depreciating the whole building over 27.5 years—about $25,455 per year.

In 2025, you do a cost seg and break out:

• $60,000 in 5-year personal property
• $40,000 in 15-year land improvements (not raw land)

With Form 3115 and §481(a), you can deduct the full $100,000 in 2025 under 100% bonus depreciation (assuming it qualifies).

That’s 4x your typical annual depreciation, and could offset rental income or other active income depending on your participation level and tax situation.

To summarize, here’s what needs to happen for this strategy to deliver:

✅ The 100% bonus depreciation provision must include reclassified property via 3115
✅ The cost segregation study is completed in 2025
✅ The Form 3115 is filed correctly, with the §481(a) catch-up deduction claimed
✅ The study and form filing occur on or after January 19, 2025
✅ The components have a MACRS life of 20 years or less (5-, 7-, 15-year property)

If all of that aligns, you’re staring at one of the most powerful tax moves left on the table for investors with older properties.

• IRS guidance is expected later this year or in early 2026 to clarify how the new law applies to method changes and §481(a) deductions.
• The strategy is best executed with the assistance of a qualified cost segregation firm and an experienced CPA or EA to ensure the 3115 is handled correctly.
• Passive loss limitations, at-risk rules, and other IRC sections may limit your ability to use the bonus depreciation in the current year.
• This does not apply to the structural components of the building (still depreciated over 27.5 years).

If you’ve been sitting on an appreciating rental for years, you might be sitting on a hidden tax deduction you didn’t know existed, and 2025 may be the best time to unlock it.

Cost segregation combined with Form 3115 and the Senate’s newly restored 100% bonus depreciation rule could result in tens of thousands of dollars in tax savings in a single year, even if you bought the property back in 2017 or earlier.

At VIP Wealth Advisors, we help real estate investors nationwide identify, plan, and execute powerful tax strategies, such as this one, tailored to your actual portfolio and tax position.

• ✅ We can coordinate with cost seg firms
• ✅ We prepare and file the 3115
• ✅ We integrate this into your overall financial and retirement plan
• ✅ And we handle your tax prep, too, so everything aligns perfectly

Let’s talk before you miss out on this 2025 opportunity.
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