Clearing Up the Terminology“Bonus depreciation” and “cost segregation” are two different things —
“Bonus depreciation” and “cost segregation” are two different things —
but investors use them interchangeably.
It's confusing because they're almost always used together. Here's the actual distinction — and why it matters for your taxes.
Bonus depreciation
The IRS tax code provision — Section 168(k) — that allows immediate expensing of eligible assets
Your CPA, the IRS, tax legislation
Cost segregation
The engineering study that identifies which assets qualify for bonus depreciation
Engineering firms, CPAs, Abode
Accelerated depreciation
The general concept: taking deductions faster than the standard 27.5-year schedule
Finance articles, investors
Section 179
A different first-year expensing provision — similar result but with caps and limitations
Small business context, personal property
The short version
The short version: Cost segregation is the study. Bonus depreciation is the tax rule that makes the study so valuable. You need both. Abode gives you both.
The OBBBA Changed EverythingBonus depreciation history —
Bonus depreciation history —
and why right now matters.
- 2017–2022100%Tax Cuts & Jobs Act — 100% bonus on eligible property
- 202380%Phase-down begins
- 202460%Continued phase-down
- Jan 1–19, 202540%Final days of the phase-down
- Jan 19, 2025+100%OBBBA signed July 4, 2025 — permanently restored
Putting It TogetherThree steps
Three steps
to your first-year deduction.
01
Get a cost segregation study
The study identifies which components of your property qualify for 5-year, 7-year, or 15-year depreciation instead of 27.5 years. Appliances, furnishings, outdoor amenities, and specialty systems are typical candidates.
02
Apply 100% bonus depreciation
Under the OBBBA (signed July 4, 2025), all 5-year and 7-year property placed in service after January 19, 2025 qualifies for 100% immediate expensing. The full asset value is deducted in year one — not spread over years.
03
Use the STR loophole to activate the deductions
Bonus depreciation creates paper losses. For most rental investors, those losses are passive — useless against W-2 income. The STR loophole changes that: if your property qualifies, those losses become non-passive and offset any ordinary income.
Act Before Year-EndEvery year without a cost seg study
Every year without a cost seg study
is a missed deduction.
Missed years can be recovered with a look-back study + Form 3115 — but only for years where the statute of limitations is still open. Don't let more time pass.
Heads up
Properties acquired before January 19, 2025 are subject to different bonus depreciation rates. Your CPA should confirm the applicable rate. Abode's study includes the correct calculation for your acquisition date.