Bonus Depreciation Before vs. After January 19, 2025: The Bifurcated Rules Explained

One of the least-discussed — and most consequential — aspects of the One Big Beautiful Bill Act is what happens to properties placed in service in the first 19 days of 2025. The OBBBA reset bonus depreciation to 100% starting January 20, 2025. But properties placed in service between January 1 and January 19 were already operating under the 40% TCJA phase-down rate. The result is a bifurcated tax year with two different rates applying to properties depending on a specific 19-day window.

Why January 19 Is the Dividing Line

The OBBBA specified an effective date of January 20, 2025 for the permanent 100% bonus depreciation restoration. The legislative text specifies that the 100% rate applies to property "acquired after January 19, 2025" and placed in service after that date. Property acquired before that date — or placed in service before that date — continues under the TCJA phase-down schedule.

Practically, the most important date is placed-in-service date. Even if you closed on a property purchase on January 5, if the property wasn't ready for its intended use until February, it was placed in service in February — after the cutoff — and qualifies for 100% bonus depreciation.

What "Placed in Service" Means

"Placed in service" has a specific tax meaning: the date on which property is in a condition or state of readiness and availability for a specifically assigned function. For a short-term rental, this is the date the property is ready to accept guests — not the closing date, not the date you physically moved furniture in.

• Closing on January 8, property immediately ready to rent: Placed in service January 8 → 40% bonus depreciation (TCJA rate)
• Closing on January 8, renovation completed and listed February 1: Placed in service February 1 → 100% bonus depreciation (OBBBA rate)
• Closing on January 22: Placed in service January 22 or later → 100% bonus depreciation regardless
• Closing December 2024, not made available until January 25, 2025: Placed in service January 25 → 100% bonus depreciation

The Tax Cost of a January 1–19 Placed-in-Service Date

How much does the bifurcation actually cost? Let's compare identical properties:

For a $500,000 property where just 5 days of timing determines the bonus depreciation rate, the difference in first-year deductions is $81,000 — which translates to approximately $30,000 in additional federal tax savings at a 37% rate. The January 19 cutoff is not trivial.

How This Affects Cost Segregation Studies

If your property was placed in service between January 1–19, 2025, your cost segregation study must handle the bifurcation correctly. The study should clearly note the placed-in-service date and apply the 40% rate to assets placed in service before January 20.

However, any capital improvements made after January 20 are treated separately. If you installed a new pool or replaced appliances after the cutoff, those specific assets get 100% bonus depreciation regardless of the building's original placed-in-service date. A precise fixed asset schedule with individual placed-in-service dates for each asset is essential for these situations.

Retroactive Studies for 2025 Early Buyers

If you purchased in January 2025 and your placed-in-service date falls between January 1–19, you received 40% bonus depreciation — you cannot retroactively change this for those specific assets. However:

• Any assets not yet identified through a cost seg study can still be claimed retroactively via Form 3115.
• Improvements and additions made after January 20 qualify for 100%.
• The remaining 60% of reclassified assets (the portion not covered by bonus dep) continues to depreciate on its regular MACRS schedule and can still produce meaningful deductions in years 2–5.