For years, bonus depreciation under the Tax Cuts and Jobs Act (TCJA) was phasing down — 80% in 2023, 60% in 2024, 40% in 2025 — on a glide path to zero by 2027. Then the One Big Beautiful Bill Act (OBBBA) reset the clock. For qualifying property acquired and placed in service after January 19, 2025, 100% bonus depreciation is restored. This is one of the most significant changes for real estate investors in years.
Two Tracks: OBBBA vs. Legacy TCJA
Your applicable bonus depreciation rate depends entirely on when you acquired the property:
OBBBA Track (acquired after Jan 19, 2025)
- 2025 and beyond: 100% bonus depreciation
- Applies to 5-year, 7-year, and 15-year property (personal property and land improvements)
- An election is available to take 40% instead of 100% for property in the first tax year ending after January 19, 2025 — but the default is 100%
Legacy TCJA Track (acquired before Jan 20, 2025)
- 2024: 60% bonus depreciation
- 2025: 40% bonus depreciation
- 2026: 20% bonus depreciation
- 2027 and beyond: 0% (straight-line only)
What Qualifies for Bonus Depreciation?
Bonus depreciation under §168(k) applies to property with a recovery period of 20 years or less. In the STR context, the relevant categories are:
- 7-year personal property — Furniture, fixtures, appliances, and other non-structural components identified through cost segregation
- 15-year land improvements — Landscaping, driveways, fencing, outdoor lighting
- 5-year property — Certain specialized equipment (less common in residential STR)
- Furnishings purchased separately — Beds, couches, kitchen equipment bought as personal property
The 27.5-year residential building itself does not qualify — it uses straight-line depreciation regardless of track.
Illustrative Year-1 Comparison
Illustrative Assumptions
Purchase price: $650,000 | Land: 20% | Depreciable basis: $520,000
Cost seg: 25% to 7-yr, 8% to 15-yr, 67% to 27.5-yr
Furnishings: $25,000
Filing status: MFJ | Federal marginal rate: 35%
OBBBA Track (100% bonus):
- 7-yr bonus: $520,000 × 25% × 100% = $130,000
- 15-yr bonus: $520,000 × 8% × 100% = $41,600
- 27.5-yr SL: $520,000 × 67% ÷ 27.5 = $12,669
- Furnishing bonus: $25,000
- Total: ~$209,269 | Estimated federal savings: ~$73,244
Legacy TCJA Track (40% bonus, 2025):
- 7-yr bonus: $130,000 × 40% = $52,000 (plus SL on remainder)
- 15-yr bonus: $41,600 × 40% = $16,640
- 27.5-yr SL: $12,669
- Furnishing bonus: $25,000 × 40% = $10,000
- Total year-1: ~$107,491 | Estimated federal savings: ~$37,622
The OBBBA track produces nearly 2× the year-1 deduction in this example. The Legacy track still provides meaningful acceleration — just less.
The Election: 40% Instead of 100%
For the first tax year ending after January 19, 2025, OBBBA track taxpayers may elect to apply 40% bonus (or 60% for long-production-period property and certain aircraft) instead of 100%. This might make sense if you have limited income to offset in year one, or if you prefer to spread deductions across more years. The election must be made on a timely-filed return and cannot be revoked without IRS consent. The calculator defaults to 100% and does not model this election.
State Conformity
Several states — including California, New York, New Jersey, and others — do not conform to federal bonus depreciation. If your property is located in a non-conforming state, state tax savings from bonus depreciation are limited or eliminated, even if your federal deduction is large. The calculator flags non-conforming states automatically in the Depreciation section.
Model Both Tracks in the Calculator
The Depreciation section lets you toggle between the OBBBA and Legacy TCJA tracks and see the exact year-by-year deduction schedule and estimated tax savings under your income profile.