Can rental house use bonus depreciation in 2025

Quick answer: For 2025, a rental house itself generally cannot use bonus depreciation — residential rental buildings are long-lived real property (27.5-year recovery), which doesn't qualify. But bonus depreciation can apply to the shorter-lived components and personal property within a rental (appliances, carpeting, certain land improvements, etc.) if they're acquired and placed in service after January 19, 2025, and you report them on Schedule E.

What it depends on:

• The building structure itself. Bonus depreciation only applies to property with a MACRS recovery period of 20 years or less (plus certain software and qualified improvement property). IRS Publication 946 describes qualified property as property that is tangible property depreciated under MACRS with a recovery period of 20 years or less, or computer software defined in and depreciated under section 167(f)(1) of the Internal Revenue Code.¹ A residential rental building has a 27.5-year recovery period, so the building's own cost is excluded from bonus depreciation and must be depreciated the normal way over 27.5 years.

• Components and personal property within the rental. Items like appliances, carpeting, certain fixtures, and qualifying land improvements typically have MACRS recovery periods of 5, 7, or 15 years — these can qualify for bonus depreciation if the other requirements (original use/acquisition rules, placed-in-service date) are met.

• The 2025 bonus depreciation rate — now 100%. IRS Publication 527 (for residential rental property) confirms that the 100% special depreciation allowance is restored for qualified property acquired and placed into service after January 19, 2025. However, property put into service between January 1, 2025, and January 19, 2025, or acquired before January 20, 2025, and put into service later will remain subject to the phase-down rules under prior law.² So the exact date you both acquired and placed the component in service in 2025 matters.

• Confirming legislative change. This jump to 100% reflects a 2025 law change. Publication 463 explains: P.L.119-21 (July 4, 2025), commonly known as the One Big Beautiful Bill Act (OBBBA), made several amendments to Code section 168(k) to provide taxpayers with a permanent 100% additional first-year depreciation deduction for qualified property acquired and placed in service, and specified plants planted or grafted, after January 19, 2025. Specifically, OBBBA replaced the annual phasedown of the applicable percentage for the Code section 168(k) additional first-year depreciation deduction with a permanent 100% additional first-year depreciation deduction for qualified property acquired, or specified plants planted or grafted, after January 19, 2025.³ There's also an opt-out: OBBBA amended Code section 168(k) to allow taxpayers to elect to deduct 40% (60% for certain property having longer production periods or certain aircraft), instead of 100%, additional first-year depreciation for qualified property placed in service, or specified plants planted or grafted, during the first-tax year ending after January 19, 2025.⁴

• Default is automatic unless you elect out. Publication 946 notes that unless you elect out, you must take a 100% special depreciation allowance for certain qualified property (including long production period property and certain aircraft) acquired and placed in service after January 19, 2025. However, you can elect to take a 40% special depreciation allowance... instead of the 100% special depreciation allowance in the first tax year ending after January 19, 2025.⁵

In practice: To actually benefit, a cost-segregation study is usually needed to separate the non-structural components (with short recovery periods) from the 27.5-year building cost — the documents here don't include cost-segregation mechanics specifically, but the bonus-depreciation eligibility rule above is what governs which components qualify.

One caveat: Publication 463's reference to "Notice 2026-11" for further OBBBA guidance suggests additional IRS guidance may exist beyond what's summarized here — worth confirming it hasn't changed mechanics for your situation.

Because correctly separating a rental building's structure from its depreciable components (and applying the right placed-in-service dates) is fact-intensive, it's worth having a CPA review your specific purchase settlement statement and any cost segregation analysis before you file.