Bonus Depreciation for Real Estate in 2025: The Ultimate Guide for Investors, Agents, and High-Income Earners

Bonus depreciation is back at 100% for qualifying real estate — and it's one of the most powerful tax strategies investors, real estate professionals, and W-2 earners can use to reduce their tax liability and build long-term wealth.

With recent tax law changes set to take effect in 2025, now is the time to prepare your portfolio to take full advantage.

In this comprehensive guide, we’ll cover:

• What bonus depreciation is and how it works

• 2025 updates to bonus depreciation rules

• Who qualifies — including real estate agents and W-2 employees

• How to use cost segregation studies

• Real-world examples and savings potential

• Key timing and eligibility requirements

• Tax planning strategies that combine bonus depreciation with Roth conversions

What Is Bonus Depreciation?

Bonus depreciation is a tax incentive that allows real estate investors to accelerate depreciation deductions on certain components of a rental property in the first year the asset is placed in service.

Instead of spreading deductions over the standard 27.5 years (for residential property), bonus depreciation lets you deduct 100% of eligible components up front — dramatically reducing taxable income.

Eligible Items Typically Include:

• Furniture and fixtures

• Appliances

• Carpet and flooring

• Landscaping

• Light construction upgrades

• Interior lighting

• Certain outdoor improvements

These items are considered “personal property” or “land improvements” and, when identified through a cost segregation study, can qualify for first-year write-offs under IRS rules.

2025 Bonus Depreciation Update: What's Changing?

Under previous tax law (TCJA), bonus depreciation was set to phase out — dropping to 80% in 2023, then 60% in 2024.

However, with new provisions added in 2024, 100% bonus depreciation returns for short-term rental (STR) properties placed in service after January 19, 2025.

This change creates a unique window for high-income earners and investors to:

• Acquire a new property

• Furnish or improve it

• Accelerate tax deductions

• Offset taxable income — in some cases, W-2 income as well

How Bonus Depreciation Works in Real Estate

To use bonus depreciation, the investor must:

1. Acquire a qualifying property

2. Place it in service (available for rent) after January 19, 2025

3. Commission a cost segregation study

4. Deduct eligible items (furniture, appliances, upgrades, etc.) in year one

A cost segregation study is a professional engineering and accounting report that breaks down the components of your property into IRS-defined categories for accelerated depreciation.

This is the key to unlocking bonus depreciation — and in many cases, the study pays for itself through first-year tax savings.

Who Qualifies for Bonus Depreciation?

Real Estate Professionals (REPs)

If you work full-time in real estate (e.g., agent, broker, developer), the IRS allows you to apply bonus depreciation against all types of income — including commissions and active business income.

To qualify as a Real Estate Professional, you must:

• Spend 750+ hours annually in real estate activities

• Have real estate as your primary occupation

✅ If you meet these criteria, any rental type — long-term, mid-term, or short-term — is eligible for bonus depreciation.

W-2 Earners and Part-Time Investors

If you’re not a full-time real estate professional, you can still qualify by investing in short-term rentals.

Short-term rentals (STRs), typically rented for fewer than 7 days at a time, are treated differently under the IRS tax code. If you:

• Materially participate in the rental

• Manage the bookings, guest communication, and day-to-day operations

• Log 100+ hours/year and more than anyone else involved

…you can apply bonus depreciation to offset your W-2 or active income, even without being a full-time real estate professional.

This is one of the few ways high-income W-2 earners can legally access these powerful deductions.

Real-World Example Scenarios

Scenario 1: Real Estate Professional

A licensed agent purchases a $500,000 long-term rental and furnishes it with $25,000 worth of upgrades. A cost segregation study identifies $130,000 in bonus-eligible assets.

In a 35% tax bracket, that translates to:

• $45,500 in tax savings in year one

• Increased cash flow due to lower tax liability

• Option to reinvest or use deductions to offset Roth conversions

Scenario 2: High-Income W-2 Employee

A software engineer earning $220,000/year buys a $525,000 short-term rental and furnishes it for $25,000. After conducting a cost seg study, $135,000 in eligible items are identified.

With material participation, the engineer deducts this amount against W-2 income — saving over $47,000 in taxes in year one.

Scenario 3: Physician Couple

A dual-income couple earning $600K+ buys a Scottsdale STR. Their cost seg study results in $180,000 of year-one bonus depreciation, saving $60K+ in taxes.

They now plan to buy one STR every two years to maintain tax efficiency and diversify income streams.

Roth Conversions + Bonus Depreciation = Powerful Planning

For those focused on long-term wealth and tax-free retirement income, bonus depreciation can be paired with Roth IRA conversions to incredible effect.

By using bonus depreciation to lower your taxable income in a given year, you create space to convert pre-tax retirement funds to Roth — without triggering additional tax.

This is a strategy used by many high earners to create tax-free income later in life.

Timing & Eligibility: Key Requirements

To qualify for 100% bonus depreciation in 2025:

• The property must be a short-term rental (average stay under 7 days)

• The owner must materially participate in management (unless they’re a REP)

• The property must be placed in service after January 19, 2025

• A cost segregation study must be completed

Final Thoughts: Is Bonus Depreciation Right for You?

If you’re a real estate agent, high-income W-2 earner, or active investor, bonus depreciation is one of the most strategic tools available to you in the current tax landscape.

It’s not just about reducing your tax bill — it’s about:

• Increasing cash flow

• Accelerating ROI

• Funding future investments

• Creating tax-free retirement income

• Building true long-term wealth

Let’s Build a Plan Around It

If you’d like to evaluate whether this strategy fits your income, timeline, or investment goals, I’d be happy to help.

📩 Click below to schedule a consulation.

Let’s put bonus depreciation to work for your future.