Bonus Depreciation Is Back to 100% — Here's What It Means for Your Rental Portfolio

If you've been holding off on a rental property purchase or a cost segregation study waiting for tax rules to settle, the wait is over. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025. For real estate investors, that's one of the most significant tax planning shifts in years — and it pairs naturally with the way DSCR loans already evaluate your properties.

A Quick Recap: Where Bonus Depreciation Was Headed Before OBBBA

Bonus depreciation let businesses and investors deduct a large share of a qualifying asset's cost immediately, rather than spreading it out over decades. Under the 2017 Tax Cuts and Jobs Act, that rate started at 100% for property placed in service before 2023, then began stepping down 20 percentage points a year — 80% in 2023, 60% in 2024, and just 40% for 2025 under the old schedule. Without a change in the law, it was set to disappear entirely by 2027.

The OBBBA reversed that phase-down. Qualifying property acquired and placed in service after January 19, 2025, is now eligible for 100% bonus depreciation again — and this time, it's a permanent part of the tax code rather than a temporary provision Congress has to keep renewing.

What Actually Qualifies

The definition of eligible property didn't change with OBBBA — it's the same category that qualified before: tangible property with a class life of 20 years or less. For a residential rental property, that typically means components identified through a cost segregation study rather than the building itself, since the structure is depreciated over 27.5 years. Common examples include:

• Appliances, carpeting, and certain flooring
• Cabinetry and some fixtures
• Site improvements like fencing, parking areas, and landscaping
• Certain electrical and plumbing components tied to specific equipment rather than the building's core systems

Land improvements and personal-property components identified in a cost segregation study are where most of the immediate deduction opportunity lives for a typical single-family or small multifamily rental.

Why This Matters for Investors Using DSCR Loans

DSCR loans are already built around a simple idea: the property's income, not your personal tax return, drives the qualification decision. Bonus depreciation strengthens that same underlying logic in a different way — it reduces your taxable income on paper without touching the actual rental income the property generates, which is exactly the number a DSCR loan cares about.

That distinction matters in practice. An investor who takes a large bonus depreciation deduction may show reduced or even negative taxable income for the year, which can complicate qualifying for a conventional mortgage that relies on tax returns. A DSCR loan sidesteps that entirely, since it's underwritten on the property's rent-to-debt ratio rather than the owner's adjusted gross income. For investors actively using bonus depreciation to shelter income, DSCR financing is often the more practical path to keep scaling a portfolio. For a deeper walkthrough of how DSCR qualification actually works, see No Income? No Problem: DSCR Loans in 2026.

An Illustrative Example

Say you purchase a $500,000 rental property and a cost segregation study identifies $100,000 in components eligible for bonus depreciation. Under the current rules, you could potentially deduct that full $100,000 in the year the property is placed in service, rather than spreading it across 27.5 years. That's a meaningful reduction in taxable income in year one — while your DSCR calculation for financing purposes continues to be based on the rent the property actually collects.

This is illustrative only. Your actual eligible basis, timing, and benefit depend on your specific facts, your CPA's cost segregation analysis, and how the deduction interacts with passive activity loss rules if you're not a real estate professional.

A Few Things to Watch

• Acquisition date matters. Property tied to a binding written contract signed before January 19, 2025, generally doesn't qualify for the restored 100% rate even if it closes later.
• State conformity varies. Not every state automatically follows federal bonus depreciation rules — some require an addback, so your state tax bill may not shrink as much as your federal one.
• Passive loss limitations still apply. Bonus depreciation can create a large paper loss, but whether you can use it against other income depends on your passive activity status.
• Recapture on sale. Depreciation taken now generally gets recaptured as ordinary income when you sell, so this is a timing benefit as much as a permanent one.

None of this replaces advice from your CPA — it's a starting point for the conversation.

Where This Fits in Your Investment Strategy

For investors already using DSCR loans to scale a rental portfolio, the return of 100% bonus depreciation is a reason to talk to your accountant about a cost segregation study on properties acquired after January 19, 2025 — and to your loan officer about how a DSCR loan can keep your financing moving even as your tax return shows a smaller (or negative) taxable income.

If you're evaluating a cash-out refinance or a new acquisition and want to understand how the numbers pencil out on a DSCR basis, that's a conversation ABS Home Mortgage can walk through with you directly.