Bonus depreciation is a tax provision that allows an investor to deduct a large portion, sometimes all, of the cost of qualifying short-lived property in the year it is placed in service, rather than spreading that deduction over many years. It typically applies to the same categories of assets identified through a cost segregation study, such as certain personal property, fixtures, and land improvements with depreciation lives of twenty years or less. The exact percentage allowed has changed repeatedly through legislation, so investors should confirm current rules rather than assume a fixed figure applies.
For real estate syndications, bonus depreciation is often the single largest driver of paper losses in the first year of a deal, which can be especially useful for investors also generating passive income elsewhere in their portfolio. Because bonus depreciation rules have shifted with recent tax legislation, sponsors and investors alike should treat the applicable percentage as a moving target and verify it against current law before modeling returns.
Further reading: K-1 vs. 1099-DIV: The Tax Form Tells You What You Actually Own
ACCESS
