How regular MACRS depreciation works
Under MACRS, a residential rental building is depreciated straight-line over 27.5 years (or 39 for commercial). The annual deduction is the same each full year — building basis divided by the recovery period. Shorter-life components (5-, 7-, 15-year) also follow MACRS, depreciating over their respective schedules without any bonus.
What bonus depreciation adds
Bonus depreciation lets you deduct a large percentage of qualifying shorter-life assets in year one rather than spreading the cost over years. The building structure itself doesn't qualify, but components identified through a cost segregation study can. The bonus rate has been phasing down: 100% through 2022, stepping down each subsequent year — confirm the current-year rate before planning a purchase.
Which approach makes sense for you
Bonus depreciation is most valuable when you have taxable income to shelter now, you're in a higher bracket, and you don't plan to sell imminently. In a low-income year or when passive activity limits prevent you from using the loss, spreading deductions over regular MACRS may be more practical.
Frequently asked questions
Does the building itself qualify for bonus depreciation?
No — the 27.5- and 39-year building structure must use straight-line MACRS. Cost segregation unlocks bonus depreciation for shorter-life components.
What is the current bonus depreciation rate?
It phases down annually from 100%. Confirm the rate for your placed-in-service year; legislation can change the schedule.
Sources
- IRS Publication 946 — How to Depreciate Property
- IRS — Cost Segregation Audit Techniques Guide
- IRS Publication 527 — Residential Rental Property
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.