Is It Too Late to Claim Bonus Depreciation on My Properties?
If you're a real estate investor who hasn't claimed bonus depreciation on your properties in previous years, you might be wondering if you’ve missed out on valuable tax savings. The good news? All may not be lost. There’s still a way to go back and capture those missed deductions—even if it's been years since you placed the property in service.
First, What Is Bonus Depreciation?
Bonus depreciation allows real estate investors to immediately deduct a large percentage of the cost of eligible property in the year it's placed in service. Thanks to the Tax Cuts and Jobs Act (TCJA), bonus depreciation was temporarily increased to 100% for qualified property acquired and placed in service between September 27, 2017 and January 1, 2023. That percentage is now phasing down (unless reestablished by the current administration), but the opportunity for past years may still be on the table.
What If You Didn't Claim It?
If you could have claimed bonus depreciation on eligible components of your property (think personal property identified in a cost segregation study), but didn’t, you might still have a chance to fix it.
The IRS allows a taxpayer to make a late election or change a depreciation method by filing a Form 3115 (Application for Change in Accounting Method). This is often referred to as a “catch-up” depreciation adjustment under Section 481(a).
The Power of the Form 3115
Using Form 3115, you can “catch up” on depreciation you should have taken in prior years—without having to go back and amend prior returns. The missed depreciation is taken all at once in the current year as a one-time adjustment, which can significantly reduce your current year’s taxable income.
This strategy is especially useful for:
Investors who didn't do a cost segregation study when they acquired their property
Taxpayers who simply depreciated the entire property over 27.5 or 39 years without carving out shorter-life components
Clients with high income this year who could benefit from a large deduction
Example
Let’s say you purchased a $1.5 million multifamily property in 2019 and depreciated it straight-line over 27.5 years, never conducting a cost segregation study. In 2025, your CPA performs a cost seg study and determines $300,000 of that could have been depreciated under 5-, 7-, or 15-year lives with 100% bonus depreciation. By filing Form 3115 in 2025, you could deduct the entire $300,000 as a 481(a) adjustment in the current tax year.
Is There a Deadline?
While you're not necessarily too late, time may be limited based on the phase-out schedule for bonus depreciation and other IRS changes. Also, if you’ve already disposed of the property or made certain elections, your options may be more limited.
This strategy is especially timely for tax year 2025, when bonus depreciation is set at 60%—making those prior 100% bonus years even more attractive to "catch up" on now.
Final Thoughts
If you haven’t claimed bonus depreciation and think the window is closed—it may not be. A cost segregation study combined with a Form 3115 could open the door to major tax savings.
As always, work with a tax professional who understands the ins and outs of real estate tax strategy to make sure you're taking full advantage of what’s available to you.