Section 179 vs Bonus Depreciation: Real Estate Guide
Bonus depreciation has no cap and can create a loss. Section 179 is capped at $2.5M for 2025 ($2.56M for 2026) and limited to business income, but it reaches the roofs and HVAC that bonus cannot. Where each one fits.
For most rental property, bonus depreciation does the work: no cap, it can create a loss, and covers every 5-, 7- and 15-year component a cost segregation study finds. Section 179 is capped ($2.5M for 2025, $2.56M for 2026) and limited to business income, but can expense a new roof or HVAC on a commercial building, which bonus cannot.
Bottom Line
- For a rental you buy, bonus depreciation under IRC §168(k) does almost all of the work. A cost segregation study supplies the 5-, 7- and 15-year components, and bonus deducts them in Year 1.
- Section 179 is capped at $2,500,000 for tax years beginning in 2025 and $2,560,000 for 2026. It is limited to business income, so it cannot create a loss.
- Section 179’s real edge is what bonus cannot touch: roofs, HVAC, fire protection, alarm and security systems added to an existing commercial building. Those are 39-year property, so bonus does not apply. Section 179 can expense them.
- You can use both in the same year, on different assets.
If you have heard “just 179 it” about a rental property, what was usually meant is bonus depreciation on components identified by a cost segregation study. The two provisions overlap less than the name-swapping suggests, and the difference decides how much you can deduct, whether the deduction can create a loss, and which assets qualify at all. For the separate question of whether 100% bonus is here to stay, see is bonus depreciation permanent?. This page is about choosing between the two.
Side-by-Side Comparison
| Feature | Section 179 | Bonus depreciation (§168(k)) |
| Annual dollar limit | $2,500,000 (tax years beginning in 2025); $2,560,000 (2026) | None |
| Phase-out | Limit reduced dollar for dollar above $4,000,000 of §179 property placed in service (2025); $4,090,000 (2026) | None |
| Rate | Up to 100% of the cost you elect | 100% for property acquired after January 19, 2025 |
| Default or election? | You elect it, asset by asset, on Form 4562 | Applies automatically; you may elect out by property class |
| Can it create a loss? | No, limited to taxable income from active trades or businesses (the excess carries forward) | Yes |
| Building components a cost seg study finds (5-, 7-, 15-year) | Only if they are §179 property and pass the business-income and lessor limits | Yes, the main use |
| Roof, HVAC, fire/alarm, security on an existing commercial building | Yes, as “qualified real property” (§179(f)) | No, these are 39-year property |
| Same items on a residential rental | No, §179(f) covers nonresidential buildings only | No, 27.5-year property |
| Recapture on sale | Ordinary income (treated as §1245 property) | 5- and 7-year components: ordinary income (§1245). 15-year land improvements: the excess over straight-line is ordinary income, and the rest is taxed at up to 25% |
| State treatment | Several states cap it far lower, e.g. California and Hawaii at $25,000 | Many states decouple entirely; see the state conformity map |
Sources: the 2025 and 2026 limits are from Rev. Proc. 2025-32, sections 3.02 and 4.24, which applies the limits the One Big Beautiful Bill Act (OBBBA) wrote into §179(b). The January 19, 2025 acquisition date for 100% bonus is from OBBBA §70301, as described in IRS Notice 2026-11.
In short, bonus is broader and has no cap. Section 179 is narrower, and it reaches a handful of assets that bonus cannot. For the bonus side in more depth, see bonus depreciation in 2025–2026.
How They Work with Cost Segregation
A cost segregation study doesn’t decide which provision you use. It decides which components are eligible for faster treatment at all.
Without a study, the whole building (minus land) is one asset: 27.5 years for residential rental property, 39 years for commercial. Neither class qualifies for bonus, and neither is Section 179 property.
A study breaks the building into its components (flooring, cabinetry, appliances, specialty electrical, landscaping, paving) and assigns each to its MACRS class under Rev. Proc. 87-56 and the approach in the IRS Cost Segregation Audit Techniques Guide. The 5-, 7- and 15-year components qualify for bonus. On property acquired after January 19, 2025 that means 100% in the year it is placed in service.
Could you use Section 179 on those same components instead? Sometimes, but it rarely helps. Section 179 cannot take you below zero business income, it has to be elected, and for an individual who leases property to tenants, the noncorporate lessor rule in §179(d)(5) can shut it off entirely. Bonus has none of those limits, so on a rental you just bought it is almost always the tool.
For typical reclassification by property type, see our cost segregation benchmarks, or read how cost seg compares to standard depreciation.
Where Section 179 Wins: The Commercial Roof
Section 179 earns its place on work you do to a building you already own. Here is the case where it is the only way to expense the cost.
Worked example. You own an office building that has been in service since 2012. In 2026 you replace the roof for $180,000 and the rooftop HVAC units for $120,000.
- Bonus depreciation: $0. A roof and a rooftop HVAC system are structural components of a nonresidential building, which makes them 39-year property. They are not Qualified Improvement Property, because QIP is limited to interior improvements. Bonus does not apply to 39-year property.
- Regular depreciation: $300,000 over 39 years is about $7,700 a year, and less than that in the first year because of the mid-month convention.
- Section 179: roofs and HVAC added to nonresidential real property after it was first placed in service are “qualified real property” under §179(f). You can elect to expense the full $300,000 in 2026, well inside the $2,560,000 limit, as long as you have at least $300,000 of taxable income from active trades or businesses. Any amount above that income carries forward to later years.
- Also worth asking your CPA about: the partial disposition election, which lets you write off the remaining basis of the old roof you tore off instead of depreciating a roof that no longer exists.
The same roof on a rental house gets neither. §179(f) is limited to nonresidential buildings, and the roof is 27.5-year property, so bonus is out too. Your options there are the repair-versus-improvement rules and, for smaller owners, the safe harbor for small taxpayers under the tangible property regulations. Our guide to cost segregation for renovations and improvements covers that path.
Other places Section 179 fits:
- Qualified Improvement Property: interior improvements to an existing nonresidential building, such as tenant build-outs and reconfigured office space (not enlargements, elevators or the internal structural framework). QIP is 15-year property, so it qualifies for bonus as well as Section 179. Section 179 lets you expense only part of it and depreciate the rest. See who depreciates a build-out: landlord or tenant.
- Controlling the size of the deduction: because you elect Section 179 asset by asset, you can expense just enough to bring business income to zero. Bonus is all-or-nothing per property class, and electing out applies to the whole class.
Current Law: 2025–2026
The One Big Beautiful Bill Act (Pub. L. 119-21, signed July 4, 2025) changed both provisions:
- Bonus depreciation: 100% for property acquired after January 19, 2025, with no phase-down. Property acquired under a binding contract before January 20, 2025 stays on the old schedule, which is 40% for 2025. The phase-down it replaced had already cut bonus to 80% for 2023 and 60% for 2024.
- Section 179: the limit roughly doubled, from $1,250,000 to $2,500,000, and the phase-out threshold rose from $3,130,000 to $4,000,000, for tax years beginning after 2024. Both amounts are indexed for inflation after 2025, which gives $2,560,000 and $4,090,000 for 2026 under Rev. Proc. 2025-32.
The two can apply to the same property in the same year on different assets. For example, you might expense a new HVAC system under Section 179 and take bonus on the components a cost segregation study found in the same building. Your CPA decides the combination based on your income, your entity and your state.
See How Much Bonus Depreciation Your Property Qualifies For
Free preliminary depreciation estimate — property summary, basis allocation, five-year schedule. We do the work; you get the PDF.
See my estimated Year-1 savings →Related Reading
- Is Bonus Depreciation Permanent? The OBBBA timeline
- What Percentage Should You Actually Expect From a Cost Segregation Study?
- 7 STR Tax Deductions Most Airbnb Owners Miss
- Cost Segregation When You Convert Your Primary Residence to a Rental
Frequently asked
Can I use Section 179 on a rental property?
Sometimes, and less often than people assume. The real-property categories Section 179 covers (roofs, HVAC, fire protection and alarm systems, security systems added after the building was first placed in service) apply only to nonresidential buildings, so a new roof on a rental house does not qualify. Qualified Improvement Property also qualifies, but QIP is an interior improvement to a nonresidential building. Furniture and appliances in a residential rental can be Section 179 property, but the deduction requires an active trade or business, is limited to business income, and individual landlords face the noncorporate lessor rules of §179(d)(5). For most rental owners, bonus depreciation under IRC §168(k) on the components a cost segregation study identifies is the larger and simpler tool.
What's the difference between Section 179 and bonus depreciation?
Both let you deduct property costs faster than regular depreciation. Section 179 is an election you make asset by asset, capped at $2,500,000 for tax years beginning in 2025 and $2,560,000 for 2026, reduced dollar for dollar once total Section 179 property placed in service passes $4,000,000 (2025) or $4,090,000 (2026), and it cannot create a loss. Bonus depreciation under IRC §168(k) applies automatically unless you elect out, has no dollar cap, can create a loss, and is 100% for property acquired after January 19, 2025. It covers MACRS property with a recovery period of 20 years or less, which includes every 5-, 7- and 15-year component a cost segregation study reclassifies.
Do I need a cost segregation study to claim bonus depreciation?
To claim it on the parts of a building you bought, in practice yes. Without a study the whole building (minus land) is depreciated over 27.5 years (residential) or 39 years (commercial) as a single asset, and neither 27.5- nor 39-year property qualifies for bonus. A cost segregation study identifies the components that are really 5-, 7- or 15-year property (flooring, cabinetry, specialty electrical, landscaping, paving) and documents the cost of each. Those components then qualify for 100% bonus depreciation in the year the property is placed in service, if it was acquired after January 19, 2025.
