DC Bonus Depreciation: Barred for Business — Which Catches Most Landlords.
The District's §168(k) bar sits in the business deductions section, not the individual section — but the Unincorporated Business Franchise Tax sweeps in essentially any individually-held rental real estate activity, so most DC landlords end up subject to the bar anyway.
Reviewed by Cost Seg Smart Editorial Team · Last verified against D.C. Code §47-1803.03 — business deductions
The 30-second answer: D.C. Code §47-1803.03(a)(7)(B) disallows the federal §168(k) special depreciation allowance (and §168(n)) for corporations, financial institutions, unincorporated businesses and partnerships. That bar is not written into the individual AGI section.
The catch: the DC Unincorporated Business Franchise Tax (UBT) reaches essentially any rental real estate activity an individual carries on, because capital is a material income-producing factor in real estate. So an individual who rents DC property is very likely taxed under the UBT — which is subject to the §168(k) disallowance — not under the individual income tax that escapes it.
On a representative DC single-family rental (the single-family rental band we publish, 9–32% of depreciable basis reclassified, 16% representative), the reclassified components alone generate an estimated $18K–$165K of federal Year-1 depreciation — roughly $6,660–$61,570 of federal Year-1 tax savings at the 37% top bracket, claimed federal-only since the DC-level UBT return generally does not get the accelerated allowance.
The literal statute, and why it is not the whole answer
Read narrowly, D.C. Code §47-1803.03(a)(7)(B)(i) and (iii) say something specific: no deduction is allowed for the special depreciation allowance under §168(k), and (by a later amendment) none is allowed under §168(n) either. That language lives in the section covering business deductions — corporations, financial institutions, unincorporated businesses and partnerships. No comparable disallowance turned up in the section governing individual adjusted gross income.
Taken at face value, that split would suggest a simple answer: businesses lose bonus depreciation in DC, individuals keep it. That is exactly the kind of answer a generic summary would stop at — and it would be wrong for the DC property owner asking this question, because it ignores which tax an individual DC landlord is actually filed under.
The District's Unincorporated Business Franchise Tax reaches any trade or business carried on by an individual or an unincorporated group of individuals, where capital is a material income-producing factor in generating the income. Owning and renting real property is close to the textbook case: the building itself — not the owner's personal services — is what produces the rental income. That is exactly the kind of activity the UBT is built to capture.
The practical result: an individual who owns and rents DC property is very likely taxed under the UBT rather than escaping into the plain individual income tax — and the UBT sits inside the business deductions section that disallows §168(k). Only a DC taxpayer with no business or rental activity at all is clearly outside the UBT's reach, and for that person the bonus depreciation question does not arise in the first place, because there is no rental property generating the deduction.
Federal vs District of Columbia, Side by Side
For an individual DC rental owner's (very likely UBT-taxed) or a business's cost-segregation-reclassified components:
| Tax provision | Federal (IRC) | District of Columbia |
|---|---|---|
| Bonus depreciation under §168(k)/(n) | 100% may apply to qualified property acquired and placed in service after January 19, 2025, subject to §168(k) eligibility, related-party/prior-use, binding-contract, and election rules | Disallowed for corporations, financial institutions, unincorporated businesses and partnerships (§47-1803.03(a)(7)(B)) |
| Individual AGI section, standing alone | Not applicable | No depreciation add-back found — but see the UBT sweep-in below |
| A DC individual who rents real property | Not applicable | Very likely taxed under the UBT (capital is a material income-producing factor in real estate), which IS subject to the disallowance |
| DC taxpayer with no business or rental activity | Not applicable | Outside the UBT — but has no rental property generating the question |
| Federal usability of the deduction | Subject to passive activity, at-risk, basis, and business-interest limits | Same federal limits govern the federal deduction; DC's disallowance applies independently to the DC-level UBT or business return |
Source: D.C. Code §47-1803.03 — business deductions; IRC §168(k). Federal bonus figures reflect current law; eligibility depends on acquisition and placed-in-service dates and elections. The source page carries a notice referencing amendments by temporary legislation expiring 2026-09-25; whether that notice touches this specific subsection could not be confirmed. The disallowance reads as stable, longstanding policy — this note is flagged for a future recheck, not a reason to doubt today's answer.
Illustrative numbers: a DC single-family rental
Using the single-family residential (SFR) band we publish — 9–32% of depreciable basis reclassified into 5/7/15-year property, 16% representative — on a property priced between $250,000 and $650,000, with a 20% residential land allocation, and 100% federal bonus depreciation for eligible components under current law. The DC column assumes the rental activity is UBT-taxed, which is the likely case for an individual DC landlord:
| Line item | Federal | District of Columbia (UBT) |
|---|---|---|
| Purchase price band | $250,000–$650,000 | Same property |
| Depreciable basis (20% land allocation) | $200,000–$520,000 | Same basis before the disallowance |
| Reclassified to 5/7/15-yr (9–32% of basis) | $18K–$165K | §168(k) portion disallowed |
| Year-1 treatment | $18K–$165K deducted (100% bonus, if eligible) | Ordinary MACRS depreciation only; no accelerated allowance |
| Tax basis for the disallowance | Not applicable | Unincorporated Business Franchise Tax return, not the individual DC return |
| Illustrative Year-1 federal tax savings on reclassified components | ~$6,660–$61,570 (37% × $18K–$165K) | No DC-level acceleration; recovered on the ordinary MACRS schedule under the UBT instead |
Figures are illustrative and use the site's published SFR reclassification band; your result depends on your basis, land allocation, bracket, component mix, and eligibility. Whether the full federal deduction is usable in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation. Whether a specific rental activity is taxed under the UBT is a factual determination your CPA should confirm.
See a sample cost segregation report
Look at exactly what your DC study delivers: the component-by-component 5/7/15-year schedule, the Form 4562-ready numbers, and the documentation your CPA files. Real reports are our best answer to "is this legit?"
Forms your CPA files for a DC property
For a DC rental owner, the workflow runs on the federal return and, most likely, a UBT return rather than the individual DC return:
- Federal Form 4562: depreciation and amortization, including the §168(k) bonus deduction on eligible reclassified components. Flows to Schedule E (rental) or Schedule C (active business).
- Schedule E (or Schedule C): the accelerated federal deduction reduces federal taxable income in Year 1, subject to the federal passive-loss, at-risk, basis, and business-interest limits.
- DC Unincorporated Business Franchise Tax return (Form D-30, for most individual rental activity): depreciation is recomputed without the §168(k) or §168(n) allowance, per §47-1803.03(a)(7)(B).
- Form 3115 §481(a) section: included only if this is a federal lookback method change on a property placed in service in a prior year (see below).
The reclassified schedule is the same engineered output for both filings; the difference is that federal claims the Year-1 bonus while the DC business/UBT return recomputes depreciation without it.
Form 3115 lookback on a DC property
If the property was placed in service in a prior tax year and depreciation was reported using a non-segregated method, a federal Form 3115 (Application for Change in Accounting Method) may allow a current-year §481(a) catch-up adjustment for the accelerated depreciation you missed, generally without amending prior returns. This is often the single biggest acceleration mechanism in cost segregation. Any catch-up dollars are illustrative and depend on placed-in-service date, prior depreciation claimed, bonus eligibility, land allocation, and component mix.
The federal §481(a) catch-up is the primary lever and remains subject to the federal passive-loss, at-risk, and basis limits. For DC, the catch-up year's bonus-eligible amount is disallowed on the UBT or business return the same way an ordinary Year-1 bonus would be, per §47-1803.03(a)(7)(B).
See our full Form 3115 cost segregation guide for federal mechanics, partnership and LLC pass-through treatment, and timing rules.
Should you skip cost segregation for DC property? No.
The DC-level disallowance changes where the acceleration happens, not whether the underlying study is worthwhile:
- The full federal Year-1 bonus is intact. DC does not touch the federal deduction; the full §168(k) bonus is claimed on the federal return. How much you use in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation.
- The DC-level benefit is spread over ordinary MACRS life instead of accelerated. On the UBT or business return, the reclassified basis is still recovered — just on the standard depreciation schedule, without the §168(k) or §168(n) allowance.
- The Form 3115 lookback still captures missed federal years, generally without amending prior returns, if the property was placed in service in a prior year without cost segregation.
The nuance to flag with your CPA is the one this page exists to explain: don't stop at "the individual section has no bar." Confirm whether the DC rental activity is taxed under the Unincorporated Business Franchise Tax — for almost any individually-held rental property, it will be — and plan the DC-level depreciation on that basis rather than the more optimistic individual-only reading.
Frequently asked
Does the District of Columbia allow bonus depreciation?
Not for the taxpayers who actually generate it. D.C. Code §47-1803.03(a)(7)(B)(i) and (iii) disallow the federal §168(k) special depreciation allowance (and §168(n)) — but that bar sits in the business deductions section covering corporations, financial institutions, unincorporated businesses, and partnerships, not in the individual AGI section. An individual who simply earns wages sees no bar. An individual who owns and rents DC property is a different story — see the next question.
I own DC rental property as an individual, not through a company — does the bar apply to me?
Almost certainly, yes, even though the disallowance is not written into the individual AGI section. The DC Unincorporated Business Franchise Tax (UBT) sweeps in essentially any trade or business carried on by an individual (or unincorporated group of individuals) where capital is a material income-producing factor — and real estate rental is the textbook example, because the building itself, not just labor, produces the income. That means an individual DC landlord is very likely taxed under the UBT, and the UBT is squarely inside the business deductions section that disallows §168(k). Only a DC resident with no business or rental activity at all escapes the UBT — and for that person, there is no rental property generating a bonus depreciation question in the first place.
So is there any individual who gets DC bonus depreciation on rental property?
In practice, essentially no. The gap between "the individual section has no bar" and "a DC rental owner is protected" is closed by the UBT: capital being a material income-producing factor is close to definitional for real property, so a DC rental activity is presumed to reach the UBT threshold. We are not aware of a real estate rental fact pattern where the UBT would not apply. If your situation seems like it might be an exception, that determination should come from your CPA, not from a general summary.
Does the DC bonus depreciation bar apply to §179 or only §168(k)?
This page covers §168(k), the special depreciation allowance ("bonus depreciation"), and a later-added disallowance of §168(n). §47-1803.03(a)(7)(B)(i) and (iii) name these specifically. Section 179 expensing is a separate provision with its own DC treatment, and is outside the scope of the facts verified for this page — do not assume the same answer applies to §179 without checking it separately.
Is cost segregation still worth it for DC property?
Usually yes, but the benefit is concentrated at the federal level rather than compounding at the DC level. The federal §168(k) bonus is claimed in full on the federal return regardless of how DC treats it. For DC purposes, a business (including a UBT-taxed individual rental activity) recomputes depreciation without the special allowance — the deduction is instead recovered under ordinary depreciation over the asset's life rather than accelerated in Year 1 at the DC level. The federal acceleration is real and immediate; the DC-level acceleration generally is not.
Can I use Form 3115 on a DC property I bought years ago?
Often, yes, at the federal level. If the property was placed in service in a prior tax year and depreciation was reported using a non-segregated method, a federal Form 3115 (Application for Change in Accounting Method) may allow a current-year §481(a) catch-up for the accelerated depreciation you missed, generally without amending prior returns. Any catch-up dollars are illustrative and depend on placed-in-service date, prior depreciation, bonus eligibility, land allocation, and component mix. For DC purposes, the same business-deductions disallowance applies to a catch-up year's bonus-eligible amount as would apply to an ordinary Year-1 bonus.
What does a DC cost segregation study rely on for its numbers?
The study reclassifies building components into IRS-recognized MACRS class lives (5, 7, and 15-year) per Rev. Proc. 87-56, using an engineering-based methodology that follows the IRS Cost Segregation Audit Techniques Guide (Publication 5653). The reclassified components may then qualify for federal §168(k) bonus depreciation on the federal return (100% for qualified property acquired and placed in service after January 19, 2025, subject to eligibility and election rules). For DC, that bonus is disallowed under the business deductions section for corporations, financial institutions, unincorporated businesses and partnerships — which, through the UBT, captures essentially every individually-held DC rental activity too. The engine ships our own calibrated, nationally-recognized construction cost data.
Related guides
- Bonus depreciation by state: overview
- All 50 states: conformity reference table
- Maryland bonus depreciation (decoupled, manufacturing carve-out)
- Virginia bonus depreciation
- Form 3115 cost segregation lookback: §481(a) mechanics
- What is cost segregation: the full primer
- Sample cost segregation reports