How to Claim 100% Bonus Depreciation on Form 4562
Claim 100% bonus depreciation under OBBBA on Form 4562 Part II (Special Depreciation Allowance) for qualifying property acquired and placed in service after January 19, 2025. Report the cost seg reclassified portion as 5-year, 7-year, or 15-year property. Section 168(k)(10) optional 40% election is made via Statement attached to the return. The remaining basis depreciates on regular MACRS schedules in Part III.
Step 1: Confirm bonus eligibility under OBBBA
Property acquired with a binding contract on or after January 20, 2025 qualifies for 100% bonus depreciation under amended Section 168(k) per Public Law 119-21 (OBBBA, signed July 4, 2025). Property under a binding contract on or before January 19, 2025 stays on the legacy phase-down: 40% in 2025, 20% in 2026, 0% in 2027 and after.
The binding-contract date controls, not the closing date. IRS Notice 2026-11 (January 14, 2026) provides the implementation guidance. Used property qualifies subject to the five-year acquisition lookback rule.
Step 2: Separate cost seg reclassified basis
After a cost segregation study, the property's basis is split across recovery periods. Personal property (appliances, decorative finishes, carpet) on the 5-year schedule. 15-year land improvements (paving, landscaping, fencing). The remaining basis stays on 27.5-year residential or 39-year nonresidential.
Report each component separately on Form 4562. The 5-year and 15-year portions claim 100% bonus on the special depreciation line. The 27.5- or 39-year real property portion depreciates on the regular MACRS schedule (no bonus available on real property except QIP).
Step 3: Form 4562 Part II Special Depreciation
Part II Line 14 reports the special depreciation allowance (100% bonus depreciation) for qualified property. List the property type, original cost basis, and the bonus depreciation amount (100% of basis for OBBBA-eligible).
Attach a supporting schedule listing each reclassified asset class from the cost segregation report: 5-year personal property total, 15-year land improvements total. The engineer-signed report provides this breakdown.
Step 4: Optional 40% election under Section 168(k)(10)
OBBBA added Section 168(k)(10) permitting a taxpayer to elect 40% bonus depreciation (60% for long-production-period property and certain aircraft) for the first tax year ending after January 19, 2025. The election preserves NOL absorption capacity for later years.
Make the election by attaching a statement to the return. The statement identifies the property classes, the election under Section 168(k)(10), and the elected rate. The election applies on a class-by-class basis and is irrevocable for the year.
Step 5: Part III regular MACRS
Report the real property portion (27.5-year residential or 39-year nonresidential) on Part III Line 17 or 19. The depreciation calculation uses the half-year convention for personal property and the mid-month convention for real property. The 100% bonus portion in Part II reduces the basis used for regular MACRS in Part III.
Coordinate with your CPA on Section 179 election if applicable. Section 179 is taken first, reducing basis, then bonus depreciation applies to the remaining basis. For full 100% bonus, Section 179 is rarely additive on rental real estate.
Frequently asked questions
- How does WeCostSeg coordinate with my CPA?
- Every engagement follows the three-touch CPA Coordination Protocol. We send a preliminary analysis to your CPA on intake, share the draft report five business days before final delivery, and coordinate Form 3115 filing timing when a Section 481(a) adjustment applies. Your CPA never pays a fee.
- Does this analysis assume 100% bonus depreciation under OBBBA?
- Yes for property acquired with a binding contract on or after January 20, 2025 under Public Law 119-21. Property under a binding contract on or before January 19, 2025 stays on the legacy phase-down: 40% bonus in 2025, 20% in 2026, 0% in 2027 and after.
- Is the five-year audit defense included?
- Yes. Every WeCostSeg engagement includes five years of written audit defense at no extra cost. The defense aligns to the 13 Principal Elements of a Quality Cost Segregation Study under IRS Publication 5653 Chapter 4.
- Can I get a free preliminary analysis?
- Yes. Submit your property details via the free proposal form or WhatsApp. Our engineer returns a written estimate of your first-year deduction within four business hours during US Eastern hours. No payment, no contract.
- What if I want 100% bonus on some assets and 40% on others?
- The Section 168(k)(10) 40% election applies on a class-by-class basis. You can elect 40% on the 5-year class while keeping 100% on the 15-year class, or vice versa. The election is irrevocable for the year.
Zawwad Ul Sami, Founder
Zawwad Ul Sami is the founder of WeCostSeg, a founder-led cost segregation firm serving real estate investors across the US. He focuses on strategy, pricing, and the firm's overall direction.