Can I Take Bonus Depreciation on Land Improvements? What Counts

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Dylan Scandalios

Dylan Scandalios

Co-founder & CEO, Seneca Cost Segregation

Dylan Scandalios is the Co-founder and CEO of Seneca Cost Segregation where he has helped real estate investors save millions on their taxes. Before starting Seneca Cost Segregation, Dylan led Sales and Product teams and initiatives for multiple multi-million and multi-billion dollar companies in the United States. A real estate investor himself, Dylan Scandalios is always looking to help other investors invest in their next project faster and build a long-term moat.

Yes, you can take bonus depreciation on most land improvements. Paved parking areas, sidewalks, fences, pools, and shrubbery planted against a building are 15-year property, which falls inside the 20-year limit for bonus. Raw land, general grading, and parking garages never qualify, and a few elections and business types switch bonus off for site work.

As co-founder of Seneca Cost Segregation and a real estate investor myself, I’ve reviewed a lot of depreciation schedules where the parking lot, the fence line, and the pool simply vanished into the land or building number. Working with owners and their CPAs across rentals and commercial sites, what we see consistently is that site work is one of the easiest deductions to miss and one of the easiest to support once it is measured.

Below, I cover what counts as a land improvement, how to sort your site costs, the rules that block bonus, the year one math at each rate, and recapture when you sell.

TL;DR: Can I Take Bonus Depreciation on Land Improvements

  • ●Most site work can come off in year one: paving, sidewalks, fences, pools, and building-adjacent landscaping are 15-year property, which clears the 20-year bonus test.
  • ●The rate depends on your contract date: property acquired and placed in service after January 19, 2025 gets 100%, while earlier deals fall to 40% or 60%.
  • ●Some costs never qualify: raw land, clearing, general grading, and border landscaping stay in land basis, and parking garages are treated as buildings.
  • ●In our illustrative $120,000 example, bonus turns a $3,455 deduction into $120,000: that is the gap between leaving site work in a 27.5-year building and pulling it out with full bonus.
  • ●Section 179 will not cover it: the IRS excludes land improvements from Section 179, so bonus is the only first-year route.
  • ●The real property election under Section 163(j) leaves your site work alone: ADS applies to the building and QIP, so land improvements can still take bonus.
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Why Most Land Improvements Qualify for Bonus Depreciation

Three tests decide whether a piece of site work can take bonus: what it is, how long it depreciates, and when you acquired it.

What the IRS Counts as a Land Improvement

IRS Publication 946 lists 15-year property as “certain improvements made directly to land or added to it,” with shrubbery, fences, roads, sidewalks, and bridges as examples. They wear out, so they get a recovery period of their own.

Land Improvement
A depreciable improvement made directly to or added to land. The IRS places these in asset class 00.3, which covers sidewalks, roads, drainage facilities, fences, landscaping, and shrubbery, and excludes buildings and their structural components.

The IRS Cost Segregation Audit Techniques Guide adds that a land improvement can be Section 1245 or Section 1250 property, which matters when you sell. Our overview of cost segregation categories shows where the class sits among the others.

The 20-Year Recovery Period Test

Bonus depreciation applies to qualified property, which Publication 946 defines as tangible MACRS property with a recovery period of 20 years or less. Land improvements depreciate over 15 years using the 150% declining balance method, so they pass with room to spare.

Qualified property can be new or certain used property, so a buyer of an existing apartment complex can claim bonus on the parking lot that came with it, subject to the used-property rules below.

Bonus Rates by Acquisition Date

The One Big Beautiful Bill restored 100% bonus for qualified property acquired and placed in service after January 19, 2025. Acquisition is set by the binding written contract date, so a deal signed in late 2024 misses the full rate even if it closes later.

Property acquired before January 20, 2025 and placed in service in 2025 is limited to 40%, and property placed in service in 2024 used 60%. Our page on bonus depreciation under the Big Beautiful Bill covers the transition dates.

Sort Your Site Costs Into Qualifying and Nonqualifying

A closing statement shows one number for the real estate, so the first job is splitting that number into land, building, and the site work in between.

Site Cost Usual Treatment Bonus Result
Paved parking areas, roads, and sidewalks 15-year land improvement Eligible
Fences 15-year land improvement Eligible
Swimming pools Land improvement Eligible
Drainage facilities 15-year land improvement (asset class 00.3) Eligible
Shrubs and trees planted right next to the building Depreciable with a determinable life Eligible
Border plantings and general landscaping Part of the land Not eligible
Clearing and general grading Part of the land Not eligible
Parking garages and open-air parking structures Building (39-year) Not eligible
Raw land Not depreciable Not eligible

What we find on properties with large paved areas is that the site work arrived on one contractor invoice or got folded into an assessor’s land and building ratio, so its value has to be rebuilt from measurements and cost data.

Landscaping Next to the Building Versus Around the Lot

Publication 946 draws the line with an example. Bushes and trees planted right next to a new building would be destroyed if the building were replaced, so they share its life and can be depreciated, while plantings around the outer border of the lot go into land basis.

General Grading and Clearing Stay With the Land

The cost of land generally includes clearing, grading, planting, and landscaping, according to Publication 946. The Audit Techniques Guide makes the same point for studies, noting that costs to survey and subdivide land and general grading are typically allocable only to land.

Grading done for a specific paved lot or building pad can follow that asset instead, which is why an engineer checks what the earthwork served.

Why a Parking Garage is Treated as a Building

The Audit Techniques Guide takes the position that garages and structures built to provide parking space are buildings under Treasury Regulation section 1.48-1(e), including stand-alone open-air parking structures. A surface lot is a land improvement, while a parking deck is 39-year property and stays out of bonus range.

Rules That Switch Bonus Off for Land Improvements

A 15-year label is necessary for bonus but does not guarantee it.

Property Required to Use ADS

Property that must use the Alternative Depreciation System is excluded from bonus. Publication 946 requires ADS for property with a GDS recovery period of 10 years or more held by an electing farming business, which takes a farm’s fences, roads, and drainage out of bonus range.

A belief we hear often from clients and their CPAs is that once a rental business makes the real property trade or business election under Section 163(j), all of its depreciation moves to ADS. The reality is narrower, because ADS applies to that business’s nonresidential real property, residential rental property, and qualified improvement property, so its land improvements stay on GDS and remain eligible for bonus.

Site Work You Already Used Before Buying It

Used property qualifies only if you and any predecessor had no depreciable interest in it before the purchase. Under Treasury Regulation section 1.168(k)-2, that look-back covers the five calendar years before the year you place the property in service.

A tenant who paid for the parking lot under its lease and later buys the property is the common example, so ask your CPA to check prior interests first.

An Election Out by Class

You can elect out of bonus for any class of property, and the election covers every asset in that class placed in service that year. The Instructions for Form 4562 require a statement attached to a timely filed return, made separately by each owner, such as the partnership or S corporation, and revoking it takes IRS consent.

Activity Classes That Override the 15-Year Life

Some industries have an activity class that already includes land improvements. Publication 946 gives the example of a paper manufacturer whose site work takes a 7-year GDS period, while a rubber products maker uses the standard 15-year class, and both remain under the 20-year limit for bonus.

Model the Year 1 Deduction on Your Site Work

Consider a hypothetical 12-unit apartment building placed in service in March 2026. Suppose a study identifies $120,000 of paving, fencing, a pool, and building-adjacent plantings, the half-year convention applies to the 15-year assets, and the owner’s marginal federal rate is 37%.

Treatment of the $120,000 Year 1 Deduction Year 1 Federal Tax Value at 37%
Left inside the 27.5-year building $3,455 $1,278
Separated as 15-year property, no bonus $6,000 $2,220
Separated as 15-year property with 100% bonus $120,000 $44,400

The lifetime deduction is $120,000 in every row; bonus simply moves it into the first year.

The bonus rate tied to your acquisition date changes the result on the same $120,000.

When the Site Work Was Acquired and Placed in Service Bonus Rate Year 1 Deduction
Acquired and placed in service after January 19, 2025 100% $120,000
Placed in service in 2024 60% $74,400 ($72,000 bonus plus $2,400 regular)
Acquired before January 20, 2025, placed in service in 2025 40% $51,600 ($48,000 bonus plus $3,600 regular)
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Illustrative numbers only: The property, site-work amount, placed-in-service month, and tax rate are assumptions chosen to show the mechanics. Figures are illustrative estimates. Actual results depend on cost basis, asset composition, and effective tax rate. Confirm all projections with your CPA before making financial decisions.
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Land allocation guide
Get the land and site-work split right before you file
Every dollar parked in the land allocation is a dollar you never deduct. See how land value is set so your paving and fencing end up in the 15-year class.
Read the land value guide →

Compare Section 179 and QIP for Site Work

Two other 15-year and first-year rules get mixed up with site work.

Section 179 Excludes Land Improvements

Publication 946 states that land and land improvements do not qualify as Section 179 property, and it names swimming pools, paved parking areas, docks, bridges, and fences. Bonus depreciation is the first-year route for site work, with no business income limit attached.

Our comparison of bonus depreciation vs Section 179 covers where each tool fits for the rest of a property.

Qualified Improvement Property Covers the Inside

Qualified improvement property is also 15-year property, but it covers interior improvements to an existing nonresidential building, while land improvements sit outside on the lot. Our guide to leasehold improvements and bonus depreciation covers the interior side.

Plan for Recapture Before You Sell

Bonus speeds up the deduction, and a sale can bring part of it back as ordinary income.

For a land improvement that is Section 1245 property, gain up to the depreciation you took is ordinary income. For Section 1250 property, the bonus regulations treat bonus as something other than a straight line method, so depreciation above the straight line amount is additional depreciation that Section 1250 recaptures as ordinary income.

Remaining depreciation on Section 1250 property generally falls into unrecaptured Section 1250 gain, taxed at a maximum 25% rate. Our breakdown of Section 1245 vs 1250 shows how the classification changes the sale-year math, and your CPA should model it before you list the property.

Claim Bonus on Site Work You Already Own

Missing site work in a past year does not mean the deduction is lost.

Property Bought in an Earlier Year

A study on a property you already own can move site work out of the building and catch up the missed depreciation through Form 3115 and a Section 481(a) adjustment in the current year, with no amended returns. Our explainer on the look-back cost segregation study covers the filing.

The bonus rate that applies is the one in effect for the year the property was placed in service. Your CPA should confirm how bonus is handled for that original year.

New Construction and Self-Built Site Work

For self-constructed property, acquisition is treated as occurring when costs exceed 10% of total expected project costs. If a project crossed that line on or before January 19, 2025, its site work gets a lower transition rate instead of 100%, even when it is placed in service later.

Site work on new builds often runs under its own contract, which makes it easier to cost, as our page on cost segregation for new construction explains.

How Seneca Documents Land Improvements

At Seneca, here is what the cost segregation study process looks like for land improvements.

Step 1: Gather the Site Records

We start with your closing statement, appraisal, survey, and any site plans, permits, or contractor invoices. For new construction, we also request the draw schedule and bid documents.

Step 2: Walk the Site on an Onsite or Virtual Tour

You choose how we see the property. Many commercial owners opt for an onsite tour, and a virtual property tour works well for most residential properties.

Step 3: Measure, Cost, and Classify Every Component

Our engineers measure the paving, fencing, pools, plantings, and drainage, cost each item, and assign it to its asset class. We break down every component of the property, from site work to the building shell, so nothing stays in a lump sum.

Step 4: Engineering Sign-Off and CPA Handoff

Our Head of Engineering reviews and signs off on the study before it goes out. Your CPA receives the schedule by recovery class, ready for Form 4562 or a Form 3115 filing.

Mistakes to Avoid With Land Improvement Depreciation

Each of these shows up regularly in schedules we review.

  • ●Leaving site work inside the building: the deduction stretches over 27.5 or 39 years with no bonus. Separate it as 15-year property with measurements and cost support.
  • ●Putting paving in the land allocation: land never depreciates, so that cost is lost until you sell. Allocate the purchase price to land, building, and site work before filing.
  • ●Classifying a parking garage as a land improvement: the IRS treats parking structures as buildings, which invites an adjustment on exam. Keep only surface lots and paving in the 15-year class.
  • ●Depreciating general grading and border landscaping: those costs belong to the land under Publication 946. Depreciate only plantings and earthwork tied to a depreciable asset.
  • ●Expecting Section 179 to cover site work: land improvements are excluded. Use bonus, or the regular 15-year schedule if you elect out.
  • ●Forgetting the state return: a federal bonus deduction may be added back at the state level. Ask your CPA to run the state schedule separately.
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Frequently Asked Questions

Below are the questions owners ask most often about bonus depreciation on site work.

Is a Driveway or Pool at a Rental House a Land Improvement?+

Yes. Paved parking areas and swimming pools are land improvements under Publication 946, so they can qualify for bonus on a single-family or short-term rental.

Can I Elect Out of Bonus for Land Improvements but Keep It for 5-Year Property?+

Yes. The election is made class by class, so you can elect out for all 15-year property placed in service that year and still claim bonus on 5-year and 7-year property.

Does Repaving a Parking Lot Qualify for Bonus Depreciation?+

A full replacement of a lot is a new land improvement, so it can qualify. Smaller recurring work may be a deductible repair under the tangible property regulations, so confirm the treatment with your CPA.

Will My State Allow Bonus Depreciation on Land Improvements?+

Not every state follows federal bonus depreciation. Where a state decouples, the site work is recovered over a longer state schedule, so your CPA should keep separate federal and state records.

What is the Difference Between Land Improvements and Qualified Improvement Property?+

Land improvements are exterior site work such as paving and fencing. Qualified improvement property covers interior improvements to an existing nonresidential building, and both share a 15-year recovery period.

Is a Cost Segregation Study Worth It if My Site Work is Modest?+

Site work is usually one piece of a study that also captures 5-year and 7-year property inside the building. Our engineered residential studies start at about $2,000 and commercial studies typically start at $3,500, and our engineering team builds a free preliminary estimate and proposal, so you pay only if you move forward. We have studied everything from small single-family rentals to 120-plus unit hotels and manufacturing plants.

Why Owners Trust Seneca With Site Work

Seneca does cost segregation and nothing else, and every study is built in-house by our own engineering team. You work directly with a dedicated Project Manager, our Engineering team, and an Advisor, and you get real-time updates as your study moves through each stage.

Our engineers break down every component of a property, and we also run Qualified Production Property (QPP) studies for manufacturers. Our Head of Engineering signs off on every report, audit defense is included, and across 10,200+ properties assessed we have zero IRS audits triggered or lost.

Most studies are delivered in 5 to 10 business days once we have what we need from you. To see what your site work could be worth, start with our cost segregation calculator.

Conclusion

Most owners can take bonus depreciation on land improvements, and the payoff comes from separating the site work before the return is filed. Paving, fences, pools, and plantings tied to the building can come off in year one, while land, general grading, and parking structures stay put.

If you want to know what your own parking lot and site work are worth, a free estimate from our team is the simplest place to start.

dylan scandalios - cost segregation expert - Seneca Cost Segregation

Dylan Scandalios

Cost Segregation Expert | Owner of Seneca Cost Segregation​

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