How much of my gain can a bonus depreciation fund offset?

The offset is the loss the fund allocates to you, and no rule turns it into a fixed share of your gain

A bonus depreciation fund buys property, commissions a cost segregation study and deducts the short-life components at once. Section 168(k)(1) allows 100% of the adjusted basis of qualified property in the year it is placed in service, and Public Law 119-21 applied that rate to property acquired after January 19, 2025.

Qualified property is property with a recovery period of 20 years or less. Residential rental buildings, at 27.5 years, and nonresidential buildings, at 39 years, are outside it, and land is not depreciable at all. The size of the first-year loss therefore depends on how much of the purchase price the study assigns to equipment, fixtures and land improvements.

Your share of that loss is what your K-1 reports. The client's own guidance is that its clients commonly offset 40% to 50% of their income in year one, and that every situation differs; read the fund's offering documents for how it expects to allocate losses, and treat any figure as an estimate.

Four limits stand between the fund's loss and your tax return

Each limit applies in turn, and Publication 925 describes the order: basis first, then the at-risk rules on Form 6198, then the passive rules, then the excess business loss limit. A loss stopped by one of them is carried forward rather than lost.

• Basis: section 704(d) allows a partner's share of loss only up to the adjusted basis of the partnership interest at year end.
• At risk: section 465 limits losses to the amount you have at risk, with qualified nonrecourse financing on real property treated as at risk.
• Passive activity: section 469 lets passive losses offset only passive income, and a fund investor's rental loss is passive.
• Excess business loss: section 461(l) caps the net business loss an individual can deduct; for 2026 the threshold is $256,000, or $512,000 on a joint return, under Rev. Proc. 2025-32.

Gain from selling a passive rental is passive income, which is why the loss can reach it

Under Reg. Section 1.469-2T(c)(2)(i)(A), gain on disposing of property used in an activity that was passive for you is passive activity gross income. That is the gain a fund's passive loss is built to meet.

Gain on stock, funds and other investment property is portfolio income, which Publication 925 excludes from passive income, so a fund loss cannot offset it. If you qualified as a real estate professional and materially participated in the rental you sold, that gain is nonpassive too; see real estate professional status.

Wages are out of reach for the same reason, which is the subject of whether a fund can offset W2 income.

A hypothetical $1,000,000 rental gain shows where the loss lands and what it costs later

Assume a hypothetical investor sells a long-held rental for a $1,000,000 passive gain in 2026 and, the same year, the fund allocates a $200,000 loss on a new subscription. With enough basis and no other limit in play, the $200,000 is allowed against the passive gain and taxable income falls by $200,000.

Which rate that saves depends on the rest of the return. Section 1(h) taxes net capital gain at the preferential rates and everything else at ordinary rates, so a deduction first reduces the ordinary slice of taxable income; where the investor has wages, the saving is at ordinary rates.

The deduction is not free. Section 168(k)(1)(B) reduces basis by the amount deducted, and when the fund later sells, section 1245 taxes gain on those components as ordinary income up to the depreciation taken. Hypothetical figures only; your CPA can replace them with your real basis and income.

Timing, state law and the exchange alternative change the answer

The deduction lands in the year the fund places property in service, so it helps a 2026 gain only if the property is in service in 2026 and you are a partner in time to share in the loss. States can differ too: North Carolina's Form D-401 instructions require adding back 85% of federal bonus depreciation for 2025.

A fund offsets gain you report; an exchange removes the gain from the return. A 1031 exchange into a fund is not possible because fund units are not real property, and the full comparison is in bonus depreciation versus a 1031. Where a fund fits, it is usually against gain you could not defer: a failed exchange, deliberate boot or a sale you chose to take in cash.

Funds carry leverage, illiquidity and recapture risk, and no deduction is worth a weak investment. Our accelerated depreciation funds page explains how we review them.