Key Takeaways
- 100% Is Permanent: The One Big Beautiful Bill, signed into law on July 4, 2025, permanently reinstates 100% bonus depreciation for qualified property acquired after January 19, 2025.
- Timing Matters: Property acquired on or before January 19, 2025 remains subject to the prior phase-down schedule.
- Cost Segregation Amplifies The Benefit: Identifying qualifying shorter-life components through a cost segregation study is key to maximizing what the 100% bonus depreciation can do for your property.
Bonus depreciation has been a key part of real estate tax strategy for years, and in 2026, it is more powerful than it has been since 2022. The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, as Public Law 119-21, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025. For property owners who have been watching the phase-down erode this benefit year by year, the window is now wide open again, so learning how to take full advantage of it is worth the attention.
At MVO Cost Segregation, we work with property owners across the country to apply depreciation strategies through engineering-based cost segregation studies. A cost segregation study identifies building components that qualify for bonus depreciation, which together can generate substantial first-year tax savings. Our team reviews properties across a range of asset types and complexity levels, with every report designed to align with current tax guidance and support accurate reporting.
In this piece, we will be discussing bonus depreciation 2026, what the OBBB changed, and what property owners should know to apply it correctly.
What Is Bonus Depreciation 2026?
Bonus depreciation, technically called the “Special Depreciation Allowance” under IRC Section 168(k), allows property owners to immediately deduct a large percentage, or under current law, the full cost, of qualifying property in the year it is placed in service. Rather than spreading deductions evenly over a 5, 7, or 15-year Modified Accelerated Cost Recovery System (MACRS) schedule, bonus depreciation front-loads those deductions into year one.
In 2026, 100% bonus depreciation is available for qualifying property acquired after January 19, 2025. This means the full depreciable cost of eligible assets can be deducted immediately, rather than being spread across a multi-year recovery period. The result is a significant concentration of depreciation deductions in the year of acquisition, thereby directly reducing taxable income and improving cash flow.
For real estate investors, the most important thing to understand is that bonus depreciation does not apply to the building structure itself. Residential structures depreciate over 27.5 years and commercial structures over 39 years under standard MACRS, and neither qualifies for bonus depreciation. What does qualify are the shorter-life components identified through a cost segregation study, such as personal property and land improvements with recovery periods of 20 years or less. Learn how cost seg works to identify and classify these components.
Cost Seg Example
| Purchase price for a short term rental | $1,000,000 |
| % allocated to land (not depreciable) | 20% |
| Depreciable basis | $800,000 |
| Reclass % | ~ 25% |
| Bonus depreciation eligible assets | ~ $200,000 |
| Year 1 tax savings at a 37% tax rate | ~ $74,000 |
Higher depreciation → lower taxable income → improved cash flow
The Bonus Depreciation Phase Out: Where Things Stood Before The One Big Beautiful Bill
The One Big Beautiful Bill represents the most significant update to bonus depreciation rules since the Tax Cuts and Jobs Act (TCJA) of 2017. Signed into law on July 4, 2025, the legislation makes 100% bonus depreciation a permanent feature of the tax code rather than a temporary provision subject to phase-down. To appreciate how significant the OBBB change is, it helps to understand the bonus depreciation phase out that preceded it.
How The Phase Out Was Originally Structured
100% bonus depreciation was first introduced by the TCJA of 2017 and applied to qualifying property placed in service through the end of 2022. After that, the TCJA scheduled a gradual phase-down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and beyond. Each year, the percentage of qualifying costs eligible for immediate expensing decreased, lowering the front-loaded benefit that made bonus depreciation so valuable.
Where The Phase Out Left Property Owners In 2024 And 2025
By 2024, bonus depreciation had dropped to 60%, and by 2025, before the OBBB took effect, it was headed to 40%. For property owners who acquired and placed assets in service on or before January 19, 2025, those prior-law rates still apply. Specifically, property placed in service in a tax year ending after January 19, 2025, but acquired on or before that date, qualifies for 40% bonus depreciation for 2025 placements and 20% for 2026 placements under prior law.
The Bonus Depreciation Schedule Now
Under the OBBB, for property acquired after January 19, 2025, the schedule is now simply 100% indefinitely, with no phase-down built into current law. As confirmed by the IRS in Notice 2026-11, the permanent 100% first-year depreciation deduction now applies to eligible depreciable property acquired after that date, with no expiration date built into current law. For property acquired on or before January 19, 2025, the prior phase-down rates still apply based on when the property is placed in service.
This distinction has practical implications for property owners who were expecting a 20% rate in 2026 under the old law. For new acquisitions, the rules are now significantly more favorable. For assets acquired before the cutoff date, prior law rates continue to apply regardless of when they are placed in service.
How 100 Bonus Depreciation Works In 2026
Under the OBBB and IRS Notice 2026-11, qualifying property generally includes tangible MACRS property with a class life of 20 years or less, computer software, and qualified improvement property. For real estate purposes, this means personal property components, certain land improvements, and qualified improvement property identified through a cost segregation study are the primary categories eligible for the full first-year deduction.
The building structure itself, as noted above, does not qualify. This is why cost segregation is the mechanism that unlocks bonus depreciation for real estate: it identifies and separates the components within your property that do qualify, allowing those costs to be fully deducted in year one rather than depreciated over the building’s full recovery period.
How Timing Affects Eligibility
The acquisition date, not the placed-in-service date, determines whether the OBBB’s 100% rate or the prior phase-down schedule applies. Property acquired after January 19, 2025, qualifies for 100% bonus depreciation. Property acquired on or before that date is subject to prior law, even if it is placed in service later.
The IRS defines the acquisition date as the date the taxpayer entered into a binding written contract for the property. For property without a written binding contract, the acquisition date is generally when title transfers or the taxpayer takes delivery. For self-constructed property, the acquisition date is when construction begins. IRS Notice 2026-11 also preserves the existing 10% safe harbor for non-binding contracts.
The Transitional Election Option
Taxpayers who have qualifying property placed in service during the first tax year ending after January 19, 2025, may elect to apply 40% bonus depreciation rather than 100%, if that is more favorable to their tax position. This election, confirmed in IRS Notice 2026-11, gives property owners flexibility when the full 100% deduction would create undesirable results, such as a large net operating loss in a year with limited income to offset.
How Cost Segregation Maximizes Bonus Depreciation In 2026
With 100% bonus depreciation back in place, the value of a cost segregation study has never been higher. A cost segregation study is an engineering-based analysis that identifies the components within your property that qualify for shorter MACRS recovery periods, and therefore for bonus depreciation. Without a study, those components default to the building’s long-term depreciation schedule and receive no bonus depreciation treatment.
On a $1,000,000 short-term rental, for example, it is common to reclassify roughly 25% of the depreciable basis into shorter-life categories. With 100% bonus depreciation, those reclassified components can be fully deducted in year one. At a 37% federal tax rate, that translates to approximately $74,000 in year-one tax savings. Our clients typically see first-year returns of 5x or more on the cost of their study.
At MVO Cost Segregation, every study we deliver is reviewed by our founder, Andrew, who spent over a decade at KPMG leading cost segregation engagements on properties of every type and scale across all 50 states. We have completed more than 3,000 studies, analyzed over $7B in cost basis, and the IRS has accepted 100% of our studies. Our reports are built around the IRS Audit Techniques Guides standards and formatted for direct CPA implementation. To see what 100% bonus depreciation could mean for your specific property, see our services.
Final Thoughts
Bonus depreciation 2026 continues to be shaped by legislative updates, timing considerations, and how qualifying assets are classified. While the ability to accelerate deductions may offer advantages, the outcome often depends on how the rules are applied in practice and how well they align with your overall tax strategy.
As changes develop, taking a closer look at how depreciation fits into your planning can help you stay aligned with current guidance. Even small shifts in timing or eligibility may influence how these benefits are realized over time.
Frequently Asked Questions About Bonus Depreciation In 2026
What is my bonus depreciation percentage?
Bonus depreciation has been in existence in many forms since 2001, ranging from 0% to 100% at various times. Determining your bonus depreciation percentage is a multi-step process.
When did you acquire your property (typically, this is the date the transaction closed)? This determines which tax law applies to your property.
- If before September 28, 2017: Please consult your qualified tax advisor or reach out to us with questions.
- If between September 28, 2017 and January 19, 2025: Please see the table below.
- If after January 19, 2025: The applicable bonus depreciation percentage is 100%.
If you acquired your property between September 28, 2017 – January 19, 2025, then the applicable bonus depreciation percentage is based on the date Placed in Service as follows:
| Date Placed in Service | Bonus Depreciation % |
| 9/28/2017 thru 12/31/2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027 | 0% |
Is 100% bonus depreciation available in 2026?
Yes. Under the One Big Beautiful Bill Act, signed into law on July 4, 2025, 100% bonus depreciation is permanently available for qualifying property acquired after January 19, 2025. The IRS confirmed this in Notice 2026-11.
What if I acquired property before January 19, 2025?
Property acquired on or before January 19, 2025, is subject to prior-law rates, regardless of when it is placed in service. Under prior law, the applicable rate is 40% for property placed in service before the end of 2025.
Does 100% bonus depreciation apply to the building itself?
No. The building structure, depreciated over 27.5 or 39 years under MACRS, does not qualify for bonus depreciation. What qualifies are shorter-life components with MACRS class lives of 20 years or less, which is where cost segregation becomes essential.
Can bonus depreciation create a net operating loss?
Yes. In some situations, bonus depreciation deductions can exceed taxable income for the year, creating a net operating loss. How that loss is treated depends on current NOL rules and your overall tax position.
Does the OBBB apply retroactively to 2023 and 2024?
No. The OBBB makes no retroactive changes to bonus depreciation for the 2023 or 2024 tax years. Those years remain subject to the 80% and 60% rates under prior law.
Is cost segregation still worth doing with bonus depreciation available?
Absolutely. Bonus depreciation only applies to components that have been properly identified and classified as shorter-life property. A cost segregation study is the engineering analysis that makes that identification. Without it, qualifying components default to the building’s long-term schedule and receive no bonus depreciation treatment. With it, those same components can be fully deducted in year one.
Can bonus depreciation rules change after 2026?
Yes. While the OBBB makes 100% bonus depreciation permanent under current law, tax provisions are subject to future legislative changes. Staying aligned with current IRS guidance is always advisable.