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Bonus Depreciation Examples: How 100% Write-Offs Work in 2026
OBBBA restored 100% bonus depreciation. Here are three real-number examples showing exactly how much you can write off in year one on properties at different price points.
What Is Bonus Depreciation?
Bonus depreciation under IRC §168(k) allows you to deduct the full cost of qualifying assets in the year they're placed in service, instead of depreciating them over their useful life (5, 7, 15, or 27.5 years). The TCJA originally set bonus depreciation at 100% through 2022, then phased it down by 20% per year. OBBBA restored 100% bonus depreciation permanently for property acquired after January 19, 2025. This is the most significant change for real estate investors in the 2026 tax year.
Example 1: $500K Property
Purchase price: $500,000. Land value: $100,000 (20%). Depreciable basis: $400,000. Cost segregation reclassifies $96,000 (24% of depreciable basis) into 5/7/15-year categories: $48,000 in 5-year property (appliances, carpeting, decorative fixtures), $24,000 in 7-year property (furniture, equipment), $24,000 in 15-year property (landscaping, paving, fencing). With 100% bonus depreciation: full $96,000 deducted in year one. Remaining $304,000 depreciates over 27.5 years ($11,055/year). Total year-one depreciation: $107,055. At 37% marginal rate: $39,610 in federal tax savings.
Example 2: $1M Property
Purchase price: $1,000,000. Land value: $200,000 (20%). Depreciable basis: $800,000. Cost segregation reclassifies $216,000 (27% of depreciable basis, higher percentage because larger properties tend to have more qualifying personal property). 5-year: $108,000. 7-year: $54,000. 15-year: $54,000. With 100% bonus depreciation: full $216,000 deducted in year one. Remaining $584,000 at $21,236/year over 27.5 years. Total year-one depreciation: $237,236. At 37% marginal rate: $87,777 in federal tax savings. The cost seg study costs $8,000-$12,000, paying for itself 7-10x in year one alone.
Example 3: $2M Luxury Property
Purchase price: $2,000,000. Land value: $350,000 (17.5%, luxury properties in desirable locations may have higher land ratios, but the example uses a favorable allocation). Depreciable basis: $1,650,000. Cost segregation reclassifies $462,000 (28%): 5-year: $231,000. 7-year: $115,500. 15-year: $115,500. With 100% bonus depreciation: full $462,000 in year one. Remaining $1,188,000 at $43,200/year. Total year-one depreciation: $505,200. At 37%: $186,924 in federal tax savings. Add state taxes (e.g., 13.3% CA): potentially $250,000+ in combined year-one savings on a $2M property.
What Qualifies for Bonus Depreciation?
Bonus depreciation applies to tangible personal property with a recovery period of 20 years or less. In a cost segregation study, this includes: (1) 5-year property, appliances, carpeting, decorative lighting, window treatments, specialty electrical. (2) 7-year property, furniture, equipment, certain floor coverings. (3) 15-year property, land improvements like landscaping, driveways, sidewalks, fencing, outdoor lighting, parking areas. The building structure itself (27.5-year or 39-year property) does NOT qualify for bonus depreciation. That's why cost segregation is essential, it reclassifies portions of the structure into these shorter-life categories.
What Doesn't Qualify
The building's structural components, foundation, walls, roof, HVAC ductwork (although the HVAC units themselves may qualify), plumbing infrastructure, and electrical wiring, remain 27.5-year (residential) or 39-year (commercial) property and are NOT eligible for bonus depreciation. Land never depreciates. Also, used property placed in service before September 28, 2017 does not qualify under the TCJA/OBBBA bonus depreciation rules (though it may qualify for standard MACRS depreciation).
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Frequently Asked Questions
Is 100% bonus depreciation really permanent now?
OBBBA restored 100% bonus depreciation without an expiration date for qualified property acquired after January 19, 2025. However, 'permanent' in tax law means 'until Congress changes it.' Future legislation could modify the rate. For planning purposes, the 100% rate is the current law with no scheduled phase-down.
Do I need a cost segregation study to claim bonus depreciation?
Technically no, you can claim bonus depreciation on any qualifying asset you identify. But without a cost segregation study, you're limited to assets you can clearly identify and document (furniture, appliances). A cost seg study identifies components embedded in the building structure (special electrical, decorative fixtures, certain flooring) that you'd miss otherwise. The study typically identifies 20-30% of the depreciable basis as qualifying for bonus depreciation, vs. 5-10% without one.
What about depreciation recapture when I sell?
When you sell the property, all depreciation claimed (including bonus depreciation) is recaptured under IRC §1250 at a 25% rate. On the $1M example, you'd owe 25% × $216,000 = $54,000 in recapture tax. However, you saved $87,777 in the year you claimed it. The net benefit is $33,777 plus the time value of money, you got $87K now and owe $54K later. And if you do a 1031 exchange, recapture is deferred indefinitely.
Does my state conform to federal bonus depreciation?
It varies. New York, Florida, and Texas conform. California does NOT, you must add back the bonus depreciation difference on your CA return and use standard MACRS rates instead. Other non-conforming states include Pennsylvania, New Jersey, and several others. Always check your state's conformity status, as it can significantly affect the total tax savings calculation.