Real Estate
Bonus Depreciation: How It Saves You $20,000-$150,000 in 2026
Bonus depreciation allows you to deduct the full cost of qualifying assets in the year they are placed in service, rather than spreading the deduction over their useful life. Under OBBBA (signed July 4, 2025), 100% bonus depreciation was restored for qualified property placed in service after January 20, 2025, reversing the phase-down that had reduced it to 60% (2024) and 40% (2025). This is one of the most powerful accelerated deductions available to property owners and business operators.
Who Qualifies
- Owners of rental property with assets reclassified via cost segregation
- Business owners purchasing equipment, vehicles, or other tangible property
- Assets with a recovery period of 20 years or less under MACRS
- Qualified improvement property (QIP), interior improvements to nonresidential buildings
Who does NOT qualify
- Residential or commercial buildings themselves (27.5/39-year property), only reclassified components qualify
- Used property acquired from a related party
- Property placed in service before January 20, 2025 (subject to phase-down rates)
How the Math Works
Cost seg reclassifies $300K into 5/7/15-year property. With 100% bonus depreciation (OBBBA), the entire $300K is deductible in year one instead of being spread over 5-15 years.
At a 37% marginal rate, this generates $111,000 in year-one federal tax savings. Without bonus depreciation, the first-year deduction on that $300K would be approximately $40K-$60K.
Legal Basis & IRC Citations
- IRC §168(k): Special allowance for certain property (bonus depreciation)
- OBBBA §13201: Restoration of 100% bonus depreciation for property placed in service after 1/20/2025
- IRC §168(k)(2): Qualified property definition
- IRC §168(e)(6): Qualified improvement property (QIP)
OBBBA Update: OBBBA §13201 restored 100% first-year bonus depreciation for qualified property placed in service after January 20, 2025. This reverses the TCJA phase-down schedule (80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026). For 2026 tax returns, 100% bonus depreciation applies.
State Notes: California does NOT conform to federal bonus depreciation and requires add-back on the state return. New York partially conforms. Texas, Florida, and Washington have no state income tax so federal bonus depreciation flows through at full value.
What to Tell Your CPA
“I placed [asset/property] in service in 2026 and want to claim 100% bonus depreciation under OBBBA §13201. The asset qualifies as [5/7/15]-year property under MACRS. Can you confirm the deduction and ensure we're not subject to the pre-OBBBA phase-down rates?”
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Frequently Asked Questions
Is bonus depreciation back to 100% in 2026?
Yes. OBBBA (signed July 4, 2025) restored 100% bonus depreciation for qualified property placed in service after January 20, 2025. This reverses the phase-down that had reduced it to 60% (2024) and 40% (2025 pre-OBBBA).
What qualifies for bonus depreciation?
Tangible personal property with a MACRS recovery period of 20 years or less: equipment, vehicles, furniture, appliances, and property components reclassified by a cost segregation study (5/7/15-year assets). Qualified improvement property (QIP) also qualifies. The building structure itself (27.5 or 39-year property) does not.
Does bonus depreciation apply to used property?
Yes, under current law bonus depreciation applies to both new and used property, as long as it's the first time YOU are using it in your business and you didn't acquire it from a related party.
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