How Does Bonus Depreciation Work for Property Owners in 2026?

What bonus depreciation actually is

Bonus depreciation, under section 168(k), is a percentage of a qualifying asset's cost that can be deducted in the year it is placed in service, instead of spread across that asset's normal depreciation schedule. It applies automatically once an asset's class life is known, no election is required, though an owner can elect out of it.

What makes bonus depreciation matter for a building owner is that it only applies to property with a depreciation period of 20 years or less. A commercial building's 39-year structure, or a residential rental's 27.5-year structure, was never eligible for bonus depreciation on its own. Bonus depreciation becomes relevant to a building only after a cost segregation study identifies the 5-year, 7-year, and 15-year components hiding inside that 39-year or 27.5-year shell, carpet and most flooring, decorative lighting, cabinetry, appliances, certain electrical and plumbing serving equipment, certain fixtures and furniture, and land improvements like paving, fencing, landscaping, site utilities, and outdoor lighting.

The 2025 OBBBA change, and why the acquisition date is what matters

Bonus depreciation has moved before. It phased down from 100% starting with 2023 acquisitions, stepping to 80%, then 60%, then 40% in subsequent years, on a schedule that was set to keep falling. The 2025 OBBBA law reversed that, restoring 100% bonus depreciation permanently for qualifying property acquired after January 19, 2025.

The date that governs which rate applies is the acquisition date of the property, not the date a cost segregation study is performed. An owner who bought a building in 2023 and only does a study in 2026 still applies the 80% rate that was in effect when the property was acquired, not the current 100% rate. This is one of the most common points of confusion in a look-back study, and it is exactly the kind of detail a properly engineered study handles correctly.

What this means for a study done in 2026

For a 2026 owner buying, building, or renovating property now, the practical effect of OBBBA is straightforward: every 5-, 7-, and 15-year component a study identifies on a post-January-19-2025 acquisition gets the full 100% write-off in the first year, with no phase-down math required. That is a meaningfully larger first-year number than an identical building would have produced under the 2024 60% rate, on the same reclassified basis.

On a recent office/warehouse study, a $1,911,675 building basis produced $330,674 in first-year increased deductions at a $9,900 fee, a 33.4 to 1 ratio, using current bonus rules. First-year deductions on commercial property typically run about 16 to 21% of building basis under those current rules, a figure that would have been meaningfully smaller during the phase-down years. A study on the same building acquired in 2024 instead of after January 2025 would apply 60% bonus to the same reclassified components, producing a smaller, but still real, first-year number.

What this means for an older acquisition, and why the phase-down still matters

An owner who bought or built a property in the phase-down years is not locked out of cost segregation. A look-back study on a property already owned is claimed through Form 3115 with a section 481(a) catch-up deduction in the current year, no amended returns required. That study simply applies the bonus percentage that was in effect for the acquisition year to the components it identifies, 80% for a 2023 acquisition, 60% for most of 2024, rather than the current 100% rate.

This is also why timing a study sooner rather than later still matters even under a permanent 100% rate going forward: an owner who acquired property during the phase-down years is leaving the same reclassification opportunity on the table regardless of when 100% bonus became permanent, because their rate is locked to their acquisition year, not to the calendar year the study happens.

What bonus depreciation does not touch

Bonus depreciation, at any rate, never applies to the structural shell of a building. The 39-year commercial or 27.5-year residential rental schedule stays exactly where it is regardless of acquisition date or bonus percentage. A structural roof and a building's central HVAC system are structural, not 5-year property, a common misconception worth correcting directly: the roof deck and the central HVAC plant stay on the long schedule; specific serving equipment and certain components tied to those systems may not.

Section 179 qualified real property is a separate mechanic that can reach specific nonresidential building systems, roofs, HVAC, fire protection and alarm, security systems, placed in service after the building's original in-service date, subject to its own annual and income limits. See how section 179 and bonus depreciation compare and stack for the full breakdown of what each mechanic covers.

What 100% bonus depreciation looks like on a residential study

The same 100% rate applies to a residential rental or short-term rental acquired after January 19, 2025, and the underlying reclassification math works the same way it does on commercial property, just on a 27.5-year structural schedule instead of 39-year. In a delivered case study on a single-family rental in Montgomery County, Pennsylvania, built 2013 at 4,946 square feet, a $1,040,000 depreciable basis had $160,242 (15.4%) identified into faster schedules, producing an estimated $174,905 first-year depreciation figure, 16.8% of basis, including 100% bonus. The fee was $1,295, a roughly 135 to 1 first-year deduction-to-fee ratio.

That case illustrates the point plainly: the 100% rate is what let the 15.4% of basis identified as 5-, 7-, and 15-year property translate directly into a first-year deduction nearly matching that reclassified amount. A property acquired during the 60% phase-down year would have produced a noticeably smaller first-year figure on the same reclassified basis, even though the study itself would have found the same components in the same building.

Frequently asked questions

Is 100% bonus depreciation permanent, or will it phase down again later?

The 2025 OBBBA law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025, replacing the prior law's scheduled phase-down. As with any tax law, future legislation could change this, but as written it does not include a scheduled reduction.

I bought my property in 2024. Do I get 100% bonus depreciation now?

No. The bonus rate is tied to the property's acquisition date, not the date a study is performed. A 2024 acquisition applies the rate that was in effect for 2024 acquisitions, generally 60% under the pre-OBBBA phase-down, even if the study itself is done in 2026.

Does bonus depreciation apply to the whole building or just certain parts?

Only to the 5-, 7-, and 15-year components a cost segregation study identifies, things like flooring, cabinetry, decorative lighting, certain electrical and plumbing equipment, and site improvements like paving and landscaping. The 39-year or 27.5-year structural shell is never bonus-eligible at any rate.

Can I still benefit from cost segregation if I bought my property before 2025?

Yes. A look-back study on a property already owned uses Form 3115 with a current-year section 481(a) catch-up deduction, applying whatever bonus percentage was in effect for the year the property was acquired to the components it identifies.

Does a renovation get the current 100% bonus rate, or the rate from when I originally bought the building?

A renovation creates new depreciable basis with its own placed-in-service date, separate from the building's original acquisition. Costs from a 2026 renovation are generally acquired at the time the renovation is placed in service, which is what determines the bonus rate for that portion of the basis.