Bonus depreciation is back at 100%, permanently, and the date deciding whether you get it is January 19, 2025. Property acquired and placed in service after that date gets a full first-year write-off; property acquired on or before it stays on the old phase-down, which sits at 20% for 2026.
The part most owners miss: your building itself will never qualify. Only assets with a recovery period of 20 years or less do, which is why a cost segregation study and bonus depreciation are two halves of one strategy.
The short answer - The One Big Beautiful Bill Act, signed July 4, 2025, made 100% bonus depreciation permanent under §168(k) for property acquired and placed in service after January 19, 2025. - Eligible property means a MACRS recovery period of 20 years or less, plus qualified improvement property. Used property counts if you bought it from an unrelated party. - A 39-year building is not eligible. A study is what converts part of that basis into 5-, 7-, and 15-year assets that are. - IRS Notice 2026-11 created two elections, a transition election at a reduced 40% or 60% rate and a component election for projects underway before the cutoff. - Sometimes you should elect out. Rate arbitrage, §461(l), and state decoupling are all real reasons.
What Bonus Depreciation Actually Does
Bonus depreciation under §168(k) lets you deduct the full cost of qualifying property in the year it is placed in service instead of spreading it across the recovery period. A $60,000 parking lot normally written off over 15 years becomes a $60,000 deduction this year.
It is a timing benefit, not a free one. Pulling deductions forward means smaller deductions later and recapture on sale. The value is the cash working in the meantime, plus any rate arbitrage between today's bracket and tomorrow's.
Bonus differs from §179 in two ways that matter: no dollar cap, no business-income limitation, and it can create a loss. That makes it the workhorse for real estate, with §179 filling specific gaps.
The January 19, 2025 Hinge: Which Rate Applies to You
OBBBA did not turn 100% back on for everyone, only for property acquired and placed in service after January 19, 2025. IRS Notice 2026-11 confirmed the framework, substituting that date for the old September 27, 2017 date under Treas. Reg. §1.168(k)-2.
| Acquisition date | Placed in service | Bonus rate |
|---|---|---|
| After January 19, 2025 | After January 19, 2025 | 100%, permanent |
| On or before January 19, 2025 | 2023 | 80% |
| On or before January 19, 2025 | 2024 | 60% |
| On or before January 19, 2025 | 2025 | 40% |
| On or before January 19, 2025 | 2026 | 20% |
| On or before January 19, 2025 | 2027 or later | 0% |
Read the 2026 row carefully. It is the one most owners filing now actually sit on: property acquired before the cutoff but placed in service this year is at 20%, not 100%, dropping to zero in 2027.
The same logic drives look-back studies. Bonus percentage is fixed by the original placed-in-service date, not the study year. A 2021 building gets 2021's 100%; a 2024 building gets 60%. Ordering late costs you nothing and upgrades nothing.
What Qualifies, and Why the Building Itself Never Does
Qualifying property has a MACRS recovery period of 20 years or less, plus qualified improvement property. Used property counts if acquired from an unrelated party and not previously used by you, which is why bonus is powerful on acquisitions and not only new construction.
Now the exclusion that drives everything. A nonresidential building is 39-year property, a residential rental building 27.5-year. Neither is within 20 years, so neither gets a dollar of bonus.
What qualifies sits inside and around that building: 5-year assets like carpeting, decorative lighting, cabinetry, appliances, and dedicated equipment power, and 15-year land improvements like paving, site utilities, landscaping, fencing, and site lighting. None appear on your closing statement. A study identifies and documents them.
The Two Elections in IRS Notice 2026-11
The transition election. For property placed in service in the first tax year ending after January 19, 2025, you may elect a reduced first-year rate of 40% or 60% instead of 100%. It covers all qualifying property of that class acquired during the year and is made by statement on a timely filed return. Owners use it to smooth income rather than dump a loss into a year that cannot absorb it.
The component election. For construction begun before January 19, 2025, components that had not reached the 10% cost threshold by that date may still get 100%. If you had a project in the ground when the law changed, look at this with your CPA. Practitioner detail is in what OBBBA changed.
Example: A $3,500,000 Self-Storage Facility Placed in Service June 2026
Example: $3,500,000 purchase, land allocated at $500,000 Depreciable basis is $3,000,000. Self-storage sits in the higher reclassification band because of paving, fencing, site lighting, security systems, and site utilities. Assume 32% reclassifies, and note the 39-year line reflects the mid-month convention for a June placement.
| Asset class | Basis | Year-one deduction |
|---|---|---|
| 5-year personal property | $360,000 | $360,000 |
| 15-year land improvements | $600,000 | $600,000 |
| 39-year building | $2,040,000 | $28,300 |
| Total with a study | $3,000,000 | $988,300 |
| Total with no study (all 39-year) | $3,000,000 | $41,700 |
The study moved roughly $946,600 of deduction into year one, about $331,000 of deferred tax at a combined 35% rate. The entire benefit comes from bonus depreciation, and the entire eligibility for bonus comes from the study. Your result depends on your tax rate and whether you can use passive losses.
When Electing Out of Bonus Is the Smarter Move
The biggest available deduction is not always the best planning. Four situations argue for electing out, which is done by property class and generally cannot be reversed without IRS consent.
Your rate is going up, not down. Burning a $900,000 deduction against a 24% bracket, then recapturing §1245 gain at 37% five years later, is a losing trade.
§461(l) caps what you can use. The 2026 thresholds are $256,000 single and $512,000 married filing jointly. Losses above that become an NOL carryforward, so a giant year-one deduction can spill past the wall. See how §461(l) works.
The NOL haircut slows the recovery. Post-2017 NOLs offset only 80% of future taxable income, so a loss you cannot use comes back more slowly than it went out.
Your state has decoupled. Many states do not conform to §168(k), so a large federal deduction can mean a state addback and years of parallel tracking for no state benefit. See state conformity.
Frequently Asked Questions
Is 100% bonus depreciation really permanent?
Permanent as written into §168(k) by OBBBA, which means it has no scheduled expiration. Congress can change it, as it has before. Plan on the current law and revisit if it moves.
Can I take bonus depreciation on a building I bought used?
On the qualifying components, yes. Used property is eligible if acquired from an unrelated party and not previously used by you. The building shell still is not eligible, because 27.5- and 39-year property is outside the 20-year limit.
Does qualified improvement property get bonus?
Yes. QIP is 15-year property depreciated straight-line, covering interior improvements to a nonresidential building placed in service after the building was, and excluding enlargements, elevators and escalators, and internal structural framework. It is bonus-eligible.
If I missed bonus on a 2022 purchase, is it gone?
No. A look-back study captures it through an accounting method change, and the 2022 rate applies because bonus percentage follows the original placed-in-service date rather than the study date.
See What Your Property Would Yield
Every building is different, and the only way to know your number is to look at your building. Precision Cost Segregation provides a no-cost feasibility analysis: send us the property address, purchase price, closing date, and any improvements, and we'll model your likely reclassification and first-year benefit before you commit to anything.
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This article is provided by Precision Cost Segregation for general educational purposes and does not constitute tax, legal, or accounting advice. Tax outcomes depend on your specific facts, your tax rate, your passive activity position, and your entity structure. Figures shown are illustrative. Consult your CPA or tax advisor before acting, and engage a qualified professional to perform any cost segregation study. Information is current as of publication.
This article is general information, not tax or legal advice. Depreciation outcomes depend on your facts, elections, and current law — consult your CPA before acting. © 2026 Precision Cost Segregation.