The One Big Beautiful Bill Act, signed July 4, 2025, made 100% bonus depreciation permanent, created a new 100% first-year deduction for certain production real property, made the excess business loss limitation permanent, and set termination dates on two energy provisions. It did not touch recovery periods, recapture, or the passive activity rules. For a real estate practice the operative change is narrower than the headlines: one date now determines your client's bonus rate, and two 2026 notices tell you how to work around it.
The short answer - §168(k) is permanently 100% for property acquired and placed in service after January 19, 2025. Property acquired on or before that date stays on the old phase-down. - IRS Notice 2026-11 substitutes that date for the old September 27, 2017 date under Treas. Reg. §1.168(k)-2 and adds two elections: a 40%/60% transition election and a component election. - §461(l) is permanent, and 2026 thresholds fell to $256,000 single / $512,000 MFJ from 2025's $313,000 / $626,000. - §168(n) is genuinely new: a 100% first-year deduction on the nonresidential real property portion of a qualified production facility, framed by Notice 2026-16. - §179D and §45L terminate on a June 30, 2026 hinge.
The January 19, 2025 Hinge and Permanent §168(k)
Qualified property acquired and placed in service after January 19, 2025 gets 100% bonus with no scheduled sunset. Property acquired on or before that date stays on the pre-OBBBA schedule: 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, zero from 2027. The 2026 figure is the one that bites returns being filed now.
The trap is that acquisition, not closing, is what the regulation tests. A client who signed a binding contract in late 2024 and closed in March 2025 does not get 100%, however the closing statement reads. Confirm acquisition on every deal straddling the date.
The transition election
For property placed in service in the first tax year ending after January 19, 2025, the taxpayer may elect 40% or 60% instead of 100%. It applies to all qualifying property of that class acquired during the year, by statement on a timely filed return. An income-smoothing tool, not a formality.
The component election
For construction begun before January 19, 2025, components that had not reached the 10% cost threshold by that date may still take 100%. Any client with a project in the ground at the cutoff needs this analyzed before the return goes out.
§179 and §461(l): Two Limits Moving in Opposite Directions
For tax years beginning in 2026 the §179 maximum is $2,560,000, phasing out dollar-for-dollar from $4,090,000 of qualifying property and gone at $6,650,000. It remains limited to business taxable income, disallowed amounts carrying forward.
Still underused is §179(f), which permits §179 on nonresidential real property improvements: roofs, HVAC, fire protection and alarm systems, and security systems. For a client who elected out of bonus or sits in a decoupled state, that is often the better lever. See §179 versus bonus depreciation.
Meanwhile §461(l) became permanent and its thresholds moved the wrong way. OBBBA changed the indexing base, resetting 2026 to $256,000 single and $512,000 married filing jointly. Disallowed excess business loss becomes an NOL carryforward, and post-2017 NOLs offset only 80% of future taxable income. Model it before recommending acceleration, per the excess business loss limitation.
§168(n): A 100% Deduction on Real Property, With Fences Around It
The structural novelty. §168(n) permits a 100% first-year deduction for the nonresidential real property portion of a qualified production facility, an outright exception to the 39-year rule.
The conditions are tight: manufacturing, production, or refining of tangible personal property with substantial transformation; construction beginning after January 19, 2025 and before January 1, 2029; placement in service before January 1, 2031. Office, administrative, lodging, parking, sales, R&D, and software engineering space are excluded, so allocation between qualified and excluded space becomes the whole engagement. Recapture applies if qualified use ceases within 10 years, and Notice 2026-16 supplies the interim election framework. See the §168(n) rules.
§179D and §45L: Two Windows Closing on June 30, 2026
Present these as closing, not open. OBBBA terminates §179D for property beginning construction after June 30, 2026 and §45L for homes acquired after that date. Projects begun on or before it may still qualify. The practical task is documentation: clients near the line need start-of-construction evidence assembled now, not reconstructed in 2028.
What Did Not Change
This section prevents more errors than the rest of the briefing combined.
- Recovery periods. Residential rental 27.5-year, nonresidential 39-year, land improvements 15-year, QIP 15-year straight-line and bonus-eligible.
- Recapture. §1245 ordinary recapture and unrecaptured §1250 gain at a 25% maximum are untouched.
- §469. Passive activity rules, REPS under §469(c)(7), and the seven-day average stay exception are unchanged.
- The examination framework. Publication 5653, revised February 2025, still governs.
- Look-back mechanics. Form 3115 as an automatic change, §481(a) taken in full when favorable, no amended returns.
- Land. Still not depreciable, still the first question in every study.
Planning Implications, Provision by Provision
| Provision | What OBBBA did | What it means for the engagement |
|---|---|---|
| §168(k) | 100% permanent post-1/19/2025 | A permanent-value strategy, not a race against a phase-down |
| Transition election | Elective 40% or 60% rate | Smoothing tool when §461(l) or the NOL haircut would strand the deduction |
| Component election | 100% for pre-cutoff components under 10% | Review every project underway on January 19, 2025 |
| §179 (2026) | $2,560,000 / $4,090,000 / $6,650,000 | §179(f) covers roofs, HVAC, fire protection, security |
| §168(n) | New 100% QPP deduction | Manufacturing and refining only; space allocation drives the result |
| §461(l) | Permanent; thresholds reset down | Test the wall before accelerating |
| §179D / §45L | Terminate on the 6/30/2026 hinge | Assemble start-of-construction documentation now |
Example: a $4,000,000 industrial building, $3,200,000 basis, 22% reclassified $704,000 lands in 5-, 7-, and 15-year classes. The only variable is the acquisition date.
| Scenario | Acquisition | Placed in service | Bonus rate | First-year bonus |
|---|---|---|---|---|
| A | February 2026 | February 2026 | 100% | $704,000 |
| B | Binding contract December 2024 | March 2025 | 40% | $281,600 |
Same building, same study, a $422,400 swing driven entirely by a contract date. Your client's result depends on their rate and passive activity posture.
Where the Guidance Is Still Thin
Three areas deserve caution rather than confidence.
§168(n) definitions. Notice 2026-16 is interim. "Substantial transformation," mixed-use production space, and the 10-year recapture trigger are places where documentation matters more than an aggressive read.
State conformity. OBBBA changed federal law, not any state's decoupling statute, and permanent federal 100% widens the gap in non-conforming states. Anything accelerated federally may need a state addback and a parallel schedule.
Threshold whiplash. Clients who planned against 2025 §461(l) thresholds will be surprised by 2026's figures. Flag it in planning meetings, not on an extension.
Frequently Asked Questions
Does permanent 100% bonus reduce the need for a cost segregation study?
The opposite. Bonus reaches only property with a recovery period of 20 years or less, and buildings never qualify. Permanence means the study's value no longer erodes year by year. See the 2026 bonus depreciation guide.
Can a client take the transition election on some assets and not others?
No. It applies to all qualifying property of a given class acquired during the year, making it a class-level decision. Model each class before electing.
Did OBBBA change the look-back rules?
No. Form 3115 as an automatic change with a §481(a) catch-up is unchanged, and bonus percentage still follows the original placed-in-service date. More on workflow in the cost segregation guide for CPAs.
Is §168(n) available for a warehouse or distribution facility?
Only to the extent it is used in qualified production involving substantial transformation of tangible personal property. Pure storage and distribution space does not qualify, and excluded space must be carved out.
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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.