The short answer
For property acquired after January 19, 2025, the 2025 tax act restored a 100% first-year deduction, with no placed-in-service deadline. In real estate it never reaches the building or the land: only property with a recovery period of 20 years or less qualifies, which means personal property, 15-year land improvements and qualified improvement property to the interior of a nonresidential building. A cost segregation study is how a buyer finds those dollars, and the deduction comes back as ordinary income at sale unless deferred.
At a glance
| Rate for 2026 | 100% for qualified property acquired after January 19, 2025 |
|---|---|
| Acquisition date | Set by the written binding contract date, not the closing date |
| Qualifying property | Recovery period of 20 years or less; buildings at 27.5 or 39 years do not qualify |
| Real estate pieces | 5- and 7-year components, 15-year land improvements, interior QIP |
| Used property | Qualifies if you never used it before and did not buy it from a related party |
| Exchange property | Used replacement property: only the excess basis is eligible |
| Section 179 for 2026 | $2,560,000 limit, phased out above $4,090,000 of purchases |
| States that decouple | California, Georgia and Virginia, among others, do not allow it |
The 2025 Act set the rate at 100% for property acquired after January 19, 2025, and the contract date controls
Section 70301 of Public Law 119-21 replaced the phase-down percentage in section 168(k)(1) with a flat 100% and repealed the placed-in-service cutoff. The amendments apply to property acquired after January 19, 2025, and property is not treated as acquired after the date a written binding contract for it was signed.
That contract rule is the trap for 2026 buyers. Equipment or a building ordered under a contract signed before January 20, 2025 stays on the old schedule, which the Form 4562 instructions put at 40% for property placed in service in 2025. For the first tax year ending after January 19, 2025, a taxpayer could elect 40% (60% for long-production property) instead of 100%.
Notice 2026-11 is the IRS's interim guidance. It applies the existing regulations with January 19, 2025 substituted for the old 2017 date, keeps the component election for larger self-constructed property, and confirms that no placed-in-service deadline applies to property acquired after that date.
Only property with a recovery period of 20 years or less qualifies, so the building itself never does
Section 168(k)(2)(A) limits qualified property to MACRS property with a recovery period of 20 years or less. Residential rental property is 27.5-year property and nonresidential real property is 39-year property under section 168(c), so the shell, roof, structure and land stay out. For the split between the two classes, see residential vs nonresidential depreciation.
What qualifies is what a cost segregation study separates out: 5-year and 7-year personal property such as appliances, carpet, furniture and dedicated electrical, and 15-year property. Publication 946 lists improvements made directly to land, such as fences, roads, sidewalks and shrubbery, as 15-year property, and section 1245 recapture on real estate covers how they are taxed at sale.
Qualified improvement property under section 168(e)(6) is also 15-year property: an improvement to the interior of a nonresidential building made after the building was first placed in service. Enlargements, elevators and escalators, and the internal structural framework are excluded, and the category does not exist for residential rental buildings.
Used property, exchange property and two elections narrow what you can actually write off
Bonus is not limited to new property. Under section 168(k)(2)(E)(i), used property qualifies if you never used it before the acquisition and the purchase meets the section 179(d) rules, which exclude purchases from related parties and property whose basis carries over from the seller.
Replacement property in a 1031 exchange is the main exception that matters here. The Form 4562 instructions allow the special allowance on used property received in an exchange only for the excess basis, the additional cash or debt you put in beyond the carried-over basis. Bonus depreciation and cost segregation on replacement property works through the split.
Two elections can shut the door. Section 168(k)(7) lets you elect out by class of property for a year, and an electing real property trade or business that escapes the section 163(j) interest limit must use the alternative depreciation system for its buildings and qualified improvement property under section 168(g)(8), and section 168(k)(2)(D) denies bonus on property under that system.
Worked example: what a cost segregation study moves into year one
Hypothetical, round figures. An investor contracts in March 2026 to buy a $2,000,000 retail building with cash from a taxable sale, allocating $400,000 to land and $1,600,000 to the building. Without a study, the $1,600,000 is 39-year property and depreciates at roughly $41,000 a year.
A study reclassifies $240,000 as 5-year and 7-year property and $60,000 as 15-year paving and landscaping. All $300,000 qualifies for 100% bonus in 2026, and the remaining $1,300,000 continues on the 39-year schedule. The first-year deduction rises from about $41,000 to more than $330,000.
The trade-off arrives at sale. Depreciation on the section 1245 components returns as ordinary income at up to 37%, and Publication 544 treats a bonus claim on section 1250 property as creating additional depreciation, ordinary to the extent it exceeds straight line. Depreciation recapture tax rates in 2026 prices that layer. Run your own numbers with your CPA.
State decoupling, section 179 and where a bonus depreciation fund fits
Many states do not follow the federal allowance, so state taxable income is higher in year one and the state gain is smaller at sale. California lists section 168(k) among the federal provisions it has not adopted in the FTB 3885A instructions, Georgia's Department of Revenue lists it as not adopted, and Va. Code section 58.1-301 excludes it from Virginia conformity.
Section 179 is the other expensing route. Rev. Proc. 2025-32 sets the 2026 limit at $2,560,000, reduced dollar for dollar once qualifying purchases exceed $4,090,000, and under section 179(b)(3) it cannot exceed taxable income from the active conduct of a trade or business, a limit bonus does not have.
Investors without a property of their own to study can hold an interest in accelerated depreciation funds, which complete a cost segregation study when a property is placed in service and pass the front-loaded deductions to investors. Those deductions are generally passive, so whether they offset a gain or other income depends on the passive activity loss rules, and the recapture still follows at exit. Rolling 1031 proceeds into a bonus depreciation fund covers the exchange question.
Related questions
Does 100% bonus depreciation apply to a rental house I buy in 2026?
Not to the house itself, which is 27.5-year property. It applies to the components a cost segregation study separates, such as appliances, flooring and site work, if they were acquired after January 19, 2025.
I signed the purchase contract in December 2024 and closed in 2026. Do I get 100%?
No. Acquisition is dated by the written binding contract, so the property counts as acquired before January 20, 2025 and falls under the prior phase-down rules rather than the restored 100%.
Can I take bonus depreciation on replacement property from a 1031 exchange?
On used replacement property, only on the excess basis, meaning the new money or new debt beyond the basis carried over from the relinquished property. The carried-over basis keeps depreciating on the old schedule.
Is qualified improvement property available on apartment buildings?
No. Section 168(e)(6) limits it to interior improvements to nonresidential real property, so apartment interiors stay on the 27.5-year schedule unless the work is separable personal property.
Can I elect out of bonus depreciation?
Yes, by class of property for a given year under section 168(k)(7), with a statement on a timely filed return including extensions. The election applies to every asset in that class placed in service that year.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Public Law 119-21 (July 4, 2025), section 70301
- IRC section 168, accelerated cost recovery system (168(e), (g) and (k))
- IRS Notice 2026-11, interim guidance on additional first year depreciation
- Instructions for Form 4562 (2025)
- IRS Publication 946, How To Depreciate Property
- IRS Publication 544 (2025), Sales and Other Dispositions of Assets
- Rev. Proc. 2025-32, 2026 inflation-adjusted items
- IRC section 179, election to expense certain depreciable assets
- California Franchise Tax Board, 2025 Instructions for Form FTB 3885A
- Georgia Department of Revenue, Income Tax Federal Tax Changes
- Va. Code section 58.1-301, conformity to the Internal Revenue Code