Last updated: July 2026 — reflects the One Big Beautiful Bill Act (OBBBA) restoration of 100% bonus depreciation, signed July 2025, and interim IRS guidance issued through mid-2026.
Key Takeaways
- Two regimes now coexist. Property acquired on or after January 20, 2025 gets permanent 100% bonus depreciation under OBBBA. Property acquired before that date stays on the old TCJA phase-down (80% in 2023, 60% in 2024, 40% in 2025).
- The cutoff is an acquisition-date test, not just a placed-in-service test. A binding purchase contract signed January 10, 2025 generally locks you into the old 40% rate — even if you close and place the property in service in June 2025.
- Bonus depreciation only touches property with a recovery period of 20 years or less. Your building shell (27.5-year property) never qualifies. That’s why a cost segregation study is the unlock — it identifies the 5- and 15-year assets bonus can apply to.
- The difference is enormous. On $48,000 of reclassified short-life property, 100% bonus means a $48,000 Year-1 deduction; 40% bonus means $19,200 plus slower MACRS on the rest.
- Watch out: many states don’t follow federal bonus rules at all — see our companion guide to state conformity gaps.
Bonus depreciation is the engine that makes cost segregation dramatic. Without it, a study still accelerates deductions — 5-year MACRS instead of 27.5-year straight-line — but the “massive Year-1 write-off” you read about on real estate Twitter comes from stacking a study with 100% bonus depreciation under IRC §168(k).
The problem: between 2023 and 2025, Congress changed the rules mid-game, and two different sets of rules now apply depending on when you acquired your property. This guide lays out which regime you’re in, what the January 20, 2025 cutoff actually means, and where investors most often get it wrong.
What Bonus Depreciation Actually Is
Short answer: it’s the ability to deduct some or all of the cost of qualifying short-life property in the year you place it in service, instead of spreading it over the asset’s recovery period.
Under IRC §168(k), “qualified property” generally means MACRS property with a recovery period of 20 years or less. For a residential rental investor, that means:
| Asset class | Recovery period | Bonus eligible? |
|---|
| Appliances, carpet, removable cabinetry, window treatments | 5-year | Yes |
| Driveways, fencing, landscaping, site utilities, patios | 15-year | Yes |
| Building shell — walls, roof, foundation, core plumbing/HVAC | 27.5-year | No |
Residential rental property classes under MACRS, IRC §168. The 27.5-year structure never qualifies for bonus depreciation.
Notice the catch: when you buy a rental house, the entire purchase price defaults to 27.5-year property. None of it is bonus-eligible until a cost segregation study documents which components are actually 5- and 15-year assets. Bonus depreciation and cost segregation aren’t the same thing — the study identifies the eligible assets; §168(k) is what lets you deduct them all at once. For the full breakdown of which components land in which bucket, see our guide to §1245 vs. §1250 property classification.
Two more features worth knowing:
- Used property qualifies. Since the TCJA (2017), bonus applies to used assets as long as it’s your first use of the property and you didn’t buy it from a related party. This is what made cost seg viable for ordinary rental purchases, not just new construction.
- It’s automatic unless you elect out. Bonus applies by default, class-by-class. You can elect out on Form 4562 if front-loading deductions doesn’t help your situation (more on that below).
The TCJA Phase-Down: The Old Regime
Short answer: the 2017 Tax Cuts and Jobs Act set bonus at 100% through 2022, then scheduled it to shrink by 20 points a year until it disappeared.
Here’s the schedule the TCJA put in place, which still governs property acquired before January 20, 2025:[2]
| Year placed in service | Bonus rate (pre-cutoff acquisitions) |
|---|
| Sept 28, 2017 – Dec 31, 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027 and later | 0% |
TCJA §168(k)(6) phase-down. Still applies to property acquired before January 20, 2025.
The portion of a short-life asset not covered by bonus isn’t lost — it just depreciates over its normal MACRS schedule. A 2024-acquired appliance package gets 60% written off immediately, and the remaining 40% depreciates over 5 years using 200% declining balance. Slower, but far from worthless.
Why the phase-down mattered so much for cost seg
Between 2023 and early 2025, the pitch for cost segregation got weaker every January 1. At 100% bonus, a study converts roughly 20% of your basis into an immediate deduction. At 40%, the same study delivers less than half the Year-1 punch. That’s the backdrop for why OBBBA’s reversal was such a big deal for rental investors.
OBBBA: The New Regime (And It’s Permanent)
Short answer: the One Big Beautiful Bill Act, signed July 4, 2025, restored 100% bonus depreciation permanently for qualified property acquired after January 19, 2025.[1]
Three things distinguish the OBBBA rule from every previous version of bonus depreciation:
- It’s permanent. Every prior iteration of bonus (2002, 2008, 2010, 2017) had an expiration date or phase-down baked in. OBBBA’s 100% rate has no sunset. Congress could always change the law again, but there’s no automatic step-down to plan around.
- It’s acquisition-date driven. The 100% rate applies to property acquired after January 19, 2025 and placed in service after that date. This is the detail most investors miss — and it cuts both ways.
- It reaches back to early 2025. The bill was signed in July 2025, but the cutoff is January 20, 2025. Property bought in, say, March 2025 — months before anyone knew the bill would pass — gets 100% bonus.
The January 20, 2025 Cutoff: Where Everyone Gets Confused
Short answer: what matters is the date you acquired the property — generally the date you entered a binding written contract — not the date you closed or placed it in service.
Under the acquisition rules of §168(k)(2)(E) and the associated regulations, property is generally treated as acquired when you enter into a binding written contract to purchase it.[3] That produces some non-obvious results:
| Scenario | Contract signed | Closed / placed in service | Bonus rate |
|---|
| Clean OBBBA case | March 2025 | May 2025 | 100% |
| The trap | January 10, 2025 | June 2025 | 40% |
| 2024 purchase | August 2024 | October 2024 | 60% |
| 2024 contract, 2025 close | December 2024 | February 2025 | 40% |
| 2026 purchase | April 2026 | June 2026 | 100% |
Simplified illustration of the acquisition-date rules. Binding-contract determinations are fact-specific — confirm your dates with a tax professional.
Look at rows two and four. An investor who went under contract in mid-January 2025 and closed in June sits at 40% bonus, while a neighbor who signed on February 1 gets 100%. Same closing season, wildly different Year-1 deduction. If you bought in the first half of 2025, your contract date is the single most important fact on your depreciation schedule.
One nuance on the placed-in-service side: the property must also be placed in service after January 19, 2025 to use the OBBBA rate. For a rental, “placed in service” means ready and available for rent — typically when it’s listed or otherwise held out for tenants, not when the first lease is signed.
Don’t guess your regime
The binding-contract rules have edge cases: contracts with substantial unresolved contingencies may not be “binding” for this purpose, self-constructed property uses a when-construction-begins test, and related-party acquisitions don’t qualify at all. If your purchase straddles the cutoff window (roughly Q4 2024 through Q1 2025), have your CPA make the call before you file — the difference between 40% and 100% on a cost-segregated property is usually five figures of Year-1 deduction.
What the Difference Looks Like in Dollars
Short answer: on a typical $300,000 single-family rental, the gap between the 40% and 100% regimes is roughly $24,000 of Year-1 deduction.
Take the same example property we used in our single-family rental math guide: $300,000 purchase, $240,000 depreciable basis, and a cost segregation study that reclassifies 20% ($48,000) into 5- and 15-year property.
| Regime | Bonus on $48,000 short-life | Year-1 MACRS on the rest of it* | Approx. Year-1 total (incl. shell) |
|---|
| OBBBA (100%) | $48,000 | $0 remaining | ~$55,000 |
| TCJA 2025 (40%) | $19,200 | ~$5,000 | ~$31,000 |
| No cost seg at all | $0 | n/a | ~$8,700 |
*First-year regular MACRS on the non-bonused portion of the short-life property (blended 5/15-year, half-year convention). Shell = straight-line on the 27.5-year remainder. Rounded illustration — not a projection for any specific property.
Two honest observations about this table:
- Even at 40%, the study still wins. Roughly $31,000 versus $8,700 is a 3.5× improvement. Investors who bought before the cutoff sometimes assume cost seg “isn’t worth it anymore” — the math says otherwise, it’s just less spectacular.
- Bonus accelerates timing; it doesn’t create deductions. Every scenario above deducts the same $240,000 over the life of the property. What changes is when. That’s genuinely valuable (time value of money, reinvestment, offsetting a high-income year) — but when you sell, accelerated depreciation comes back into play through depreciation recapture.
How Bonus Stacks With the Rest of Your Tax Strategy
Short answer: bonus depreciation determines the size of the loss; the passive activity rules determine whether you can use it this year.
A 100% bonus deduction is only as good as your ability to absorb it. Three common paths:
- Real estate professional status (REPS). If you or your spouse qualify under §469(c)(7), rental losses are non-passive and can offset W-2 or business income.
- The short-term rental route. STRs with average stays of 7 days or less aren’t “rental activity” under §469, so material participants can deduct losses against ordinary income — our STR cost segregation guide walks through exactly how bonus depreciation stacks with that treatment.
- Passive-only investors. Losses offset passive income; the excess is suspended under §469 and carries forward. Bonus still helps eventually, but the Year-1 fireworks don’t apply to you.
When electing OUT of bonus makes sense
Bonus is the default, not a mandate. If you’re in a temporarily low bracket (gap year, business loss year) or you’re a passive investor just stacking suspended losses, taking slower regular MACRS — by electing out of bonus for an asset class — can preserve deductions for higher-rate years. It’s a class-by-class election on Form 4562, and it’s generally irrevocable for that year, so model it before you file.
Watch-Outs and Edge Cases
Short answer: bonus depreciation has real exclusions, and the biggest one — state taxes — surprises almost everyone.
- State taxes are a separate universe. A large number of states never conformed to federal bonus depreciation, which means your state depreciation schedule — and eventually your state gain on sale — diverges from federal. We cover this in depth in State Conformity Gaps: Where Bonus Depreciation Diverges from Federal.
- Related-party purchases don’t qualify. Buying a rental from your parents, your own S-corp, or certain family entities fails the §168(k) used-property acquisition test. No bonus.
- Inherited and gifted property don’t qualify for bonus (no purchase, no acquisition). Inherited property gets a stepped-up basis instead, which is its own advantage.
- Personal-use conversions. Converting your former primary residence to a rental isn’t a fresh acquisition either — you depreciate the lesser of adjusted basis or fair market value at conversion, without bonus on the conversion itself.
- The 27.5-year shell never gets bonus. If a provider implies your entire building can be written off in Year 1, walk away. Bonus applies only to what a documented study properly classifies as 20-year-or-shorter property.
Frequently Asked Questions
Is 100% bonus depreciation permanent now?
Yes, in the sense that OBBBA wrote 100% into §168(k) with no scheduled phase-down or sunset for property acquired after January 19, 2025. A future Congress could change the law, but nothing expires automatically.
I bought my rental in 2024. What bonus rate do I get?
60%, under the TCJA phase-down — assuming you acquired and placed it in service in 2024. The OBBBA 100% rate doesn’t reach back before January 20, 2025. The remaining 40% of your short-life property still depreciates over its normal 5- or 15-year MACRS schedule, so a cost segregation study typically still pays for itself.
My contract was signed before January 20, 2025 but I closed after. Which regime applies?
Generally the old one. The acquisition-date rules treat property as acquired when you enter a binding written contract, so a January 10, 2025 contract usually locks in the 40% rate even with a mid-2025 closing. Contract contingencies can complicate the analysis — this is a question worth an hour of your CPA’s time.
Does bonus depreciation apply to the whole house?
No. Residential structures are 27.5-year property and never qualify for bonus. Only components with recovery periods of 20 years or less — the 5- and 15-year assets a cost segregation study identifies — are eligible. On a typical single-family rental that’s roughly 15–25% of the depreciable basis.
Do I need a cost segregation study to claim bonus depreciation on my rental?
For an existing building, effectively yes. Without a study, your entire basis sits in 27.5-year property and there’s nothing bonus-eligible to deduct. The study is the documentation that supports classifying components as 5- and 15-year property. (Separately purchased assets — like a new appliance you buy later — can take bonus on their own without a study.)
Can I take bonus depreciation on a used property?
Yes. Since the TCJA, used property qualifies as long as it’s new to you and not acquired from a related party. This is why cost segregation works on ordinary resale rentals, not just new construction.
What happened to the 20% rate scheduled for 2026?
It still exists — but only for the shrinking pool of property acquired before January 20, 2025 and placed in service in 2026. Anything acquired after the cutoff gets 100% regardless of when it’s placed in service. In practice, very few residential investors will ever use the 20% rate.
Does my state follow these rules?
Maybe not. States like California, New York, and many others decouple from federal bonus depreciation entirely, requiring an addback and slower state depreciation. Your federal and state basis will diverge until sale. See our state conformity guide for the full picture.
The Bottom Line
If you acquired your rental after January 19, 2025, you’re in the best bonus depreciation environment since 2022 — 100%, permanent, and fully stackable with a cost segregation study. If you acquired earlier, you’re locked into the phase-down rate for your acquisition year (80/60/40), and a study is still usually worth it — just run the honest math first.
Either way, remember the sequencing: bonus depreciation does nothing for a rental until a study documents which parts of your building are actually short-life property. That documentation step is exactly what QuickSeg automates — a study built on IRS cost segregation methodology, for $595 instead of the $5,000+ consultants charge.
Which bonus regime is your property in?
Enter your address at QuickSeg. In 10 minutes you’ll have a property-specific estimate of your Year-1 deduction under current law — no sales calls, no obligation.
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Sources & References
This article is for informational and educational purposes only and does not constitute tax, legal, accounting, or investment advice. QuickSeg is a software provider, not a CPA firm, law firm, or registered tax advisor, and no content on this site creates a client or advisory relationship. Tax outcomes depend on your individual circumstances, and tax law changes frequently — content is current only as of its published or updated date. Always consult a qualified tax professional before acting on anything you read here.
