# Bonus depreciation and cost segregation after the 2025 law How the permanent 100 percent bonus depreciation for property acquired after January 19, 2025 works with cost segregation, what still phases down, and what to check. ## Short answer Bonus depreciation lets a taxpayer deduct a large share of the cost of qualified property in the year it is placed in service instead of over its recovery period. Qualified property is, in general, property with a recovery period of 20 years or less. A building is not qualified property, because residential rental property is recovered over 27.5 years and nonresidential real property over 39. The 5-year personal property and 15-year land improvements that a cost segregation study identifies are qualified property. That is the whole relationship: the study finds the qualified property inside the purchase price, and bonus depreciation decides how much of it is deducted in year one. The 2025 tax law made the bonus rate a permanent 100 percent for qualified property acquired after January 19, 2025. Property acquired before that date stays on the old phase-down: 40 percent if placed in service in 2025, 20 percent in 2026, and none after. The IRS issued interim guidance in Notice 2026-11 in January 2026, including a one-time transition election. This article explains the rules, the dates that decide which rate applies, and what a study changes. It is general education, not tax advice. ## The rule in one table | Property acquired | Placed in service | Bonus rate on qualified property | |---|---|---| | After January 19, 2025 | Any year from then on | 100 percent, permanent, unless the taxpayer makes the transition election for the first tax year ending after January 19, 2025 (40 percent, or 60 percent for certain longer-production-period property and aircraft) or elects out | | On or before January 19, 2025 | 2025 | 40 percent | | On or before January 19, 2025 | 2026 | 20 percent | | On or before January 19, 2025 | 2027 or later | None | "Acquired" and "placed in service" are different events, and both matter. The acquisition date decides whether the permanent 100 percent rate or the phase-down applies. The placed-in-service date decides the year of the deduction and, for pre-2025 acquisitions, which phase-down percentage applies. A separate article covers how each date is fixed; the short version is that acquisition generally follows the binding contract and closing, and placed in service means ready and available for its intended use. ## What bonus depreciation applies to, and what it does not Bonus depreciation applies to qualified property, which in general means property to which MACRS applies with a recovery period of 20 years or less, plus certain software, water utility property and qualified productions. In a rental building that means: - **Yes:** 5-year property such as appliances, carpeting and furniture in a residential rental; 7-year property; 15-year land improvements such as paving, fencing and site drainage. - **No:** the building itself, whether 27.5-year residential rental property or 39-year nonresidential real property. Land, which is never depreciated. Without a study, the purchase price other than land usually sits entirely in the building class, where bonus depreciation does not reach. A study is the documented way to identify the qualified property inside that number. ## What a study changes under the permanent 100 percent rate For a property acquired after January 19, 2025, a study identifies the 5-, 7- and 15-year components, supports their cost with records or a documented estimate, reconciles to the basis, and hands the tax adviser an asset list. The adviser then applies bonus depreciation to the qualified classes on the return, or elects out for a class if that is the better choice. The effect is that the identified components are largely deducted in the first year rather than over five, seven or fifteen. Three things have not changed and are easy to forget in the enthusiasm. 1. **The deduction is still only timing.** Total depreciation over the life of the property is the same; it arrives earlier. 2. **The passive activity rules still apply.** Rental losses are generally passive and limited for many owners. A first-year deduction that creates a loss you cannot use is a suspended loss, not a saving, until you have passive income or dispose of the activity. Real estate professionals and owners who actively participate are treated differently. This is the first question for your adviser. 3. **Recapture still applies.** Bonus depreciation on 5-, 7- and 15-year property is depreciation, and when the property is sold the gain is recaptured as ordinary income to the extent of depreciation allowed. Accelerating the deduction accelerates the recapture exposure. ## The transition election For the first taxable year ending after January 19, 2025, a taxpayer may elect to apply a 40 percent rate, or 60 percent for certain longer-production-period property and aircraft, instead of 100 percent to qualified property acquired after January 19, 2025. Notice 2026-11 describes the election. Why would anyone elect a lower rate? Typical reasons are a year with little income to offset, state tax systems that do not follow federal bonus depreciation, or a desire to smooth deductions across years. The election is a return position for your adviser, not something a study decides. ## Electing out Separately from the transition election, a taxpayer may elect out of bonus depreciation for any class of property placed in service during the year. A study does not force bonus depreciation; it classifies property. Whether to take 100 percent, the transition rate, or none for a given class is the adviser's decision, made with you, based on the whole return. ## Property acquired before January 20, 2025 Owners who bought before the new law often assume the permanent rate applies to them. It does not. For qualified property acquired on or before January 19, 2025, the applicable percentage depends on the year the property is placed in service under the old schedule: 40 percent for 2025 and 20 percent for 2026, then nothing. A study on such a property still moves components into shorter classes, which still accelerates depreciation, but the first-year bonus is the phase-down percentage, not 100 percent. Renovation or personal property acquired after January 19, 2025 for that same building may qualify for the permanent rate on its own, because each asset has its own acquisition date. The file has to show the dates. ## Buildings already in service: the look-back For a building placed in service in an earlier year, a study is generally applied through a change in accounting method with a catch-up adjustment rather than amended returns. The bonus rate that applies to the reclassified components is the rate for the year the property was placed in service and the rules in force for its acquisition date, not the current rate. That is a technical area with its own article and is squarely your adviser's territory. ## State taxes Many states do not follow federal bonus depreciation, or follow it with modifications. A study that produces a large federal first-year deduction may produce a different state result and a multi-year difference to track. This article covers federal rules only; ask your adviser about your state. ## What to check before relying on a bonus depreciation projection - The acquisition date and the placed-in-service date, with documents. - Whether the property is residential or nonresidential, which fixes the building's recovery period and matters again for short-term rentals. - Whether the study's asset list separates 5-, 7- and 15-year property from the building with a legal reason for each item. - Whether your adviser has modeled the passive activity limits for your situation. - Whether the sale you expect makes the recapture acceptable. - Whether your state follows the federal rule. ## What people ask on Reddit and other forums The searches that lead people to these threads are usually phrased "100 percent bonus depreciation 2025", "bonus depreciation rental property", "acquired after January 19 2025". "Bonus depreciation reddit" and "cost segregation reddit" threads on r/tax and r/realestateinvesting filled up after the 2025 law. The questions that recur, answered from the sources below: **"Is bonus depreciation back to 100 percent?"** For qualified property acquired after January 19, 2025, yes, permanently, subject to the one-time transition election and the option to elect out. Property acquired on or before that date stays on the phase-down. **"I closed in March 2025 on a contract signed in December 2024. Which rate?"** Property acquired under a written binding contract is treated as acquired no later than the contract date. That is a question for your adviser with the contract in hand. **"Can I bonus the whole house?"** No. The house is 27.5-year property and is not qualified property. Bonus depreciation applies to the 5-, 7- and 15-year property a study identifies. **"Does my state follow?"** Many states do not follow federal bonus depreciation. Ask your adviser about yours. ## Questions people also ask ### Is bonus depreciation 100 percent in 2026? For qualified property acquired after January 19, 2025, yes, permanently, unless the taxpayer makes the one-time transition election for the first tax year ending after that date or elects out. For property acquired on or before January 19, 2025 and placed in service in 2026, the rate is 20 percent. ### Can I take bonus depreciation on a rental house? Not on the house. The house is 27.5-year property and is not qualified property. Bonus depreciation can apply to the 5-, 7- and 15-year property a study identifies inside the purchase. ### Do I need a cost segregation study to take bonus depreciation? No. Bonus depreciation applies to qualified property however it is identified. A study is the documented way to identify and cost the qualified property inside a building purchase; without one, most of the price sits in the building class where bonus depreciation does not apply. ### What is the transition election? A choice, for the first taxable year ending after January 19, 2025, to apply 40 percent (60 percent for certain long-production-period property and aircraft) instead of 100 percent to property acquired after January 19, 2025. Notice 2026-11 explains it. ### Does bonus depreciation increase recapture? It accelerates the depreciation that will later be recaptured as ordinary income on section 1245 property. The total is the same; the timing is earlier. ## Sources - https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill — IR-2026-06 (January 14, 2026), Treasury and IRS guidance on the permanent 100 percent additional first-year depreciation deduction and the transition election. - https://www.irs.gov/pub/irs-drop/n-26-11.pdf — Notice 2026-11, interim guidance on the additional first year depreciation deduction as amended by the One, Big, Beautiful Bill. - https://www.law.cornell.edu/uscode/text/26/168 — 26 U.S.C. §168(k)(2)(A), §168(k)(6) and §168(k)(7). - https://www.irs.gov/publications/p527 — IRS Publication 527 (2025), Residential Rental Property: Chapter 2 (property classes) and Chapter 3 (passive activity limits). - https://www.irs.gov/publications/p946 — IRS Publication 946 (2025), How To Depreciate Property: Chapter 1, Placed in Service. - https://www.irs.gov/publications/p544 — IRS Publication 544 (2025), Sales and Other Dispositions of Assets: Chapter 3, Section 1245 Property. ## Related reading - [What a cost segregation study does](/articles/what-a-cost-segregation-study-does) - [Acquisition date vs placed-in-service date](/articles/acquisition-date-vs-placed-in-service-date) - [Cost segregation for residential rental property](/articles/cost-segregation-for-residential-rental-property) - [Why a deduction is not a refund](/articles/why-a-deduction-is-not-a-refund) - [Look-back studies and Form 3115](/articles/look-back-cost-segregation-and-form-3115) - [Depreciation recapture after cost segregation](/articles/depreciation-recapture-after-cost-segregation) - [Find a practitioner in the NBCSS directory](/directory) --- Canonical: https://nbcss.org/articles/bonus-depreciation-and-cost-segregation Published: 2026-09-25 · Last content change: 2026-09-25 Not professional advice: general educational information from the National Board of Cost Segregation Specialist (NBCSS); not accounting, tax, legal, financial, investment or engineering advice. 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